MBA Study Shows Government-Insured Share of Mortgage Applications Continues to Increase

RISMEDIA, Nov. 26, 2008-The government-insured share of mortgage applications continues to grow relative to conventional mortgage applications, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Of all mortgage applications taken during the month of October 2008, 32.9% were for government-insured loans (consisting mainly of FHA loans) compared to 10.3% in October 2007.

The government-insured share has increased from 9.4% in January 2008 to its current level of 32.9%, which is the highest level observed since February 1991. Since the MBA survey’s inception in January 1990, the lowest recorded share was 5.8% in August 2005 and the highest was 43.8% in February 1990.

“This increase in the share of government-insured mortgage applications provides further evidence that there are still loans available to qualified borrowers, particularly through the FHA,” said MBA’s Chairman David G. Kittle, CMB. “The mortgage market remains fully operational and lenders are working to ensure borrowers with sufficient down payment and good credit have the opportunity of homeownership.”

Data from the U.S. Department of Housing and Urban Development (HUD) show that the level of conventional to FHA refinance applications has increased 89.2% on a year over year basis in October. Likewise, the actual level of refinances from conventional loans to FHA insured loans has increased 144.3% on a year over year basis. Based on the MBA survey, application volume for government-insured loans was up 113.6% in October from a year ago, while application volume for conventional loans was down 49.7%, showing that borrowers are still moving from conventional to government-insured mortgages.

There are several reasons why government-insured loans, specifically FHA, have gained an increased share of the market:

• In March of this year, the Economic Stimulus Act of 2008 temporarily raised the FHA and conforming loan limits for most areas in the country, which made FHA financing an option for more borrowers. However, the passage of the Housing Bill in July 2008 permanently increased the loan limit to a maximum of $625,500 in 2009, which is lower than the temporary limit of $729,750 for 2008. As a result, most high-cost markets will see declines in their loan limit next year.

• FHA loans typically require lower down payments than those purchased by Fannie Mae and Freddie Mac (the GSEs). Generally the maximum loan to value (LTV) ratio for FHA loans is 97% and 95% for the Government Sponsored Enterprises (GSEs).

• Conventional GSE loans require Private Mortgage Insurance (PMI) for loans with a loan-to-value (LTV) ratio in excess of 80%, while FHA has an upfront mortgage insurance premium. Some borrowers may prefer the upfront insurance premium and monthly insurance payments as it may prove more cost effective for their financial situation.

• Conventional GSE loans typically have higher credit score requirements than FHA loans, therefore borrowers who may not qualify under the GSE requirements may be applying for an FHA insured loan as an alternative.

MBA’s Weekly Application Survey covers approximately 50% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The survey includes eight of the top ten originators in 2008, based on data from Inside Mortgage Finance.

For more information, visit www.mortgagebankers.org.