By Chris Churchill
RISMEDIA, February 2, 2009-(MCT)-The use of mortgages insured by the Federal Housing Administration is soaring in the Capital Region, growth that comes as many home buyers are struggling to qualify for more traditional loans. Many lenders, skittish as foreclosure and default rates rise, have discontinued mortgages for borrowers with less-than-perfect credit or little saved for a down payment.
Credit standards for FHA loans, by contrast, are more relaxed. And while many loans now require that borrowers put 20% down, FHA loans mandate just 3.5%.
“Most of the programs with minimal down payments have all gone away,” said Lisa Fortin, a senior mortgage consultant at First Priority Mortgage, a RealtyUSA subsidiary in Clifton Park. “FHA is pretty much the only product still available.”
First Priority says FHA loans grew from about 8% of mortgages it originated in 2007 to about 40% today. Other brokers and lenders in the Capital Region report similar upticks.
And national numbers show the same trend: The U.S. Department of Housing and Urban Development says FHA loans accounted for just 3.7% of all home loans in its 2006 fiscal year, when subprime and other mortgage products for lower-income buyers were widely available.
But by September, with the credit crunch taking hold, the percentage of home loans backed by the FHA was 21.1%, according to HUD. (September is the most recent month for which the agency has data.)
In raw numbers, the FHA backed 141,000 mortgages in September, about three time the number of a year earlier.
Observers say FHA loans have largely shed the stigma they once had as a loan of last resort for those with lower incomes or shaky credit.
Also, said Sandra Nardoci, president of the Greater Capital Association of Realtors Inc. and an agent at Prudential manor Homes in Latham, the FHA program “used to be a lot more cumbersome than it is today.”
In a sense, the rising popularity of FHA loans during a widespread economic crisis is apt, because the program was created during the Great Depression in an attempt to boost stagnant real estate markets.
Today, the loans are available for as much as $292,100 in most of the Capital Region, or $373,950 for a two-unit property. Borrowers must also take out mortgage insurance-money that helps fund the program.
The FHA does not originate the loans. Instead, it insures them against default, making them a safer bet for lenders.
The loans, which are also available for refinancing, are widely used by first-time borrowers, including many who are now eager to take advantage of the drop in real estate prices in recent months.
“People who get into these mortgages are thrilled to death,” said First Priority’s Fortin. “It’s a great way to get into a home.”
FHA loans do have drawbacks, including the mortgage insurance requirement and interest rates that are generally higher than those available for other loans.
“It’s not the cheapest product out there,” said Therese Raco, an Albany-based administrative vice president at M&T Bank, where FHA loans now account for about 35% of Capital Region mortgages.
“But it’s an option if you’re not qualifying for other loans,” Raco added. “It’s an avenue for home ownership.”
On the rise
Loans backed by the Federal Housing Administration are growing in popularity because of the credit crunch. Use of the loans grew rapidly as other types of mortgage credit became more difficult to obtain.
Time period FHA loan market share
Fiscal year 2006 3.7%
Oct. 2007 6.4%
Jan. 2008 7.9%
April 2008 13%
July 2008 17.1%
Sept. 2008 21.1%
Source: U.S. Department of Housing and Urban Development
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