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While delinquencies and defaults slowly improve in the housing economy as a whole, FHA’s portfolio has not shared the same good fortune, creating increased pressure on the agency to reduce risk and increase costs to its borrowers, most of whom are first-time buyers.

In December, about one out of every 10 FHA mortgages, 9.73 percent, was seriously delinquent, or 90 days past due. Compare that to all mortgages, whose seriously delinquent rate fell to 7.3 percent in December from 7.8 percent a year earlier.

For nine straight months, FHA delinquencies have risen while mortgages in general have improved. From September through November, FHA serious delinquencies rose a full percentage point and in 2011, the number of seriously delinquent loans increased by 100,399.

As of December 31, 2011, the FHA insured a total of 7,415,002 loans and the prior fiscal year showed a total of 598,140 mortgages seriously delinquent. The number of mortgage defaults from the previous year increased by18.9 percent.

The large increase in FHA defaults is a source of growing concern since the FHA’s insurance reserve fund to cover loan losses is virtually depleted. By law, the FHA is supposed to maintain a capital ratio of 2.0 percent but the fund ratio is currently at only 0.12 percent. Recently released analysis from the White House’s Office of Management and Budget showed the fund would actually fall into the red this year and need an unprecedented bailout from the Treasury Department. The American Enterprise Institute estimated the FHA would need a total capital infusion of $52.90 billion.

Over the past two years, FHA implemented several reforms to reduce its risk, including increasing is mortgage insurance payment and limiting eligibility of high risk borrowers. Continued deterioration of the reserve fund will certainly trigger additional legislation to increase costs to borrowers even more. Last month FHA financed some 35 percent of all purchase mortgages in the nation. Seventy-seven percent of FHA borrowers are first-time home buyers.

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