A recent report by the Federal Housing Administration could spell good news for lower-and-mid-income home buyers, as well as first-time home buyers.
According to an FHA report released in mid-November, the Mutual Mortgage Insurance Fund is on stable footing, something the National Association of Realtors views as an opportunity to expand the low-down-payment mortgage option to more home buyers.
“FHA’s actuarial report shows that the fund has indisputably found its footing,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “That’s good news for taxpayers, and a reflection of FHA’s sound stewardship. It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”
According to NAR, the 2015 report from FHA showed “MMIF also achieved a 2 percent capital reserve ratio for the first time since the Great Recession. This marked an important benchmark showing that the fund had strongly rebounded, a finding reinforced by the 2.3 percent capital reserve ratio FHA reported today. FHA also reported a 3.2 percent reserve ratio for the “forward” program, which encompasses FHA’s non-Home Equity Conversion Mortgage portfolio.”
Mike King, single-family administrator with the Alabama Housing Finance Authority, said the fund’s “seriously delinquent” rate being at a 10-year low as well as the $3.8 billion increase in the fund’s value may mean better days ahead for Alabama home buyers.
“We’re seeing the exact same thing,” King said. “We’re seeing seriously delinquent loans decrease, which tells me that those first-time home buyers are recovering from that, and we’re seeing a much better portfolio.”
King said AHFA manages a portfolio valued at around $6 billion, which covers multiple states. The average mortgage in the portfolio is just over $150,000. He said the seriously delinquent rate among the Alabama agency’s loans has dropped off in recent years.
“We’ve seen a significant drop in the last three years,” King said. “I think once we went through the really bad years in 2008-09, it took a little while for them to get over that.”
After the sub-prime mortgage crisis that led to the previous housing crash, standards on loans were tightened. While some have not been able to qualify for mortgages under the new rules, the result has seen portfolios like the one AHFA manages strengthen.
“The loan products that we’re putting on our books today, we believe are the best products we’ve ever put on our books,” King said. “Underwriting criteria such as income and credit scores and things like that have tightened the credit and have made the people who are eligible some of the best loans we’ve ever put on our books.”
As a result of the FHA report on the MMIF, NAR is encouraging the agency to “reduce mortgage insurance premiums to better reflect the risk in the marketplace and fulfill its mission of serving low-and-moderate-income borrowers.”
King said the reduction in mortgage insurance premiums could have a positive effect on Alabama home buyers.
“We would love to see that,” King said. “Obviously, that would be very beneficial to first-time home buyers.”
King said that even a reduction of a basis point could open the door to new families being able to purchase homes in Alabama.