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FHA-loan volumes double after insurance cut

Federal Housing Administration (FHA) loan counts and volumes were up significantly during the three months ending this past June, compared to a year ago, driven by a refinance wave sparked by the government’s move to cut the insurance premium.

FHA volumes rose by 101 percent, to $66 billion, in the federal government's fiscal third quarter (April through June) compared to the same period a year earlier, the agency reported.

Third quarter government loan counts

Loan counts also rose 73 percent compared to third-quarter 2014, to 334,399. FHA’s loan counts and volumes have returned to the fiscal 2013 levels after a weak 2014. In this past third quarter, FHA also far outpaced other government programs in dollar volumes and loan counts.

FHA, the government’s most popular loan program, does not originate loans, but backs loans in case of default. FHA loans are available to borrowers with lower credit scores and with down payments as low as 3.5 percent.

Government loan volumes third quarter

This past January the Obama Administration cut the annual insurance premium 50 basis points, from 1.35 percent to 0.85 percent of the overall loan value, a move the government estimated would save the average borrower $900 annually. That FHA insurance premium typically gets rolled into the mortgage loan and is reflected in the interest rate that borrowers pay. The change came after several insurance hikes caused participation in the program to decline. The move also has made FHA more competitive with conventional loan programs from Freddie Mac and Fannie Mae, which recently rolled out low down-payment programs of their own.  

In a report, the FHA said that the massive increases in counts and volumes were mostly driven by refinances, including a huge jump in borrowers who refinanced current FHA loans into a new FHA loans at a lower rate.

FHA-to-FHA refinance counts increased by 257 percent in the fiscal quarter ended this past June compared with the year-earlier period, from 32,042 to 114,267, the agency said. Overall, refinance counts increased by 198 percent from the year-earlier period.

Through the nine months ending this past June, FHA volumes have risen 43 percent, to $138.3 billion, compared with the same period a year earlier. Loan counts stood at 736,113, up 30 percent compared to the same three-quarter period a year earlier.

VA totals increase, USDA declines

Combined totals for the three government home-loan programs — FHA, Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) — were below fiscal 2013 levels through the nine months ending this past June. But the numbers have risen astronomically compared to fiscal 2014 figures. Volumes were up 105 percent, to $262.8 billion, compared to the first three quarters of fiscal 2014, while loan counts were up 33 percent, to 1,292,968. 

Loan counts and volumes for VA loans in the fiscal quarter ended this past June also ran far ahead of the prior year’s totals. Volumes rose 58 percent, to $39.7 billion, and exceeded the 2013 totals for the quarter.  Counts were up 46 percent, to 161,559.

The primary driver has been a surge in interest-rate reduction refinances brought on by lower interest rates, said VA Spokesman Terry Jemison. 

He also said the VA has done additional outreach with veterans and lenders, and has also sped up the time to issue certificates of eligibility. He noted that 67 percent of borrowers are issued certificates instantaneously through its electronic system. For those who aren't processed through the system, the VA has also cut the average time to issue certificates from an average of 24 days to two days over the past three months, he said.

"Purchase loan volume also remains strong, and VA continues to grow its share of the overall purchase market," Jemison said.

Meanwhile, USDA loans — designed for lower-income residents in rural areas — saw a further decline over the three months ending this past June. Loan volumes, including the USDA’s direct and guarantee program, dropped by a combined 9.3 percent, to $4.9 billion, compared to a year earlier. Quarterly loan counts declined 11.7 percent, to 35,445, compared to the previous year.

For the three quarters ending this past June, USDA’s numbers are flat. Volumes increased 1.6 percent, to $13.8 billion, compared to the same period in fiscal 2014, but the counts declined by 70 basis points, to 100,080. The counts are down 17 percent compared to the first three quarters of fiscal 2013.

In February, a second phase of map changes to USDA boundaries went into effect. USDA officials, however, denied that the changed lines contributed to the drop in originations and attributed the declining numbers to a lack of affordable housing options.  


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