In February, HousingWire reported on upbeat comments from an official at the Federal Housing Administration, a government agency which insures mortgages:
The 2009 books is solid,” said Margaret Burns, director of single family development for the FHA. “The 2007 book is substantially riskier,” representing the most challenging portfolio to manage, though in the last two years underwriting standards tightened considerable, but not at the expense of origination volumes.
According to Burns, who seeks to set the record straight as “there have been an number of articles about FHA financial health,” especially about the state of reserve accounts. “FHA is not sustaining huge losses today that are eating into reserve accounts. Everything is in good shape at FHA.”
FT Alphaville is certainly in the skeptical camp referred to by Ms Burns, and we were not reassured when the housing agency released its December monthly report on Tuesday.
According to the report, the default rate in the FHA’s single-family portfolio hit 9.12 per cent in the fourth quarter of 2009, compared with 6.82 per cent in the same period a year prior.
In absolute terms, that means the number single-family mortgages insured by the FHA and in default reached 531,671 in the fourth quarter of 2009. That’s a 66 per cent increase versus the same period in 2008.
The agency is being hit hardest by the 2007 and 2008 mortgage vintages; the performance of these loans is so dismal the FHA expects to have to pay claims on at least one out of every four loans made in those years.
That said, the agency has taken steps to shore up its finances ahead of these expected cash calls, with a plan to increase the fees borrowers are charged for mortgage insurance.
Related links:
‘The Federal Housing Administration is not in the long-run self supporting’ – FT Alphaville
FHA bailout watch, plunging cash reserves edition – FT Alphaville
Bailout watch, US Federal Housing Administration edition – FT Alphaville