Friday, May 18, 2018

Lawler on FHA: Volumes Down, New Book Risk Rises

by Bill McBride on 5/18/2018 05:17:00 PM

From housing economist Tom Lawler: FHA: Volumes Down, New Book Risk Rises

FHA reported that single-family purchase mortgage endorsements in the first (calendar) quarter of 2018 totaled 166,642, down 14.8% from the comparable quarter of 2017. FHA single-family purchase applications last quarter were down 12.2% from a year earlier.

The average credit score of FHA purchase mortgage endorsements last quarter was 672, the lowest quarter average since 2008. The average debt-to-income (DTI) ratio of FHA purchase mortgage endorsements last quarter was 43.02, the highest level since at least 2008 (I only have data going back to 2008). While FHA does not show the distribution of DTI’s in its public reports, in written testimony said that in February that almost 25% of FHA single-family mortgage endorsements had DTIs above 25%.

FHAClick on graph for larger image.

CR Note: These three graphs are from Tom Lawler.

The first graph shows FHA single family purchase and applications and endorsements. FHA volumes are down recently (and according to the MBA, the FHA receives about 10% of all mortgage applications).

FHA Average Credit ScoreThe second graphs shows the average credit score of borrows who receive FHA Purchase mortgage endorsements.

Lending standards were tightened after the housing bubble, but have been slowly slipping.

As Lawler noted "The average credit score of FHA purchase mortgage endorsements last quarter was 672, the lowest quarter average since 2008."

FHA DTI ratioThe third graph shows the average debt-to-income (DTI) ratio for borrowers who receive an FHA endorsement.

The average ratio has increased significantly over the last couple of years.

Looser standards (lower credit scores, higher DRI) means more risk. This isn't too concerning; it is only 10% of the mortgage markets. However further declines in the average credit score - and / or increases in the DTI - would be a little worrisome.