Tuesday, April 03, 2012

Lawler comments on FHA Single-Family Mutual Mortgage Insurance Fund Quarterly Report to Congress

by Calculated Risk on 4/03/2012 08:20:00 PM

From economist Tom Lawler:

Last week HUD released the FHA Single-Family Mutual Mortgage Insurance Fund Quarterly Report to Congress for the first quarter of FY 2012 (ending 12/31/2011), which gave some insights into the disturbing rise is the number of seriously delinquent FHA-insured SF loans, as well on the surprising slow pace of foreclosure resolutions.

At the bottom of this post is a table summarizing SDQ rates by FY endorsement.

And here is a chart from the report showing SDQ rates by calendar year origination and months of seasoning.

FHA SDQ Rates Click on graph for larger image.

Needless to say, this is not a pretty picture.

In the discussion on the sizable jump in the FHA’s SF SDQ rate, the report said that

“(t)wo factors appear to be driving this result. The first is the persistency of loans in 90-day delinquency as lenders attempt to craft workout plans, and persistency of loans in foreclosure processing. The second is that the historically large FY 2009 and FY 2010 books-of-business are at the age where their serious delinquency rates are increasing toward their life-cycle peaks. Because those books are much larger than is the new FY 2011 book, their loan-age seasoning patterns are not offset by the low default rates on recent endorsements.”
The report did not mention the sharp falloff in FHA modifications in the second half of 2011.

Relative to the projection in the FY 2011 annual independent actuarial study, actual FHA claims were 52% lower by loan count and 57% lower by dollars, but NOT because the loans are performing better than projected. Here is an excerpt from the report:
“The number of claims paid this quarter (27,356) is down slightly from that of the previous quarter (30,108). The gap between predicted and actual claims paid shows little variation from the previous quarters, with year-to-date counts 52% below forecast, and year-to-date dollars 57% below forecast. The principal contributing factor to this gap continues to be delays in foreclosure processing in many areas of the country. We anticipate the recent settlement will accelerate foreclosure activity, perhaps within the next two quarters.”
The report also included some historical data on the FHA’s loss rate on REO and on pre-foreclosure sales, which showed rising trends in both.

FHA Loss SeverityIn the quarter ended 12/31/2011, FHA’s loss severity on REO averaged 71.7%, while the loss severity on short sales was 47.4%. Delays in foreclosure processing appear to be a significant factor in rising loss severity rates. The combination of rising SDQs and rising loss severities bodes very poorly for the MMIF outlook, which may help explain the sizable recently-announced hikes in FHA’s premiums.

Here is the table summarizing SDQ rates by FY endorsement.
Serious Delinquency Rate by Endorsement Fiscal Year, FHA SF Mortgages
Endorsement FYPre-200720072008200920102011All Years
Q4/1011.41%21.49%18.37%6.08%0.65% 8.66%
Q3/1011.15%21.11%17.35%4.94%0.33% 8.59%
Q2/1011.56%21.40%17.13%4.07%0.16% 9.05%
Q1/1011.89%21.55%16.22%3.05%0.02% 9.44%
Q4/0910.72%18.60%12.19%1.59%  8.52%
Q3/098.71%14.23%8.45%0.84%  7.14%