FHA Home Loan Delinquency Improves - FHA Mortgage Loan Program

The FHA is having a tough year and it's very possible that a taxpayer loan may be required to keep the program afloat. This delights FHA critics, but it also overlooks a basic reality: the FHA has made startling improvements in its loan portfolio -- improvements which could lead to lower FHA costs.

It's often mentioned that the FHA loan program has had significant delinquency problems in the past few years. However, a "delinquency" can be nothing more than a single late payment, a problem often resolved with a check and (maybe) a late fee. In other woards, yes the loan is "delinquent" but as a financial matter it's not a big deal. In fact, it's entirely possible that such a delinquency will not even show up on a credit report.

FHA considers a mortgage delinquent if “the payment has not been made on or before its due date,” which is always the first of the month. So a loan with a payment that’s one day past due is classified as “delinquent” by FHA. Never mind that the borrower has a 15-day grace period in which he or she can avoid a late charge, and 30 days before the credit bureaus consider the payment "late."

Borrowers, of course, should always make their payments on time to avoid late charges.

A bigger issue concerns FHA loans which are "seriously delinquent." These are FHA mortgages where borrowers are at least 90 days behind or in a pre-foreclosure status.

When it comes to seriously-delinquent notes the FHA is doing remarkably well, in fact HUD argues that "by every measure – credit quality, premium revenue, early period delinquency, claims, etc. – the quality of loans insured from 2010 onward is the best in FHA’s history."

In the chart below you can see how FHA loans have improved. It is the loans made before 2010 which plainly suffered from far higher rates of serious delinquency than more recent mortgages.

Michael Fratantoni, VP of Research and Economics for the Mortgage Bankers Association explains that "the pre-2010 vintages continue to drive FHA serious delinquencies, with the 2008 and 2009 loan cohorts still accounting for 44 percent of seriously delinquent FHA loans even though they represent only 27 percent of FHA loans serviced. In contrast, the 2010 and later vintages made up 15 percent of seriously delinquent FHA loans, but are almost half of all FHA loans serviced."

The bottom line: Fewer serious delinquencies suggest that FHA foreclosures and claims in the future will be smaller. That means the FHA will be able to hold down premiums – or perhaps even reduce them.
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