FHA Commitment Limitation

Question:  Will an increase in FHA’s commitment limitation result in the fund taking on more risk?

Answer:   No. FHA continues to be a major source of housing credit as a result of contraction in the conventional market place.  FHA insured more than 20% of loans made in the first half of the year and a market survey indicated that FHA now accounts for more than 35% of mortgage applications. 

• The new borrowers coming into the FHA portfolio have higher FICO scores which are improving the credit quality of the portfolio.  The average FICO score for purchase borrowers is now 693 compared with 633 just two years earlier.   
• Beginning with the 2009 cohort, FHA no longer endorses seller-funded down payment loans.  These loans are three times more likely to go to claim than non-assisted loans. 
• In fiscal years 2007 and 2008, FHA generated positive cash flows.  We are currently estimating a net positive cash inflow of $2.5 billion for fiscal year 2009.  
• FHA 30 and 60 day delinquencies have come down significantly off of their peak in November 2008.  

- The 30 day delinquency as percentage of insurance in force was 7.16% in November 2008 compared to 5.54% in June 2009. 
- The 60 day delinquency as percentage of insurance in force was 2.96% in November 2008 compared to 2.2% in June 2009.

• The percent of purchase borrowers with FICO scores less than 620 is now only 7.5 percent compared with 45.4 percent two years earlier.