FHA Mortgage Delinquencies Jump in Fourth Quarter

Recent data from the Mortgage Bankers Association (MBA) revealed a somewhat troubling change in the market – Federal Housing Administration (FHA) mortgage delinquencies spiked in the fourth for the first time since 2006. The FHA insures the popular low money down mortgage program which is often used by first time home buyers. 

The seasonally adjusted FHA delinquency rate increased to 9.02 percent in the fourth quarter of 2016 from 8.3 percent in the third quarter, according to the MBA data. Although this isn’t exactly positive news, the recent uptick in FHA delinquencies is no cause for panic, experts say.

The FHA mortgage delinquency increase follows the lowest delinquency rate since 1997, and was driven by loans made since 2014 and early-stage delinquencies (those only 30 days past due). While some say this is merely a blip and not likely to become a trend, others see it as a warning sign.

“We had been experiencing great credit quality for so long, and to suddenly see this quarter-over-quarter reversal was a surprise, and we’re looking closely at it,” said MBA CEO David Stevens in a recent CNBC report.

With the homeownership rate at its lowest level in 50 years, even small changes like this one are watched carefully, as the new Trump administration will likely weigh the risks to the FHA portfolio against the weakening affordability in the housing market. According to CNBC, younger first time home buyers have been “sidelined in the housing recovery, burdened by higher costs, tight credit and high levels of student debt.”

“When we see a blip like this, we get concerned about whether that its is a trend,” Stevens said. “And getting these premiums priced appropriately to provide access to homeownership — but also to protect the taxpayer — is that really important balance that the incoming secretary is going to have to focus on with his team to make sure we don’t put the taxpayer at risk or the program at risk — and that’s the challenge.

According to the outgoing HUD Secretary, Julian Castro’s announcement regarding an FHA insurance premium cut, the FHA’s insurance reserves were robust enough to handle the additional risk associated with reducing borrower-paid insurance premiums. However, there were signs as recently as last fall that FHA loans were starting to show more delinquencies at a higher rate. In October, Attom Data Solutions, a foreclosure sales and analytics company, reported the largest increase in foreclosure activity since 2007, with FHA loans seen as the culprit behind the surge.

“While some states are still slogging through the remnants of the last housing crisis, the foreclosure activity increases in some states such as Arizona, Colorado and Georgia are more heavily ties to loans orignated since 2009 — after most of the risky lending fueling the last housing boom had stopped,” said Daren Blomquist, senior vice president at Attom Data Solutions.

Tips for Avoiding FHA Mortgage Delinquency

If you are an FHA borrower, and you are struggling to make your mortgage payments, here are a few tips for getting help and regaining control of your mortgage debt:

Don’t put it off. So many homeowners avoid seeking help or trying to find a solution until it’s too late. This may be due to embarrassment or feelings of hopelessness. Remember, it never hurts to try – but if you bury your head in the sand and do nothing, you’re almost certain to face serious delinquency or even foreclosure. Start working out a plan now.

Write a hardship letter to your lender. Put your situation in writing and send it to your mortgage lender. This allows you the ability to explain why you’re having difficulty making your mortgage payment and it shows your lender that you are aware of the risk you’re facing and are seeking help with finding a solution. Remember, mortgage lenders do not want to foreclose on your home, but they will have no choice if you don’t make your payments and don’t work out some type of solution, be it a loan modification, a short sale, or something else. The point is, foreclosure is not the only option and you’re not necessarily doomed to endure it.

Be courteous when dealing with your lender. Again, they do not want to foreclose on your home. They will most likely be willing to work out some sort of plan that will make it easier for you to make your mortgage payments. Otherwise, they will be stuck with a property that they aren’t making any money on.

Explore the options before throwing in the towel. To avoid losing a lot of money, your lender may be willing to negotiate an extended repayment period (making your payments smaller), or suspending the need for payments for a few months (allowing you to catch up with your financial obligations). There are other options that may be available as well, like tacking the missed payments onto the back end of the loan, or allowing a relative to put money toward the loan. The options will depend on your situation and the type of loan you have.

Be prepared to prove your hardship. If you are claiming a hardship in order to get a loan modification or short sale, you may need to provide documentation backing up your claim. For example, if you declared bankruptcy or had a medical crisis, you should make sure you have access to copies of all paperwork, bills, receipts, tax forms, etc. that are associated with these events. If you went through a divorce or lost your job, make sure you have copies of the divorce decree or termination papers.

Remember foreclosure is a last resort. We can’t stress this enough: your lender does not want to foreclose on your home. However, if you don’t make payments for a long enough period of time, and you make no effort to work with your lender to come up with an alternative, they will be forced to foreclose.

 

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