FHA Loan Defaults Exceed 9%

February 09th, 2010 | Category: FHA

When house prices drop, falling values have ripple effects on the economy. Jobs are lost, credit becomes difficult to obtain and society are forced to manufacture solid decisions regarding what monthly bills they can afford to pay.

And increasingly, it appears as whether many society are opting to not pay their mortgage — whether by choice or necessity.

According to the Wall Street Journal, society who have an FHA loan are defaulting on their mortgage at consistently higher rates.

Loan defaults crossed the 9% mark in December, ending the year at 9.12%, up from 6.82% one year earlier and 8.94% at the end of November. Through 2009, the agency had insured 5.8 million loans worth $752.6 billion, or a 24% increase from one year ago.

This number really doesn’t surprise anyone – FHA has made a number of significant moves to increase revenue at the agency, including:

But according to the WSJ exposition, that may not be ample:

The FHA appears to be outrunning that problem for now. Last week, the Obama administration’s proposed budget said the agency would generate sufficient revenue from new business to generate a $6 billion overall profit, even though losses in 2011 are expected to hit $19 billion, up from $8 billion last year. The FHA, which has seen defaults rise sharply on loans that it guarantees, doesn’t compose loans but instead insures lenders against losses.

Whether or not the moves that FHA has made will be adequate to avoid a complete overhaul of the FHA system, I suspect that by the summer many things may change — including the FHA loan program. I have heard talk of getting rid of Fannie Mae and Freddie Mac and whether that happens, I suspect there will be a complete overhaul of how housing in America is financed.

Orginal post by Justin McHood

Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.