The Mortgage Bankers Association recently reported a significant increase in FHA loan share of the mortgage market.  The Association says “the government share of originations more than doubled to 11.8 % in the first half of 2008 compared to 5.7 % in the second half of 2007. The government home loans category includes loans guaranteed or insured by the Department of Veterans Affairs, the Federal Housing Administration and Rural Housing Service. The increase in the FHA home loan limit, which broadened FHA refinancing and purchase loan options for more consumers, was one of the factors that contributed to the increased popularity of the FHA.”

The increase in federally-insured loan programs should hardly come as a surprise. The subprime and conventional mortgages have been impacted by the lack of bank lending.  Private and portfolio lending is being done more as they account for 88.2 % of all mortgage loans closed. But the FHA home loans being made today are objectively better than the junk seen during the past few years because mortgage lenders are requiring documentation and eliminating negative amortization mortgages, interest-only loans and other forms of risky financing.  FHA mortgage loans make sense because they have no penalties for early termination and no balloon payments due. Private money has begun to carry the FHA mortgage market.

Other details from the MBA report include:

o    The refinance share of all originations was 61.7 % in the first half of 2008, compared to 54.8 % in the second half of 2007. The % of home refinance loans for rate or term purposes increased from 38.1 % in the second half of 2007 to 48.6 % in the first half of 2008. The refinance volume also increased 5.8 % in the first half of 2008, based on data from repeater companies, which are participants that responded to the survey in both halves.

o    For 1^st mortgages, fixed-rate mortgage loans, excluding interest-only loans, accounted for 78.5 % of the dollar volume of originated home loans in the first half of 2008, compared to 63.6 % in the 2^nd half of 2007.

o    In the 1st half of 2008, 82.7 % of all origination dollars were for prime loans, compared to 79.0 % in the 2nd half of 2007, 3.8 % were non-prime, compared to 7.5 % in the 2nd half of 2007, and 1.7 % were Alt-A, compared to 7.8 % in the second half of 2007.

o    Originations of mortgages with deferred amortization (“interest only” or “IO”) continued to decrease significantly for both fixed and adjustable rate mortgage programs from the 2nd half of 2007. IOs accounted for 10.6 % of originations in the 1st half of 2008, compared to 22.4 % in the second half of 2007.

o    In the first half of 2008, first-time homebuyer purchases represented 29.9 % of the volume of purchase fundings, compared to 27.9 % in the second half of 2007. They represented 32.2 % of the number of purchase loans in the 1st half of 2008, compared to 30.2 % in the 2nd half of 2007.

o    Estimates from MBA’s Mortgage Finance Forecast further demonstrate the trends in originations as purchase money loans were down by 16.2 % in the first half of 2008 compared to the 2^nd half of 2007. Refinance fundings increased 16.3 % in the 1st half of 2008 compared to the 2nd half of 2007.