Seriously delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans, as of the end of January, according to agency statistics released on Friday.
The FHA, however, insists its finances are sound. Its loan portfolio actually performed better than most mortgage products, according to David Stevens, the agency's commissioner.
"The FHA default rates are increasing at a slower rate than even prime mortgages," he said.
But the reason for this increase may be more of a statistical glitch than an actual trend. Loans that go into the seriously delinquent bucket stay there far longer, boosting the numbers and making comparisons problematic, said Jay Brinkmann, chief economist for the Mortgage Bankers Association (MBA).
Many lenders and servicers are overwhelmed by sheer volume of loans and are reluctant to take back homes they don't think they can sell. As result, they keep the loans hanging out in the 90-day late bin rather than moving them into foreclosure.
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Lenders are also trying to modify more mortgages, which can take months to accomplish. Meantime, many of the borrowers sit in the seriously delinquent bucket.
In contrast, loans that are 30- or 60-days late actually declined in the past year, according to the FHA.
Home price drops hurt
Until the mortgage bubble burst, FHA loans made up a small portion of the housing market. Now, the agency originates almost a third of all home loans. That means most of the agency's notes were issued in the past three years -- when prices were plummeting.
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"There are a lot of young loans in the FHA book," said Mike Fratantoni, vice president of Single-Family Research and Policy Development at the MBA. "Mortgages typically hit their peak delinquency rates two or three years after origination."
Those early years are toughest because many borrowers have struggled to afford their homes and their incomes have not risen enough to offset any setbacks.
Additionally, the price drops pushed many FHA borrowers underwater. These homeowners only had to put 3.5% down to start, so they could quickly end up owing more than their homes were worth in places where values plummeted 20%, 30%, 40%.
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