The Federal Housing Administration (FHA) is disputing a report that foreclosure starts on mortgage loans it insured from 2007 to 2009 saw huge spikes in April, skyrocketing 73 percent from March to April.
HUD is disputing data collected by Lenders Processing Services, or LPS, claiming 19,000 FHA foreclosures starts were documented in April — not the 63,000 that LPS reported.
“The bottom line is that the numbers in the LPS report for April simply don’t accord with our data,” FHA spokesman Lemar Wooley, told BusinessWeek.
By contrast, a preliminary check of RealtyTrac data shows 11,455 FHA-insured foreclosures starts in April. The lower RealtyTrac number may be in part because not all foreclosure records collected by the company include loan origination information and also because RealtyTrac does not count “re-starts” of foreclosure, where an initial foreclosure notice is re-filed on the same property within the estimated time it takes to foreclose for the state the property is in.
“LPS has every confidence in its data and believes that there is likely a simple explanation for the difference between our numbers and FHA’s reported foreclosure starts for April,” said Herb Blecher, senior vice president for LPS, told BusinessWeek. “We have reached out to the FHA directly on this, and will share our findings as soon as we have a definitive answer.”
High Default Rates
Typically, FHA-insured loans have a higher default rate than other mortgages, according to the Mortgage Bankers Association. Some 12 percent of all FHA-insured loans were delinquent in Q1 2012, according to the MBA’s most recent National Delinquency Survey.
About 26 percent of FHA-insured loans originated in 2007 are seriously delinquent, meaning they are overdue by 90 days or in foreclosure, according to latest FHA report to Congress. For 2008 FHA-insured mortgages, the delinquent share is 24 percent. For 2009, the delinquency rate is 11 percent, while 2010 is 4.1 percent, and 2011 is less than 1 percent.
Critics of the FHA claim the federal agency is insolvent.
“No serious observer of the Federal Housing Administration (FHA) believes its financial future is bright,” warns Peter J. Wallison, a fellow at the American Enterprise Institute. “That is because it uses lax accounting standards that obscure real and present danger to its own bottom line and the American taxpayer. In fact, when measured against the accounting system used by private mortgage insurers, the FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars. If it were a private firm, state regulators would immediately shut it down.”
After the collapse of the real estate market in 2008, the FHA ramped up lending to first-time homebuyer with poor credit and limited cash. The FHA allows down payments as low as 3.5 percent of the purchase price for borrowers with FICO scores of 580, well below the 640 defined as subprime by the Federal Reserve.
Readers what do you think? Are FHA-insured foreclosure starts rising as LPS claims? Or are the default rates closer to those reported by RealtyTrac and the FHA? What are your thoughts?
Start Your Free Trial Now!
Sign up for a free trial for full access to RealtyTrac's address-level foreclosure data nationwide.
You may also be interested in the following articles:
Best Lenders and Servicers to Buy Short Sales From
Four Foreclosure Financing Myths
Are Mortgage Write Downs a Backdoor Bailout for Bankers?