According to a recent press release from the Mortgage Bankers Association, government insured loan applications (FHA & VA) dramatically increased to 35.9% for the month of June. That’s more than a 10 percent increase from last month. Since the survey’s inception nearly 20 years ago, the lowest recorded share of FHA & VA applications was 5.8 percent in August 2005.
“A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s Associate Vice President of Economic Forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.”
“While the government-insured share of purchase applications has remained elevated, the government-insured share of refinance applications has been volatile. The share hit a record high of 38.4 percent in October 2008. As mortgage rates fell sharply between mid-November through early May, refinance activity surged for conventional loans. This surge in conventional refinance applications dominated the market, causing the share of FHA refinance applications to fall below 20 percent for most of this year. Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6 percent in June,” Velz said.
While this may all be true, I suspect the MBA is omitting another reason these applications have increased.
The Home Valuation Code of Conduct
Obviously these loans have their pros and cons and not everybody (or every property) qualifies. At the end of the day I hope the LO’s are doing what’s best for their clients and not pushing these programs because they have more control of the appraisal process.