FHA Defaults Surpass 9% – Impending Doom or Just Predictable?

A historic era

This year has already proven to be a news filled year for the Federal Housing Authority (FHA) as the real estate sector continues to struggle in light of a failing economy. To do their part to inject the real estate industry with life, the FHA has recently relaxed the anti-flipping rules but some argue that recent FHA measures are self interested as they also have taken measures like raising mortgage insurance premiums to fill their drying coffers. Meanwhile, numerous lenders are being stripped of their ability to be FHA backed, yet another sign of massive changes in the lending and real estate world.

Today, news of the FHA loan default rates surpassing 9% has even the Washington Post claims that the December 2009 default rate rise (up 6.8% from December 2008) “foreshadows a crush of foreclosures.”

In November of 2009, we reported that the historic mortgage default rate was at 9.64% and that 3.12% of all homes were in the foreclosure process (putting 12.76% of all homeowners in hot water at the time). This is important to note due to the FHA default rate rising to match that of the national rate. Does this in fact spell trouble for the industry? Does this imply a future accumulation of shadow inventories or foreclosures? Or is this simply a case of the FHA backed loans becoming more average?