The Federal Housing Administration (FHA) appears to be putting its historic mission of assisting lower-income borrowers on hold and is increasingly serving home buyers whose incomes exceed those of average Americans, according to a new report published by the Center for Real Estate and Urban Analysis (CREUA) at the George Washington University School of Business in Washington, D.C.
The report finds that, nationally, more than 30% of the 2010 mortgages guaranteed by the FHA were made to families making more than 115% of the area median income (AMI). Of the 30%, more than half went to those with incomes greater than 150% of the AMI.
In low-cost markets, such as Hidalgo County in Texas, more than half of FHA borrowers had incomes greater than 150% of the county's $33,200 AMI in 2010. The same is true for many high-cost markets, such as Westchester County, N.Y., where 63% of FHA borrowers had incomes that were greater than 150% of the $65,600 AMI.Â Â
Similarly, FHA loans are often financing homes priced well above the neighborhood average. Specifically, in fiscal year 2011, 54% of FHA's activity insured homes whose values were greater than 125% of their area's median house price – up from just 15% in 2007.
‘The FHA didn't create the housing bubble and crash, and it has been a useful part of the recovery,’ says Robert Van Order, chairman of the CREUA and co-author of the report. ‘However, partly in an effort to redeem its mounting and highly publicized delinquencies, it has expanded to a market – higher income borrowers – that it has not traditionally served.’
The report cites the FHA's high loan limits as the primary reason its typical home buyer has become more affluent. On Oct. 1, 2011, the FHA's highest loan limits expired, reducing the maximum-size loan FHA could insure from $729,750 to $625,500. But within two months, Congress restored FHA loan limits back to pre-October 2011 levels of $729,750. However, an earlier assessment report established that higher-balance FHA loans had default rates approximately 20% higher than loans that were at traditional levels, suggesting that expansion doesn't necessarily increase profits.
Furthermore, data in the report shows that serious delinquencies for FHA's loans from the 2008 and 2009 books of business were approximately three times those of the 2002 and 2003 books, for the same time period. The report acknowledges that FHA will likely need an infusion of taxpayer funds from the U.S. Treasury.
‘We recommend acknowledging FHA's losses and the need for help from the Treasury, if that is necessary, and then moving on to what works best in the long run: returning to a smaller, more traditional FHA,’ says Van Order.
The full report is available online.