FHA Update: Measuring Delinquency and Credit

The Department of Housing and Urban Development (HUD) recently released the quarterly report on FHA single-family mutual mortgage insurance fund programs. According to the Q1 2019 report, single-family forward endorsements decreased 11.76 percent by count from the prior quarter. Additionally, the average credit score in Q1 2019 fell by 1 point to 667. HUD notes that although this continues to be above the levels preceding the mortgage and credit crisis, it is well below the Q2 2011 peak of 703.

The report also covered delinquency and and refinancing rates. According to the report, the portfolio-level serious delinquency rate decreased tin Q1 to 4.08 percent, from 4.11 percent the previous quarter. The cash-out refinance mortgage share increased as a percentage of overall business to 17.26 percent from 14.41 percent last quarter.

More borrowers experience debt-to-income ratios (DTI) of over 50 percent in Q1 2019. The share of borrowers with DTI of 50 percent or more increased from 25.95 percent in Q4 2018 to 27.45 percent in FQ1 2019.

HUD also notes that the FHA’s credit risk profile has been shifting from nearly 60 percent of borrowers at greater than 680 credit scores in 2011 to about 35 percent, as of Q1 2019. At the same time, about 8 percent of less than 640 borrowers has grown to nearly 30 percent.

“This increase shows a much riskier population of mortgages being endorsed by FHA,” HUD states. “Performance of these mortgages will be closely monitored to determine when policy changes should be implemented.”

In Q1 2019, the Early-Payment Delinquency rate rose by 28 points compared to the previous quarter, while serious delinquency rates decreased to 4.08 percent, 3 basis points lower than the previous quarter.

“Recent disasters such as hurricanes Harvey, Irma, and Maria, as well as wildfires in the Western United States, had a near term effect on overall delinquency rates,” HUD noted. “Overall, serious delinquency rates are significantly improved from the highs seen in 2012 and considerably lower than for those mortgages originated during the financial crisis of 2006-2009.”