As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home these days. Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.
As a result, demand for FHA loans has exploded. FHA loans now account for 23% of the market, up from 2% in 2006, Stevens said. Some 80% of first-time homebuyers go through the agency.
The agency, however, has also seen a spike in delinquencies amid the mortgage meltdown. Some 14.42% of FHA loans were past due in the second quarter, up .58 percentage points from the same period a year earlier, according to the Mortgage Bankers Association. Just under 3% of FHA loans were in foreclosure, up .22 percentage points.
Concerned about rising defaults, the agency has raised its standards for new borrowers. Only 7.5% of the portfolio has a credit score below 620, down from 50% two years ago. The average score is 690, versus 630 two years ago.
"The quality of the current FHA book is significantly better than anything seen in the FHA portfolios in recent years,"
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http://money.cnn.com/2009/09/18/news/economy/FHA_housing_trouble/index.htm?postversion=2009091815
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