The FHA acknowledges that having more thinly capitalized lenders may be an issue in the next crisis. BETTER THAN FREDDIEĭuring the last crisis, the FHA performed better than Fannie Mae and Freddie Mac, which together needed $188 billion of support, but it still needed help - $1.7 billion from the U.S. But with mortgage credit quality improving now, “you shouldn’t lose sleep over it today,” he said. “It could potentially be an issue in the next downturn,” said Tom Lawler, an economist who warned of an impending housing bubble in 2006 when he worked at Fannie Mae. That figure compares with about 50 percent at the height of the crisis. The smaller lenders that now make up most of the FHA’s client base may struggle to stay solvent whenever the next housing downturn comes, meaning when the agency tries to push loans back to them, they may not have the resources to repay the government.Ībout 80 percent of the loans in the FHA program are made by lenders who are not banks, most of which are relatively small.

Current fights over the FHA could have a big effect over how the agency weathers the next housing crisis. Quicken, feeling like it was being strong-armed into settling, sued the Department of Justice April 17 before the government sued it six days later. The government has settled with Bank of America and JPMorgan Chase over their FHA obligations, but not with Wells Fargo or Quicken. When Wells Fargo and Bank of America balked at the FHA’s strict interpretation of the rules, the Department of Justice sued them. Lenders including Quicken say the FHA demands repayments for even the most minor of mistakes that a bank may make when extending a loan, to force them to bear the agency’s losses, making the government’s insurance an illusion. If it finds that it did not, it will demand that the lender reimburse it for the insurance payout, the way a life insurer might sue to recover funds paid out on a policy purchased by a smoker who failed to disclose his habit on his application and died of lung cancer. The FHA pays out on all default claims almost immediately, and only reviews them later to make sure it got complete and accurate information about borrowers when it first guaranteed the mortgages. Because borrowers are paying for mortgage insurance, they pay higher interest rates on their loans. Unlike most other government home-loan programs, borrowers who get FHA loans can make a down payment equal to as little as 3.5 percent of the home purchase price, which makes the mortgages appealing to first-time buyers who may struggle to pull together big upfront payments. When a borrower gets an FHA loan, the agency essentially guarantees the mortgage against default, and promises to pay the lender if the homeowner reneges on his or her obligations.

The FHA is arguing with lenders over when it is entitled to back out of the insurance that its program provides. Quicken accounted for almost 6 percent of the FHA’s loan volume in the first half of 2015, or about $6 billion of loans, according to trade publication Inside Mortgage Finance. It is also considering cutting the risk it takes in the program, he said. Now Quicken, the largest FHA lender, is looking at bowing out as well, company founder and Chairman Dan Gilbert told Reuters. The three major banks, not satisfied with the way the FHA resolved their complaints, have scaled back their lending through the program. Quicken along with JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co - all of the top four mortgage lenders in the United States – are tussling with the FHA over how the agency deals with loans that sour. Officials at the FHA said they are not alarmed by that risk. Federal Housing Administration program, which helps first-time homebuyers, could translate into big losses for taxpayers during the next housing downturn, analysts said. The departure of the biggest lenders from the U.S. An empty mail box is seen at the front door of a foreclosed house in Miami Gardens, Florida in this Septemfile photo.

Quicken mortgage rates