WASHINGTON–One new report suggests the federal government’s 2015 efforts to get more Millennials and first-time buyers to purchase a home doesn’t seem to have worked. But other analysts say they’re not so sure.
Indeed, reported a MarketWatch analysis, some even believe it has made it difficult for both groups to purchase a home.
In 2015, the Federal Housing Administration (FHA) lowered mortgage insurance premiums (MIP) on its loans in most cases by $800 to $900 a year (and in higher-priced areas of the country even more), in an effort to help first-time borrowers purchase a home, MarketWatch reported. FHA loans can sometimes be extended to FICO credit scores as low as 580. At the time the FHA predicted that about 250,000 new home buyers would be brought into the market over the next three years with the mortgage insurance premium cut, according to MarketWatch.
Initially, volume spiked. RealtyTrac data show the number of FHA loans originated a month rose from about 23,000 in January of that year (an 11.9% share of all the 193,000 home loans made that month) to a peak nearly 61,000 FHA loans in July of 2015 (with the share of all home loans increasing to nearly 17% out of a total of nearly 362,000), according to MarketWatch.
But analysts told MarketWatch that while the volume of FHA loans increased, first-time buyers, especially Millennials, weren’t the buyers.
“We’re still not seeing those first-time home buyers going to FHA,” Bryan Sullivan, the chief financial officer of Foothill Ranch, Calif.-based loanDepot, told MarketWatch. “It’s still a relatively older borrower” for FHA loans, he said.
Sullivan told MarketWatch that the drop in FHA loan premiums simply meant that other borrowers looking for a home loan opted for the FHA product, rather than bringing additional new buyers into the market. “It’s substantially just a reshuffling of the deck,” he said.
But a spokesperson for HUD, Jereon Brown, speaking on behalf of the FHA, told MarketWatch that while Millennial participation is up to nearly 50% of all FHA loans, up from 26% of loans in 2006, attributing the gain to the MIP reduction isn’t easy. “Given how long the trend has been in place and other factors such as home purchases are up across the board, it is tough to attribute increases to the FHA premium decrease. It likely played a role but we have no way of knowing how much of a role,” Brown told the publication.