WASHINGTON–Riskier borrowers are making up a growing share of new mortgages, resulting in a modest increase in delinquencies and raising concerns about an eventual spike in defaults, according to one new report.
The trend is largely driven by home loans guaranteed by the Federal Housing Administration that typically require down payments of just 3% to 5% and are often taken out by first-time buyers, according to USA Today. The publication noted the FHA-backed loans are increasingly being offered by non-bank lenders with “more lenient credit standards than banks.”
USA Today added the “landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verification of buyers' income or assets, setting off a housing bubble and then a crash. And Quicken Loans, one of the largest FHA lenders, dismisses the concerns as overwrought.”
But USA Today also interviewed some analysts who said the latest trend line is “faintly reminiscent” of the run-up to that crisis.
“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5%-down mortgages, and that’s a bad idea,” Hans Nordby, chief economist of real estate research firm CoStar, told USA Today.
The report noted the share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19% in the fourth quarter of 2016, up from about 2.07% the previous quarter and 2.13% a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77% in early 2009 but it represents a “noticeable uptick,” USA Today reported.
Bill Emerson, vice chairman of Quicken Loans, the largest non-bank lender, told USA Today the credit standards of his firm and his peers are actually stringent by historical standards and appear looser only because banks sharply tightened their requirements after the housing crash.