Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.
USA Today reports the trend is centered around home loans guaranteed by the Federal Housing Administration that typically require down payments of just 3% to 5% and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.
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. Still, for some analysts, the latest development is at least 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,” says Hans Nordby, chief economist of real estate research firm CoStar.
The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19% in the fourth quarter, up from about 2.07% the previous quarter and 2.13% a year earlier, according to research firm CoreLogic and the FHA. That’s still down from 3.77% in early 2009, but it represents a noticeable uptick.
