Cash & FHA Transactions in Charlottesville MSA – Local Analysis Matters

The headline at Zero Hedge is a stunner. A Stunning 60% Of All Home Purchases Are “Cash Only” – A 200% Jump In Five Years

Naturally, I wondered what the numbers might look like for the Charlottesville area. Being curious, I thought I’d look at the numbers for FHA transactions – frequently used by first time homebuyers as the program requires only 3.5% downpayment. The FHA numbers were more interesting than the cash numbers.

Keep in mind that these numbers are for the extended Charlottesville MSA – Charlottesville, Albemarle, Greene, Fluvanna, Nelson plus Louisa. Data comes courtesy of the Charlottesville MLS. Timelines in the chart and data are from 1 January to 1 August for each year.

Short story:

- Cash transactions in the Charlottesville MSA are nowhere near the 60% in the numbers cited in the above story. 20% cash transactions seems high, too.
- FHA transactions fell and rose with the market. As the mortgage market became more restrictive and buyers had less cash, more turned to FHA loans. Now, as the market seems to maybe be recovering and FHA is less attractive. Think about it. 2006 – 2.3% of transactions in the Charlottesville MSA were FHA, increasing to a peak of 18.61% in 2009 and moving to 8.66% so far this year.

Cash and FHA Closings in Charlottesville MSA

The drop of FHA in 2007 shocked me, so I looked at 2006 … similar numbers … which tracked with what I had perceived in the market. Money was free, then it was harder to get, now FHA is less of a viable option. I asked Matt Hodges with Presidential for a deeper explanation about the FHA aspect.

A history of loan program availability as well as the mortgage meltdown starting in the 2007 range, lends explanation to seemingly odd data.  Locally, FHA historically has comprised a very small percentage of business – in fact many brokers chose not to do FHA loans due to the oversight, quality control costs, paperwork and most importantly, availability of lower cost options for borrowers.  That change, to now considering FHA as an appropriate loan product occurred when 100% and 97% loan-to-value (LTV) loan programs, many with no mortgage insurance, started to disappear. 

About the same time, banks stopped offering 95% combined LTV loans, due to the massive defaults – 2nd lien holders often lost everything in foreclosure.  So, FHA became popular and competitive and they allow lower credit score minimums.  Their popularity grew until… FHA started increasing the up-front mortgage insurance premiums (UFMIP) as well as the annual mortgage insurance premiums (MIP).  In October, 2010, while the UFMIP was lowered, the more important MIP increased by 64%!  In April, 2011, the MIP jumped 28% over the October revision and more than doubled the first nine months of 2009’s rate. 
 
Flash forward to today.  We now can offer our buyers an UFMIP 75% higher and MIP 136% higher than 2010.  FHA has clearly shown us that they do not want quality loans in their portfolio.  If at all possible, FHA wants you, the borrower, to get a Fannie Mae or Freddie Mac loan.  But, US taxpayers, if you want to know how this affect you- well, FHA now only wants those deals that Fannie/Freddie won’t touch – you know credit dinged, minimal down payment, borrowed funds, more recently discharged from bankruptcy.  This isn’t a judgment, its merely fact of how FHA has positioned themselves.  FHA has their place in the mortgage world, but it’s a shrinking marketplace.

Click through to see the raw data, embedded below.


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  • http://www.bankforeclosuressale.com/ Simon Campbell

    FHA has made some stunning changes to their lending policy over the past 6 months or so. Because a borrower would be putting less than 20% down, they will be required to pay mortgage insurance. FHA has an upfront fee of 1.75% which is wrapped into the loan and a monthly fee of 1.30 % if the original loan amount to value is less than 95% and 1.35% if they put less than 5% down.

    Typically, once you reach a 20% equity position, the PMI is removed. Not so with the new FHA loan changes.The insurance stays on your loan for the life of the loan for all new loans starting in June 3, 2013.

    For example, if you are paying $112.50 (borrowing $100,000) per month in mortgage insurance and you pay the mortgage for the full 30 years, you will have paid $40,500 for insurance that benefits the lender.

    This is one way that FHA is trying to offset the risks they have taken on by accepting so many low down payment loans.