FHA Loans Emerge From the Sidelines

Douglas Vazquez was able to buy a $400,000 condominium with a low down payment, thanks to a Federal Housing Administration loan.
Douglas Vazquez was able to buy a $400,000 condominium with a low down payment, thanks to a Federal Housing Administration loan. (By Leah L. Jones For The Washington Post)
By Dina ElBoghdady
Washington Post Staff Writer
Tuesday, June 10, 2008

For the past few months, nearly every loan that Laura Triplett has closed for customers at SunTrust Mortgage has been backed by the Federal Housing Administration.

"I've got another 20 people closing in June and most of them got FHA loans, too," said Triplett, a branch manager at the bank's Woodbridge office. "I don't know what we'd be doing without FHA."

Demand for these once-neglected mortgages has surged because they do not require the hefty down payments or stellar credit scores that lenders have come to expect from borrowers. In addition, the amount of money people can borrow on these loans went up dramatically this year, and many homeowners have found them attractive for refinancing.

They might not be the cheapest loans around, but they are the best fit for some borrowers -- and the only option for others -- as lenders continue to toughen their standards in response to the subprime meltdown.

The number of FHA loans issued shot up 126 percent in the first quarter, compared with the same time a year ago, even though they still make up a small part of the market. They have made the biggest gains in pricey areas such as Washington, where the down payment other loans require is out of reach for many borrowers.

David H. Stevens, president of Long & Foster's affiliated businesses, said his real estate brokerage now holds regular FHA training sessions for its agents and the loan officers at its in-house lender, Prosperity Mortgage.

"Our FHA business in the Washington area went from virtually nothing at the end of 2007 to about 30 percent today," Stevens said. "In some spots, FHA makes up 50 percent of all our loans."

The volume of loans at Wells Fargo, one of the nation's largest lenders, has increased 342 percent this year from the same time in 2007, said Greg Gwizdz, the company's national retail service manager. Helping drum up business were live simulcasts for real estate agents that the lender recently held in movie theaters nationwide touting the benefits of FHA loans.

Many attribute FHA's growth spurt in part to federal legislation that has temporarily raised the FHA loan limits nationwide, broadening the number of people who can use these loans. In most parts of this region, the limit is now capped at $729,750, up from $362,790.

The change, which took effect in early March, came just in time for Abby and Walter Morris.

The couple had made an offer on a house in Chevy Chase. But their lender yanked the loan at the last minute, citing concerns about their finances, the couple said.

Abby Morris, a doctor, had just completed her residency. Her earning potential was huge, but her medical school loans and her lack of long-term employment made the lender squeamish.

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