FHA-insured loans on single-family houses are in demand again.
The applications have been coming in so heavily that the local office of the Federal Housing Administration was caught "totally by surprise and without sufficient staff," the area director for the Department of Housing and Urban Development says.
In recent years home buyers generally sought high-ratio conventional loans rather than FHA financing because plenty of mortgage funds were available from thrift institutions. FHA processing was also known to be tied up with red tape that stretched out the approval time.
However, a recent tightening of conventional mortgage credit and a higher loan limit - $60,000 - for FHA mortgages has caused sellers, buyers and brokers to look to FHA again.
As a result, HUD's area office, which had only 415 single-family FHA loan applications last year, already has had 3,029 in the first half of this year. A backlog of 500 unprocessed applications developed in late spring but HUD's area director, Terry Chisholm, says that has been reduced to 50.
He said the backlog should be totally erased by next week and that service on loan applications should be vastly improved.
Donald Childress, president of the Northern Virginia Board of Realtors, is looking forward to an improvement in FHA loan processing. Childress headed a board delegation that met with Chisholm and FHA officials recently in the office of Rep. Joseph Fisher (D-Va.). Childress and other realtors had charged that unduly delays in loan processing - five or six weeks instead of the proscribed eight to 10 days - was holding up house sales during what should be the peak season."
The realtors noted that there has been increased interest in FHA financing since the maximum loan limit was increased from $45,000 to $60,000 last year. Additionally, a number of young home buyers have sought to use the new FHA 245 program in which graduated mortgage payments permit lower-than-usual monthly payments during early years of mortgage amortization, the realtors said. This benefits those who are able to make the minimum down payment but who are having a problem qualifying financially to meet the monthly payments for interest, principal, taxes and insurance.
As the result of the complaints of realtors and buyers, FHA Commissioner Lawrence Simons says his agency has been "monitoring every local insuring office. We are shifting personnel and have added more staff to the Washington office, for instance." Nationally, FHA home loan applications for the first six months of this year totaled 313,864, compared with 302,659 in the same period in 1977. But Simons pointed out that most of the increase occurred in April, May and June - a period in which conventional mortgage credit has become less available and more expensive.
The FHA-VA interest rate ceiling was recently raised to 9 1/2 percent. FHA buyers have to pay an additional 1/2 percent for insurance and servicing. That's an effective rate of 10 per cent, which is slightly below the current conventional loan market - 10 1/4 or 10 1/2 percent in Virginia and the District. Maryland, where conventional loans are difficult to obtain today, has a usury ceiling of 10 percent on conventional home loans.
Childress and Fisher maintain that FHA should meet its own guidelines, which call for the issuance of a conditional commitment for a loan in five days and an appraisal within three days.
However, that's for a model loan application. Sometimes there are questions about the credit of the applicant or the condition of the house. In those cases, additional time is needed.
But Chisholm and his staff have vowed to speed up the total process and to be competitive with the VA loan application process, which tends to range from 10 days to two weeks.
One Northern Virginia mortgage banker said that his experience with FHA loan applications had been erratic, with one case taking only one week and another five weeks.
William C. Blomquist, senior vice president of Colonial Mortgage Service Co. Inc., said that the relatively new $60,000 loan maximum for FHA financing and the graduated payment loans had created a new awareness of FHA mortgage loans. "But we were waiting three to five weeks to get the loans through and some settlements were delayed," he said.
Most of the delays, according to a spokesman for the FHA area office, were caused by a lack of sufficient personnel in the underwriting, or credit, section. But that backlog now has been handled and the total loan procedure now should be accomplished within two to three weeks, he said.
Exceptions occur when an appraiser for FHA is unable to get into the house or finds a leaky roof or a wet basement. In those latter cases, repairs must be made. Or, if the appraisal is not equal to the amount asked, an appeal might be made. In all cases, termite reports are required.
Area director Chisholm, who returned here in mid-June to the same post he had held in 1971-73 after a stint at HUD headquarters, says loan applications have diminished slightly in recent weeks - possibly in the wake of the higher ceiling set on FHA-VA loans. He estimated that total loan applications here might reach 6,000 in 1978, if the market continues strong through the end of this year.
The short-term outlook is strong or increasingly high levels of use of FHA and VA financing during this period of peak mortgage credit rates. But a predicted turnaround to greater availability of conventional mortgage credit, particularly with private mortgage insurance to make lower downpayments possible, might again turn the market away from government insured and guaranteed financing.
If, however, the are HUD insuring office is able to establish a policy of processing and completing most loan applications within two to three weeks, it and the area VA loan guaranty office might hold a greater share of the mortgage market.
Both FHA and VA loans are arranged, generally, by mortgage bankers and brokers for real estate agents or the buyers or sellers themselves. Once made, the mortgages are sold on the secondary market. FHA and VA mortgages can be packaged for the Government National Mortgage Association, which uses them as the basis to issue mortgage-backed securities sold to investors. The Federal National Mortgage Association regularly issues commitments to buy mortgages at a certain price and some mortgage bankers sell their FHA and VA loans to FNMA.