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Current Landscape and Industry-Wide Challenges
Housing prices have now stabilized nationally, appreciating on average 5.5 percent annually
since 2012.
1
The economy continues to strengthen and foreclosure rates have reached pre-crisis
levels, currently standing at 1.4 percent.
2
While foreclosure rates are expected to remain low for
the foreseeable future, the pipeline of FHA-insured mortgages is increasing and could represent
the next wave of defaults due to its expanded credit box. With their relaxed credit and down
payment requirements, FHA-insured mortgages are in high demand. These loans require only 3
percent of the purchase price as a down payment and a minimum credit score of 580 compared
to the minimum credit score of 720 required for most conventional loans.
In 2016, FHA loans accounted for over 17 percent of newly originated mortgages
3
yet they
currently comprise 34.1 percent of all over-30-day delinquent loans.
4
To optimally manage the pipeline of CWCOT-eligible properties, servicers should implement
solutions that address unknown and difficult-to-forecast variables in the claims process (see
Chart 1). This would require servicers to weigh the possible outcomes and associated trade-offs
of the two primary claims channels: (1) performing repair activities and conveying the property to
the FHA within the established conveyance timelines with unknown vendor costs and (2) selling
the property through auction to a third party with unknown sales timelines if the reserve price is
not met.
However, because it is difficult to accurately predict conveyance-related vendor costs,
reconveyance risks and the likelihood that the auction will be successful, servicers may not be
1
2
3
www.fhfa.gov, Home Price Index Quarterly Data
MBA National Delinquency Survey Q1 2017
https://portal.hud.gov/hudportal/documents/huddoc?id=FHA_SF_MarketShare_2016Q4.pdf, Single-Family Market Share Q4 2016
4
https://www.hud.gov/program_offices/housing/hsgrroom/loanperformance
