Dive Brief:
-
A growing share of mortgages are being issued to higher-risk borrowers, calling to mind the risky lending practices — which occurred on a much greater scale — in the run-up to the last housing market collapse, according to a recent report by USA Today.
-
Observers are concerned that the trend could eventually hamper the current housing recovery by encouraging more defaults. On average, 2.19% of FHA mortgage payments were 30 to 59 days past-due in the fourth quarter of 2016, compared to 2.13% a year earlier and 3.77% in early 2009.
-
The loans in question are those backed by the Federal Housing Administration, which typically ask buyers to put down between 3% and 5% and are being offered in greater numbers lately to first-time buyers by non-bank lenders.
Dive Insight:
The news comes as FHA loans grow their share of the overall home mortgage market, accounting for 21% of loans closed in January, according to Ellie Mae. For millennials, however, the figure was 35% of loans issued to that borrower group for the month, up from 34% in December 2016.
The figures join other recent data that housing industry watchers say show that the market is starting demonstrate similar patterns to those experienced prior to the last housing collapse, though they expect the outcome to be different this time around.
The Urban Institute reported last month that more low-credit borrowers are not applying for mortgages due to tighter lending standards following the recession that aim to mitigate the effects of high-risk lending by making it harder to do.