FHA loan production jumped in March

The production of Federal Housing Administration loans is on the rise, with the rate of purchase and refinances jumping in March, an analysis by Polygon Research found.

FHA purchase volume that month was up to $13.3 billion, compared to $8 billion in February, per the research firm's report. Year-to-date the total FHA loan volume was about 147,000 loans, equaling to $41 billion in loan volume.

A 30-basis-point premium cut implemented by the administration in late February was a major factor driving the ballooning production of these loans as were lower interest rates compared to conventional products.

According to FHA's endorsement data analyzed by Polygon, the average FHA interest rate in 2023 was 6.01%, 35 basis points lower than the average rate of 6.36% in December 2022.  Meanwhile, the average rate for conventional loans was in the high 6's.

Due to lower rates "FHA loans are becoming more affordable and attractive for borrowers who want to save money on their monthly payments," Polygon's blog published Monday said.

The research firm's analysis also found that some of this increased activity is happening in the wholesale channel, which accounted for 22.6% of FHA purchase loan production for 2023, up from 21% in 2022. 

"This means that more FHA borrowers are using brokers to find the best deals…and that brokers have a significant influence on the FHA lending market," the research firm's blog said.

Loan officers on the ground concur that there has been a spike in borrower interest for FHA loans.

Christian Hernandez, vice president of mortgage lending at Guaranteed Rate, noted that many borrowers have come to the realization that interest rates will likely "not go back to the low 2's and 3's and home values are not going down as expected, this has helped them feel more confident in starting the homebuying process." 

"Many borrowers have also heard about the recent updates on FHA loans regarding the lower mortgage insurance at .55," she said. "This can have an impact on our client's monthly payment and help with affordability."

Some companies are also loosening overlays to allow borrowers with lower credit scores to qualify for an FHA loan, Hernandez said.

Meanwhile, Karol Bourdet, loan officer at Precision Home Loans, said that more borrowers are inquiring about this product because of lower interest rates."In my office I am seeing more and more LOs offering FHA than in the past," she added.