According to a recent report by the U.S. Department of Housing and Urban Development (HUD), there was a 17.1% decrease in loan endorsement activity at the Federal Housing Administration (FHA) during the final quarter of 2022.
HUD and FHA report various data points to Congress each quarter of the fiscal year, including the count of FHA loans. During the fourth quarter of 2022, which coincides with the first quarter of federal fiscal year 2023, FHA backed a total of 179,152 mortgages, indicating a decline from the previous quarter’s count of 216,036. This marks the sixth consecutive quarterly decline in FHA loan endorsements since Q2 2021, which was the peak of the current cycle.
The total dollar value of FHA loans in Q4 2022 amounted to $49.1 billion, indicating a quarter-over-quarter decline of 17.5%.
The FHA explained that the latest decrease in loan endorsements was due to the ongoing increase in interest rates, which led to the average 30-year fixed mortgage rate exceeding 7% in late October and early November. Additionally, the Mortgage Bankers Association (MBA) reported a decline in mortgage credit availability during Q4, reaching its lowest level since March 2013. In December 2022, the MBA’s Mortgage Credit Availability Index showed a 23% year-over-year reduction in credit availability for the FHA and U.S. Department of Veterans Affairs.
Loan endorsements for both purchases and refinancing decreased in the last quarter of 2022. Purchase activity declined by 16.3% quarter-over-quarter, while endorsements for FHA-to-FHA refinances decreased by 28%, and conventional-to-FHA refinances dropped by 10.6%.
Due to high interest rates and fewer incentives for refinancing, purchase loans remained the primary form of lending activity. In Q4, purchase loans accounted for 78.6% of all FHA mortgages, an increase from 77.9% in Q3 2022 and significantly higher than the 65.9% share in Q4 2021. This marks the highest level of purchase loans as a share of all FHA loans since mid-2018, when it briefly surpassed 80%.
The count of HECM (Home Equity Conversion Mortgage) endorsements at the FHA also experienced a decline, with 9,555 recorded during Q4 2022. This indicates a quarter-over-quarter decrease of 31.1%, with the dollar volume of HECM endorsements shrinking by 34%.
