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Government-insured home renovation originations soared by more than half on a month-over-month basis — though they still represent a small fraction of the home-improvement financing market. Despite the gain, the number of loans outstanding contracted 12% over the past year.
Operational data from the Department of Housing and Urban Development indicate that the Federal Housing Administration endorsed 83 Title I property improvement mortgages for $2 million during October.
Home lenders are insured against loss on the junior-lien FHA product as long as they can show that the borrower had the ability to repay the loan in regular monthly payments at application.
While the latest volume remains miniscule compared to the roughly 208,000 home-equity loans and lines of credit originated per month during 2022 by government and conventional lenders, it was 54% more than FHA endorsed during September.
Compared to October 2022, the number of Title I loans endorsed by FHA was up 24%.
Although FHA has helped finance home alterations, repairs, and improvements since its creation in 1934, the Title I property improvement program has substantially declined over time, former HUD Economist Kevin A. Park previously wrote in a blog for the agency. He explained that some of the reason for ailing activity is the difficulty regulating the quality of improvements. Another obstacle to growth has been competing conventional financial alternatives that had expanded.
Park noted how loan limits and underwriting procedures for Title I mortgages — which are disproportionately used by lower-income borrowers, borrowers with lower credit scores, and borrowers with lower value homes — haven’t changed in three decades. In addition, Title I has a higher share in rural and distressed markets.
“Reforming the Title I program may help improve the energy efficiency of the residential sector and ameliorate the lack of affordable housing,” Park said in the blog.
FHA insurance was in force on 9,990 Title I property improvement loans for $198 million as of October 31, 2023, contracting from 11,394 loans for $223 million as of a year earlier.
