The use of FHA-insured financing by homebuyers in California has greatly increased, reflected by the ratio of FHA to conventional loans originated to purchase a primary residence. FHA-insured loans have swelled in popularity, especially among first-time buyers, as the minimum down payment requirement is only 3.5%, one-third of the down payment required by lenders originating conventional loans with private mortgage insurance (PMI) coverage. The maximum FHA-insured loan limit is $729,750 in high-cost, metropolitan areas.

Lenders and mortgage brokers are also shepherding buyers to FHA-insured loans as bond-market investors have stopped dealing with mortgage backed securities that are not protected by the federal government.

first tuesday take: The growing popularity of FHA-insured loans is especially true in California. In March 2008, only 10.1% of Southland home loans were FHA-insured. In March 2009, that percentage grew to 37.8%. In the Bay Area in April 2009, the number of FHA-insured loans was 26%, up from 3.2% in April of 2008. In the Inland Empire in April 2009, more than half of all home purchase loans were FHA-insured.

There was a time when FHA was said by many (including first tuesday) to have outlived its useful life. We had all forgotten the FHA’s depression roots, and did not look forward with enough insight to see what type of financing would be needed in 2009 and beyond. However, multiple years ago, no one could have anticipated property values in the Inland Empire to become 33% of their 2006 peak.

Re: “1-in-4 O.C. home buyers use federal loan program” from the OC Register.