While a lot has been said about how banks are moving risk off their balance sheets and on to the Federal Housing Adminisitration, those critiques are really too broad. Yes, banks are relying on the FHA loan program, but others are not.
The FHA charges an upfront premium to borrowers when it makes a loan. The fee is currently 1 percent. There are
also ongoing premium payments. That pool of dollars is used to protect FHA against loan losses.
The FHA guarantees these loans in order to stimulate the availability of mortgage loans to lower-income borrowers. The key difference in FHA, for most borrowers, is that it will allow loans with very low down payments. Today, most borrowers that use a conventional loan to buy a home have to put down twenty percent. The number is even higher for investors. An FHA loan will allow a borrower to put down just 3.5 percent in order to buy a home (before other closing costs). These loans are still designed to perform well. Borrowers have to have a reasonable debt-to-income ratio (29-41) and decent credit. It is even possible to use a contribution from another party (developer, community group, relative) to make your down payment.
I reviewed the use of FHA loans by banks that were large enough to be a part of either the S&P 500 or the S&P 400. Because FHA is meant to serve special populations, I only looked at four types of borrowers: low-to-moderate income borrowers, minority borrowers, borrowers in rural areas, and borrowers in low or moderate income census tracts.
This list shows how some of those banks did. I only included the banks that were at the high and low end of the spectrum.
Highest share of FHA lending to these groups:
- Discover Bank: 100 percent
- PNC Bank (including ex-Nat City): 80.6 percent
- Key Bank: 71.9 percent
- Wells Fargo: 68.3 percent
- US Bank: 67.5 percent
- JP Morgan: 59 percent
- M&T Bank: 58.9 percent
- Bank of America: 54.9 percent
- Regions: 51 percent
- Capital One: 47.5 percent
- Fifth Third: 47 percent
Lowest share of FHA lending:
- Washington Federal Savings: 0.9 percent
- Hudson City Bancorp: 1.4 percent
- Block Bank: 1.60 percent
- Astoria Financial: 1.64 percent
- Schwab: 2.4 percent
- Northern Trust: 4 percent
- E-Trade Bank: 6.2 percent
- BB&T: 8.4 percent
- New Alliance Bancshares: 8.8 percent
- International Bank of Commerce: 9.6 percent