It is now well known that the Sub-Prime Mortgage Industry is tightening up on their underwriting requirements, and that many loans that were easily underwritten just a few weeks ago are no longer available. So much for old news and what can’t be underwritten any longer, so now it is time to move on to what mortgages can be underwritten.
Conventional Loan programs, at least here in Connecticut are still proceeding the same way as they have been for years, and will continue to provide mortgages to people with good credit. But what about the people with credit that needs a little “Tender Loving Care”? Well it seems that an old time mortgage source will soon be “Stepping Up To The Plate” and taking care of some of those needs. This old time mortgage source is FHA, and changes are underway to help fill in some of the gaps that have been created by the recent changes to the Sub-Prime Market.
Unlike Sub-Prime Mortgages, FHA Mortgages are fully backed by the Federal Government, thus giving FHA Mortgages a solid secured base. FHA Mortgages do have limitations that the Sub-Prime Market did not have, such as Stated and No Money Down Programs, Loan Sizes, as relaxed regulations on credit issues. But efforts are underway in Washington to fill some of those gaps. There is currently legislation to increase the FHA Loan Limits to that of Fannie Mae ($417,000), and also moving closer to 100% Financed Loans. As far as relaxing credit requirements, FHA is a lot more relaxed in that area already then most people realize. Unlike Sub-Prime and even some Conventional Loan Programs, FHA is not FICO score driven. FHA Loans are underwritten under what FHA refers to as a “Total Scorecard”. That means FHA looks at an Applicants full credit history and not just the Credit Scores. FHA looks at employment, nontraditional credit, and does not automatically disqualify someone because of a bankruptcy. FHA will consider “Compensating Factors” such as the reason for credit problems like medical and loss of employment.
So while some doors have been closed by recent changes in the Sub-Prime Industry, FHA is “Stepping Up To The Plate” to at least alleviate some of holes that have left behind by Sub-Prime. FHA is trying to change it’s hard to do business, bureaucratic, red tape, snail like processing ways of the 1980’s and 1990’s. The changes that started to take place at the beginning of 2006, appear to be continuing towards a friendlier, we want your business FHA. Stay tuned for these changes, and others that will still make it possible to do some of hard to do loans.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
George,
Congrats, unless I've missed it you may be the first of a few of us who thought of this or similar FHA post now that sub-prime bubbles are popping. We lose when we snooze. Appropriate and timely!
Bryant first to the easier of the two questions. FHA does not put a limit or at least I do not see one in their Regulations on how much money can be gifted towards the Downpayment. But it does limit who can give it. Gift money towards downpayment can be not just be from any one it has to be from a family member, employer, labor union, charitable organization, government agency, public agency that has a program for housing assistance, or a close friend that has a documented interest with the borrower. All others are excluded from being able to give the Borrower Gift Funds (this last one is tough to prove).
The Seller can pay up to 6% towards Closing Costs.
Second, the reason why the FHA fell out of favor until recently is because of what I stated at the end of the Post. They made it very hard to underwrite loans through them with all their rules and regulations and repair requirements. They have really relaxed things in this area since 2006 and have also become a lot more friendly to do business with. The other reason why they fell out of favor was because they did not aggressively go after the business of Mortgage Brokers thus excluding a large part of the Mortgage Industry.
FHA is going to have to get with the market prices if they want to loans in my area. Any hope of that happening?
kk
George, you stated that FHA will take a Bankruptcy into consideration. Correct me if I'm wrong it has to be TWO years old doesn't it?
Also what about the Down-payment assistant programs? Can they be used on FHA? Programs like Nehemiah. There's literally thousands of these programs out there.
George,
Thanks for the post. I have received my first FHA offer in nearly five years. I am told by others that they likewise are seeing an increase in the number offers with FHA financing. The fact that FHA has relaxed it's appraisal process will go along way to may it more palatable to agents and sellers alike.
George,
It will be the same story with a different sub-plot! Where`s Charles Keating?
Realtors were also posting no VA due to the appraisal concerns - they didn't like the VA valuations for the properties - perhaps they should have....
George, how is my neighbor donig this morning? It is pretty chilly here in Fairfield, Connecticut. I am going to try to blog about how FHA is stepping up but with one leg, not two. I will explain in my blog. The thing I don't like about FHA and government loans is that you have to go full documentation and almost every single time that I have tried to put a borrower into that program, they did not pre-qualify on paper. That is why the loans were submitted to our sub-prime department and borrwers were notified that they will be receiving extremely higher interest rates and higher closing costs for 100% financing with no doc requirements.
It is not the lenders fault that they will be receiving higher rates/costs but I guess you can blame the borrower for not having good credit or not keeping their heads above water.
Trust me, I never, ever want to hand over a NEW LOAN to my sub-prime colleague at work but I must if I can't fit them into a FHA or a regular conventional loan.
Great informational blog for sure! Nice job. I will try to link back to your site as well so you get more coverage for your blog.
PS: We also need to network because I can do loans in all 50 states and I don't think your company allows you, do they? If you don't know of any mortgage professionals that you can refer business to, then maybe you can remember me in the near future.
Your Connecticut Neighbor,
Nima
203.913.6016
http://www.MyNima.com
So perhaps when real estate agents can see the benefits of these types of loans -- as well as the buyrs and sellers - FHA may be an excellent option
VA was always a right of entitlement; I don't know any agents who dissuaded buyers from VA loans; FHA loans are determined by a buyer's financial situation; I don't know of any agents who dissuaded buyers from FHA; Sellers in the DC area, when interest rates were double digit, were advertising (agents as well) that VA loans were assumable. On the other hand, I've had sellers who have said they will not take a government loan of any kind because they have been burned or heard horror stories from friends about bad closings gone south due to them. True or legendary, this affects what a seller will or will not do. I've also had clients of a certain generation who did not understand certain 'programs' like Neighborhood Gold, and if I had not presented the offer to the seller and their agent (who was also clueless), they would have thought it too complicated to accept the offer.
Thank you, George. Good to know!
Thanks George...Most of my 27 year career there was nothing but FHA and traditional conventional financing. It is no secret I am and never was a fan of sub-prime lending. Making loans to borrowers that have none if their own money invested is never good. Most of these buyers will let their home go to foresclosure than become better money managers because they have none of their own money invested. When you and I grew up we could not buy anything if we did not save our money. Saving is not in the vocabulary of most people today!
Great post, George. Helpful information to have. FHA will have to do something about the cap in our expensive market.
Jeff
While FHA may be "stepping up to the plate" to fill some of the holes left by the SubPrime market, you should expect that Fannie Mae, Freddie Mac, and FHA programs to go through similar tightening of guidelines.
I wrote a related blog comparing the default rates on FHA loans compared to SubPrime loans. You may be surprised to learn, that while SubPrime has more foreclosures.... FHA has more defaults...
My Blog: FHA vs Subprime:default and foreclosure rates
I have always loved the flexibility of FHA and VA loans for our buyers. Now, I've been waiting 6 months for FHA to get the 100% loan going. When are they going to get off the pot?????
If FHA had been less mired in bureaucracy, the sub-prime mess would never have happened.
Step up to the plate, indeed. They are coming to the plate kicking and screaming. I believe that the FHA loan administrators and Congress did a great disservice to the public by sitting on the sidelines while other 100% loan entities flourished and naturally entended to the sub-prime investors.
This sub-prime mess never had to happen.
I still don't see the benefit of all of this unless the consumer actually changes their behavior with money, it doesn't matter who lends the money, if you can't handle your money, you'll get into the same trouble. It is good that the FHA is going to look at the entire credit picture, though.
George, thanks for the update. In the past, we have not been able to do a lot with FHA in the Verde Valley, and especially in Sedona due to the low limits. Looks like we may need to expect to see more of them in the future if they do raise the limit to $417,000.
Danny asked: "Also what about the Down-payment assistant programs? Can they be used on FHA? Programs like Nehemiah. There's literally thousands of these programs out there."
Please forgive me if I missed the answer, but I'm curious also. I have 2 different buyers applying for downpayment assistance, and in the case of one of them, the original lender seems to have lost interest in her so I'm looking for ideas.
I will say that in regards to Federal programs in general, I tend to side with Lenn; 11 years of living in DC gave me ample time to study the beast of bureacracy (to say nothing of growing up in a Govt family).
I have been doing FHA for three years now and I have always loved it. Its works wonders for me.
Ben
Great post George, I have been using FHA for a while to compete with sub prime, you would be surprised at what you can get appoved FHA, I just closed a deal with a 543 FICO ! With our DAP programs getting us to 100% financing and closing costs makes it a deal! Especially not paying those ugly sub prime rates.
Sub Prime News: http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=2007703170322
George,
I am so glad to hear this. There have been several rumors swirling around but this article is the first concrete information I have had. Thank you so much and keep us informed ! : )
Randy, the FHA loan limits tend to be a problem in areas where selling prices are in the Jumbo range. Hopefully they will increase the loan limits to at least the Fannie Mae conventional loan limits of $417,000.
Rich, "nice to see you contributing your usual sage thoughts"........"sage", I love your choice of words.
Ardell, those are two very good points, but hopefully more Condos will get on the FHA approved list, and Lenders will begin to realize that FHA might be more of an option than they thought.
Danny, in section 402.01 (E) of the FHA regulations states that two years are needed out of bankruptcy, but then it goes on to say "An elapsed period of less that two years, but not less than twelve months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances". I hope this answers your question.
Linda, you are right FHA have been a popular loan here in Connecticut. They may require a little more documentation than some other loans, but they also are more flexible in areas that other loans are not.
William, I agree. When FHA relaxed those appraisal conditions last year it made it a lot easier to do their loans.
Phylena, thank you.
Scott, I hope that you are wrong on this one. Hopefully things improve, and the industry will learn from its mistakes.
Joan, hopefully the old fears of FHA loans will go away and Realtors will come to realize that the new FHA is easier to deal with than the old grumpy FHA. As far as FHA Condo approvals, I have not heard anything.
Ava, hopefully they will get the legislation past to increase the Loan Limits soon, it is needed, Washington works on their own time table.
AJ, Realtors might not have liked VA Loans, but they are a great deal for those who qualify.....No Money Down & No PMI, can't beat that.
Nina, things are great here in Middlesex County. Even if FHA only jumps in with one leg it is better than no legs. FHA will never fully replace all the gaps that Sub-Prime has created, but right now I believe that they are a better vehicle. You are right they are a full DOC loan, but then again one of the big reasons why Sub-Prime is in the mess that they are in is because of their lack of document requirements. FHA is not for people with the real bad credit, but it is more flexible than conventional loans in many cases. I have had a different experience than you with FHA Loans, I have found them easy to get an Approved/Eligible on as long as you stay within their ratios. I look forward to reading your blog on this Nina, let me know when you write it.
Carol, I think that you hit the nail on the head. The fear of these programs is more from lack of knowledge about them then anything else. VA loans do require a little more work than conventional loans, but if the Lender and Loan Officer know what they are doing there will not be any problems.
Michael, I will take a look at it.
Action2sell, we underwrite FHA loans in the same amount of time as it takes us to underwrite a conventional loan. That means Commitment inside of two weeks.
Rhonda, thank you for stopping by.
George, Sub-Prime Loans were never a favorite of mine either, and I do very few of them because of that. You are also right about saving habits, they are not good.
Jeff, you are right, I don't think they are going to be much of a help in CA.
Brian, the default rate would be a surprise to me. Tightening of other programs might be coming, but I don't think that they will be anywhere near the extent that Sub-Prime has gone through.
Lenn, I can not argue with what you said, because I agree with it. But let’s hope that they have finally opened their eyes.
Roger, FHA will not go to the extremes that Sub-Prime went to. Even with the proposed changes it will not be doing the real bad credit loans like Sub-Prime.
Beth, the answer is yes to the downpayment assistance. As I stated in my response to Broker Bryant gift money for downpayment assist can be provided through charitable organization, government agency, and public agency that has a program for housing assistance.
Ben, your are right, those of us that know how to do them do not have the problems that others encounter.
Karen, great advice!!!
Mortgage George...
Just checking in (good way of putting that) to let you know I read your post.
After reading all these comments I have nothing of value to add. Sorry :)
P.S. Don't you get a trophy with your name on it? SVVVVVVW. I know. Knock it off :)
TLW...ROAR!
FHA is an awesome alternative and although their guidelines may also tighten up a bit in response to the recent subprime collapse these changes wont be too extreme
Eddy
Leo, great job on that, I have not gotten one approved with the credit scores that low, but you are proof that it does happen.
David, I have not had that problem, but I am sure that it does exist as you said.
Rich, I agree the bottom line is that it is the borrower who got themselves into the situation that they are in, but sometime we can help get them back up on their feet.
Karen, you are always welcome to stop by and say HI. Hope that the Post and the comments are useful to.
Ethan, I am sure others will jump in to close some of the other holes.
Jennifer, I will try to Post as I hear more about the changes.
Christopher, thank you.
Kelli, glad that I could be of help.
John, that is one of the benefits of this site.....the information that we all share.
TLW, it is always of value when you stop by. Gee I didn't even have to say "Knock it off" you did it for me.....LOL
Eddy, I fully agree, thanks for jumping in and commenting.
George....an excellent post and I agree with Ron. I snoozed and I lost. I actually sent myself an e-mail back on 3/9/07 as a reminder to write a blog on this. I just never got to it and it got lost in my notes.
In any case, you did an excellent job of highlighting FHA as a great resource. Some of us from the old school of lending were brought up on FHA loans. My first FHA loan was in 1993. Hence why I have been angry with so many of the lenders in the last 5 years.... not teaching new loan officers about this. I can't tell you how many lenders that I come across don't even underwrite their own FHA, let alone even have FHA at their disposal.
Again, great post.... as many of us have stated all along, we need to educate.
Jeff, thanks for the supportive comment. It is amazing how many Realtors and Lender have actually almost scared people away from doing FHA Loans, but now it looks like they may be the answer for many.
George, great post. I have not seen changes to the Mortgage Industry like this, since credit scores.Originally I originated 90% of my pipeline as Government loans. I am at about 18-20% currently.I look for that to increase back to 50-60%. There haven't beenj this may changes to the market in a short time, since automated underwriting.
Hi George - Great post about FHA. It has been a while since I have done an FHA mortgage, but I do know McCue has always been known as the place to go for government loans. Hope to do business with you some day.
Marabeth
George-I have been a bit busy partly putting out fires related in large part to the subject of your post - financing. I have been wondering when you were going to write a post relating to all that's been happening in the marketplace with respect to the uphevals related to borrowers' problems.
It seems people are becoming awfully jumpy and tense and I hear that transactions have been falling apart recently because of more stringent loan requirements, not to mention the difficulties some sub-prime borrowers seem to be having, acording to the media.
Thanks for your post. It seems as if the two, FHA and Sub-P do a dance, taking turns leading and following; or is it that borrowers are the ones doing the dance around FHA and Sup-P? It will be interesting to see what happens in the near future. History shows that the success of our industry can be severely impacted by what happens with lenders.
Eloise, I think it is more about the direction that Lenders and Loan Officers steer Borrowers in. Right now the Sub-Prime Market has tightened up a lot making FHA more attractive. FHA has always been a great loan but some Lenders have not liked the fact that they require additional documentation sometimes so they look for the quick way out.
Brother my BDay wish for you started with a whole bunch of age jokes :)
Once I found that video I knew it would be much more appropriate. May God Bless you and keep you.
In all God's Good Love,
Your lil' Sister...TLW...ROAR!
Dear George,
Do you think that FHA will dissapear v.s. conventional loans someday? Very intersting blog :)
I know we all expect FHA to be used more, but would like to see some stats saying that is actually happening. We would need loan limits increased in Seattle for FHA to be a viable option
Ray, FHA has been here for a long time and I think it will be around for a lot longer. It isn't going anywhere.
Ardell, it is to early to be able to tell if FHA is being used more, but I can tell you that I have already started to do more this year then I have before. You are right about the Loan Limits they need to increase before FHA can really fulfill many of the present needs.
http://activerain.com/groups/KentuckyProfessionals
Thanks so much and see you soon
Ben