FHA: Here to stay! Part two

During the time FHA: Here to stay! was being written back in 2008, not many people could have foreseen the severity of total disaster that would hit the real estate market and create the present economic crises, or the extent of damage that it would cause. I remember a passage from that article relative to the ‘safeguards that were built into the FHA mortgage program’ and now, in the aftermath of what is aptly referred to as the “Sub-Prime Mess” which brought on this disaster, I can’t help but reflect back in disbelief at all that has happened to change the country and, indeed, the world as a result. I think we can safely say now that we have seen the last of ‘Sub-Prime-type’ lending. Those days are Gone! Done! Kaput!

Looking back

Although events leading up to the crash of financial markets were widely discussed, written about and aired on all the TV networks worldwide, I have to believe that one group of people, the every day hard-working, nine-to-fivers who went about doing their jobs and supported their households could probably have a lot more to say about what exactly caused the sub-prime mess and who is to blame for the meltdown; because it has become quite clear that that the finger of blame which pointed to members of this group were certainly misdirected, if not crooked.

School teachers, bus drivers, train engineers and conductors, police officers and firemen, correction officers, nurses and all those who bought their homes the traditional way: By making the required down payment, providing required verification documents (pay stubs, bank statements, W2 forms and tax returns) as proof of their qualification to purchase the home of their choice. Yeah, some who were said to be unqualified to purchase a home are peobably pointing the finger back at the big shots in “I told you so” fashion.

Members of this group throughout the country must have felt a sense of vindication when the entire weight of the economic crises was lifted off their shoulders with the collapse of some of the real culprits, AIGs being the biggest, best known and most magnified. Chances are that most members of this middle class group of people are probably still in the homes they purchased in 2006 and 2007,unless some fell victim, like so many we’ve heard of, and were laid off from their jobs because of the crises, which they had no larger a part in bringing about than any other responsible homeowners, despite what others have asserted. Others who insisted on looking for scapegoats in the wrong places and ended up blaming the wrong group of people. We now know that “others” can be dead wrong.

Solid citizens

The true professionals are those home buyers – now home owners – who purchased their homes by utilizing FHA financing and were qualified for the homes they bought based upon documentation and verification of income, assets and credit. Here’s a bit of information for those who are unfamiliar with FHA financing: There is no such thing as a ‘No-Income/No-Asset’ program description in the FHA residential mortgage program! Many mortgage professionals will probably tell you there never was. There is also no program described as an ‘investor’ loan either; (FHA investor loans were discontinued in the Fall of 1996); and there was certainly no FHA mortgage program such as a ‘piggy-back’ mortgage until 2007 when, in an early effort to combat the impending crisis, a new program was introduced known as FHA Secure, which included language that “…either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits”. That probably explains why FHA was a solid program in the pre-Sub-prime-disaster era, and that it should continue to be a reliable source of financing for respectable, hard working folks for years to come.

This next statement may be a little tricky so please take your time and look just a little closer. Many people who thought of themselves as sub-prime borrowers, including those who purchased homes using “Sub-Prime” financing, probably could not qualify for financing under the FHA mortgage guidelines anyway, despite sufficient enough flexibility in the FHA program to accommadate less-than-perfect “28/41 ratio-3% down payment-credit history” borrowers. The required FHA down payment in 2006 and 2007 was a minimum of 3% (it was recently increased to 3.5%), the earnings qualification was 41% of gross monthly income for payment of total monthly debt and until early ’09 the minimum credit score was 580. There is now a 620 minimum score requirement which could vary based on other loan factors. So here’s the question: On what basis was a “sub-prime” buyer qualified?

Let’s face it!

If a borrower couldn’t qualify for FHA-Insured financing based on the requirements above, there was definite reason for a lender to have concerns about approving any other kind of mortgage him/her. Here’s the point. Those who didn’t qualify for financing under the HUD-FHA mortgage program probably shouldn’t have purchased homes. If this group of people was responsible for the sub-prime meltdown, then it’s more understandable that they should bear some of blame for buying homes they could not prove, in documented form, that they could have afforded. Of course they didn’t create the programs so the real creative genius(es) behind the “sub-prime” phenomenon probably reaped rewards of untold millions and moved on a long time ago. Or may be they stuck around for more multi-million dollar bonuses. As for the those people who suffered financially, I’m sure they will have many unanswered questions for a very long time. One such question that I’m sure has already been repeated several times by many people, as if in one voice, over and over again: How could this have happened to me? What went wrong? Who screwed up? What do I do now?

These and any number of other questions could provide a more in-depth look into how that dastardly “sub-prime” crises really started. That’s a story for another time and one that will certainly be worth discussing; but for now, the FHA mortgage applicant can breathe a big sigh of relief, because FHA is here to stay and there is no better authority on that fact than HUD secretary Shaun Donovan, whose recent statement that “…FHA is unlikely to face the catastrophic losses borne in the subprime sector”, reinforces the durability and reliability of the FHA program.