FHA Home Loans – Meeting The Challenge?


During the most recent three years, FHA-Insured mortgages in terms of market share increased from less than 20% to the latest figures putting it over 50%, a quick and explosive increase which began at the end of first quarter in 2007 up to and including the first quarter of 2010. In the absence of sub-prime loans which as we now know were based on very imprudent lending practices, FHA loans are now heavily relied upon to finance the bulk of the nation’s residential housing financing needs.

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Although the market continues to be sluggish during this “non-recovery-recovery” economic period, the fact is that there are still homes being sold and home loans being originated, processed and closed; and the loans most often utilized by lenders and buyers alike are FHA home loans. The demand for home loans has increased slightly from this time last year and the longer these increases continue, the more demand for FHA loans will increase proportionately. The question is, will the FHA be able to meet that demand.

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You may ask, what happened to the traditional conventional loan? And you would be correct in the assumption that conventional home loans are readily available also as a means of providing home loans for meeting increasing demands, except that the reason subprime mortgages gain popularity in the first place was due to the rigid guidelines under which conventional loans were underwritten as well as the out-of-pocket (cash) requirements home buyers had to meet in order to get a conventional home loan. Those guidelines, although modified in recent years, are still rather prohibitive (20% down payment without PMI, 720-760 credit score, reduces to a full 10% a home buyers gross monthly income for “housing expense ratio – PITI”).


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While a home purchaser has to invest a very huge amount of money to support and maintain the home and protect his/her investment – although these days there are those who will dispute the investment idea – over the long term, many proponents of affordable housing, including some mortgage lenders, belieeve that as long as a borrower is steadily employed and has been for previous two consecutive years; can show a history of managing credit responsibly; and have save at least 3.5% of his/her own funds for down payment, s/he ought to be able to own a home.

For many years the FHA shared that view, but what plagued FHA home loans during the two decades from 1980 to 2000 was the “maximum loan amounts” they were willing to insure, which is the reason PMI and Subprime companies gained prominence in the mortgage markets in the first place. PMI (private mortgage insurance) served as a bridge between the 20% down payment required to be qualified for conventional loans, and the 2.25% to 3.5% (most recent) needed to qualify for a FHA home loan. PMI loans, as extensions of the conventional loans were processed and underwritten using the same loan maximums that existed on the conventional loans and therefore garnered a substantial market share while FHA loans could not be approved and closed due to the same maximum loan restrictions, or low appraisal, or expensive repair work they demanded the home seller to complete as a condition of closing the sale of his/her home. Oh did that infuriate those poor home sellers. The problem today is different.

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Today there is more of a demand for FHA home loans than at any time during the last quarter century and the question is whether or not that demand will or can be met by today’s FHA. It is common knowledge by now that FHA (Federal Housing Administration) is a government agency under the HUD (Housing and Urban Development) umbrella and as such must adhere to, promulgate and uphold laws which govern the lending process, including FCRA, RESPA and most recently S.A.F.E. just to name just a few.

Having said that, it is reasonable to assume that as the federal government goes, so goes FHA, therefore the question regarding meeting the increasing demands of the residential home loan industry is not an easy one to answer since the government must first be restored to 100% economic health. If I had to bet on FHA home loans meeting that demand though, my money would be place on the FHA meeting the demand and remaining a viable force in the home loans market for many years to come – perhaps another 75.

A message to our readers:

Thank you for visiting REAMS. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Occasionally, we’ll post content from our other sites based entirely on its value to you. Please let us know what you think in the comments section. Thanks and God Bless! Javeton

For more about 203k, please visit the HUD website.

humor
If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?

FHA: Changes for the Better?

There have been many new regulations enacted by our government, new guidelines adopted by HUD-approved mortgage lenders as a consequence and a number of rule changes for the rest of us to abide by. All of these changes are being implemented this year although the law was enacted by Congress and signed into law by then President, George Bush in July 2008 (almost two years ago).

The FHA guidelines under which mortgage lenders and brokers are operating today were modified to crack down on the “wrong-doers” who, in the past have violated one or more of the old guidelines; and although this is a step in the right direction by the FHA, some of the changes seem as if they would have a reverse affect on the mortgage market. For example, some of the assistant features which existed for down payment and closing costs have been modified under the new FHA guidelines. An example of this is reduction in the “seller concession” from 6% to 3% and the lifespan of an appraisal is now 4 months, reduced from 6 months.

Strangely enough, the program that does more to protect a new homeowner more than any other have received less attention in the way of support and funding by lenders and investors. Almost every aspect of the 203k rehabilitation mortgage can be thought of as protecting the home buyer; from the licensed, insured, and work history documentation requirement of the general contractor, to the hud consultant supervision of the work and waiver of monthly payments for an uninhabitable house, plus so many other built-in protections for the home buyer who would have less maintenance and repair cost to worry about after making the purchase, thereby reserving more money to be applied to home loan payments.

The general consensus of industry professionals is that the 203k program involves too much work so nobody wants to deal with it. When I have had the opportunity to direct my questions to an authority on the subject I asked if FHA would consider bringing back the “Escrow commitment procedure” as one way of increasing homeownership by reintroducing “qualified and responsible” non-profit organizations as community-based entities that are capable of sound counseling of would-be home buyers in many low-to-moderate income communities throughout the country.

The reliance on qualified non-profit agencies to perform ongoing counseling to homeowners in jeopardy of losing their homes has been in place for over two decades, and it seems to me that the reliance on these organizations ought to be prior to homeownership, not after the home is purchased and the problems are real. The point is that if these agencies are expected to solve problems after the problems have occured, then why not utilize their services to help in reintroducing the procedure I spoke of earlier?

Realizing that several elements of the economy must be working relatively well in order for the mortgage industry to return to acceptable form, I would really like to see more of an effort made to promote and fund the 203k program so that the protections afforded new buyers and the money-saving procedures featured in the program can be available to offset some of the increased costs associated with the program under these new set of rules and guidelines.

Processing of the Mortgage Loan Application


The term processing could apply to just about any multi-step undertaking, but when the subject is mortgage lending, processing of the loan application is as specialized a function as some of the most document-intensive businesses you can imagine. The individual entrusted with processing of a mortgagte loan application, namely a processor, must be uniquely qualified and therefore is compelled to obtain the education and training necessary to be as efficient and thorough as the position demands.

In a mortgage loan application, the end of an originator’s job marks the beginning of a processor’s job, at which juncture it is effectively the processing stage, which places the responsibility of loan preparation for underwriting on the processor. Just as the loan officer must be able to identify and address potential problems at the origination stage, a processor is expected to verify income and assets with acceptable documentation, as well as ascertain the borrower’s credit is satisfactory enough to merit submission to underwriting.

It is at this stage where many a loan is held up for reasons unforeseen by the borrower, originator or processor due to the simple fact that several different elements are added to the equation; especially in the case of a FHA mortgage.

Specific issues could be the appraisal report (which may or may not reflect a value sufficient enough to support the loan), verification of employment (VOE), verification of deposit (VOD), proof of down payment, all required disclosures (including RESPA disclosures, and State-specific predatory lending documents), and a number of other requirements which must be dealt with before the loan application package can be submitted to an underwriter for approval consideration.

If everything falls into place in a timely manner – appraised value is adequate, VOE is returned by employer, VOD is returned by depository, and all disclosures are in order – then a processor can prepare the loan for underwriting. However, that’s a very big “if” because invariably it is necessary to wait for a verification to be completed correctly and returned, or there could be an issue with the appraisal which delays the process.

It is reasonable to opine here that one of the first lesson a processor learns is to submit to underwriting a fully processed loan application package; otherwise the package may be returned to processing as incomplete; so when a borrower wonders why the “process” takes so long to complete, the answer can be found in possessing a clear understanding of the steps required at each stage of the mortgage application process, especially stage two.

Processors are often accused of delaying or preventing a loan closing, but such accusations are unfounded because in many cases, a loan processor has absolutely no control over the actions of other parties involved, especially third-party participants, borrower’s financial institutions and employers, among others.

Mortgage related sites of interest:

To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com.

Humorous or Ironic?

If the government can’t run business, why is it that big business always run to the government for a bailout when it runs into trouble?
FHA-insured mortgages… Government-run for over 75 years. Lest we forget?