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Agents Recommend FHA and VA Mortgages Much Too Often...Don't and Here's Why

Real estate agents are quick to recommend the government backed loan programs of FHA and VA. After being a Colorado mortgage broker for over 15 years, I've seen the ease with which many agents jump to this now antiquated faith in mortgage programs that have, quite frankly, seen their best days.

I recently wrote a 3 page article called, "The Fall of Government Mortgage Programs: Why FHA and VA Home Loans Are Quickly Becoming Irrelevant to explain why these programs are passe.

I know just how hard it is for real estate agents to keep abreast of everything happening on their side of the fence, so keeping up with the changes in our mortgage "back yard" is almost impossible.

Take a minute and read that article and see why just a few short months ago, we had Congressmen and Senators present bills to abolish all government mortgage programs...including the FHA and VA programs!

Plus it's a good primer to remind you of the real uselessness of these programs now that we have other more competitive programs in the marketplace ( and I'm not talking about subprime programs)....conventional loan programs most retail loan officers rarely tell you about since they know little or nothing about them as well.

Selling homes over the next few tough years will be all about getting loans approved with marginal credit and high loan-to-values....and the new programs are designed to do just that.

New market, new programs.

Don't let your advice suffer from a lack of attention like some forgotten old house.

Update your advice along with the market and not only will you close more deals, your clients will thank you.

Note: Editor's note: "a few shorts months" should read "a few short years"...

Posted by Rob K. Blake, "The Mortgage Insider" on 07/02/2007 03:02 PM

Comments (56)

conventional mortgages, fha mortgages, va mortgages, government mortgages

56 Comments on Agents Recommend FHA and VA Mortgages Much Too Often...Don't and Here's Why

JUL

2007

Rob if I had a nickel for every-time an agent promised that their client could get be approved on a VA loan because they had an eligibility certificate I'd be rich. Nice article!

Thanks Rob! It seems to take people years before the rumors stop and peoples understanding changes. I reseantly talked to a young couple with no credit scores (because they pay cash for everything) trying to save the 20% needed to buy a home...boy did they miss the boat...I had to tell them that housing prices are moving faster than thier ability to save 2% of their income and they would never have a house at that rate...now we are working on getting established tradelines, but they are still nervous....(uneducated)

Shawn,

Isn't it true! They think just because they have the cert, they are approved. They forget the VA loan is an A paper loan...it's as hard to get approved as the old "conventional loans" were back in the day before automated underwriting computer systems.

Plus the VA is really hard on the appraisal process...

The VA program is NOT an entitlement program....yet agents refer and refer this program again and again.

Well hopefully not after they read the artice.

Great article Rob, I wish they would just do away with FHA and VA. It is amazing to me how many calls I get from prospective clients wanting a VA loan just because they have a certifcate and they were told it mattered. ONce I start explaing the process for getting approved and what they will actually qualify for they quickly change their minds.

Chuck & Marie,

It's hard to get people (clients, agents, mortgage folks) to stop perpetuating rumors and research the truth.

Those folks with no credit scores (I'd find that really hard to believe) but if it's true, there are conventional 100%, or 97% loan programs for them from FNMA..

I wrote an up-to-date article on Nothing Down Mortgage Programs: Pros and Cons.

Pass it on to them...maybe they'll have more confidence knowing the truth from rumor.

sorry, but i strongly disagree and i feel you have failed in the and "here's why" category.

for those who see no value in these loans, quite simply don't use them.

i've been utilizing thes options since around 1980 and believe as they have, they will continue to outlive most other mortgage programs.

catch me in about another 10 years, i'll still be using them.

Jay,

Everyone's entitled to their own opinion, but I doubt you actually read the article in it's entirety.

If you had, you'd know there are much better options available than FHA and VA....better rates, better mortgage insurance options, more choice in products...

And that my friend...is fact...not opinion.

BTW...you misspelled (sic) plathera...in your profile...thought you'd want to know. It's plethora...

I've done them....tons of them over the years. they do have advantages and disadvantages and yes, your article covers these disadvantages nicely. the MI tacked on does hurt FHA tied in with their down payment compared to a my community loan. Maybe we'll see a overhaul of the system and an upgrade? But it is the government and i am sure there will be red tape.

Rob.

I like fha loans. They are as competitive as a conventional loan. I find that it is easier to qualify a person for an fha loan then a conventional loan. With the market swing, I am writing 50% more fha loans than I did last year. It is a little bit harder for a broker to do an fha loan, But if you are passing on fha, I feel you are doing a disservice to your customer. I have a variety of loan programs and I work from the wholesale market.I can get great rates. Fha and Conventional.

Every person isn't right for an fha loan. But, you make it sound like fha should go away. I disagree. Look at the number of fha loans. They are way up since they realized that there was too many restrictions. That is why they loosened up.

Rob -- I did loans in San Antonio in the late 90 ealy 2000's and if it were not for FHA loans, no one would own a home there. Now that I am home again in Hawaii, we do a ton of VA loans because of the large number of Military here. The trick to doing them well is to deal with LO's and Realtors that know how to do them.

BRUCE- I AGREE WITH YOU 100%

Shaun - "I find that it is easier to qualify a person for an fha loan then a conventional loan"

Shaun, all I can say to that is, "Then you're doing them wrong". Inputting a bruised credit, 100% LTV borrower into the FNMA computer and getting the approval back takes a matter of minutes. And unlike the FHA or VA approvals it stands up all the way through final (human) underwriting.

Bruce - "...in the late 90 early 2000's and if it were not for FHA loans, no one would own a home there"

You made my point for me...that was the late 90's...FNMA didn't even offer a 100% conventional loan back then...or credit leveled approvals either. Stay current with times when giving advice on loan programs. Rehashing something that worked 10 years ago pawning it off as good advice today is not helping the client...it's a disservice.

Bruce- "we do a ton of VA loans because of the large number of Military here"

Just because you have military folks in your market doesn't mean the loan is the best product for them. The huge up front "funding fee", worse rates than FNMA's Flex program, limited max loan size, all make it a program who's time has come and gone...

BTW...did either one of you actually read the entire government mortgages article, or just the snippet here on AR?

I'm guessing the latter...

BTW: Email and Comment Edicate 101 - No ALL caps posts...it equates to "shouting"...meaning it's rude behavior. We can all hear you fine,Shaun, without it.

Ok, you opened the can of worms. I don't give up easy.

If you have a borrower that has - a less then 600 credit score,collections (subprime) But, has the money to pay them off, Has enough income to qualify. I will go F H A they get 97% financing. I get them 3% down payment assistance (non-profit orginization),I have the seller pay up to 6% concessions. Oh let me see lower mi and they walk into the loan with 3% equity . Did I mention that they are now debt free because we pay off their collections at closing and the seller pays their closing costs? Almost forgot, I will still be able to beat a conventional 100% by at least an 1/8th% and I don't have to worry about My Community's (Median Income Barrier.)

Now I have a borrower that has 3% equity ,no closing costs (because the seller has paid them) and they have paid off their debt.

Yeah I like to help my customers. We are licensed in 36 states. we loan up to 30 million a month from our office. I have my own FHA Underwiter in my office. So , Since it is not a good idea to give your customer an FHA loan,Chances are we are licensed in your state . Send them to me and I will try to think-out side of the box to Help them acquire the American Dream * Home Ownership*.

Sounds like a good deal to me.

Closed one Friday.

Shaun - You'd better enjoy it...it will most likely be your last one. The American Dream Downpayment Initiative and others like it are all but outlawed for use with any federally insured loan included FHA.

HUD Proposed Rule in May of 2007 to prohibit so called "non-profit" down payment assistance programs. Of course, the NAR and the lobby for home builders love selling folks properties they can't afford and leaving the tax payers holding the bag...so they are opposing the new Rule.

Do you really think the "loan structure" you're so proud of above is "good" for the buyer?

According to the GAOand a separate HUD study both found "that seller-funded down-payment assistance has led to underwriting problems and resulted in an increase in the effective cost of homeownership."

The HUD Report said (and it is also the reason for the new Rule to eliminate these programs),

"Though the seller-funded [downpayment assistance] providers deny that it is true, we found overwhelming evidence that the cost of the [downpayment assistance] is added to the sales price, which then increases the allowable FHA loan amount and eliminates any borrower equity in the property."

The HUD report also noted that the foreclosure percentage doubled on downpayment assisted FHA loans over those not assisted.

Helping folks right into foreclosure...is that what you meant by "Yea, I like to help my customers."?

The IRS chimed in with:

"The IRS is increasingly concerned with organizations that are taking advantage of homebuyers who need assistance for a down payment to realize the American dream of homeownership," said IRS Commissioner Mark W. Everson. "So-called charities that manipulate the system do more than mislead honest homebuyers and ultimately jack up the cost of the home. They also damage the image of honest, legitimate charities."

IRS Targets Down-Payment-Assistance Scams; Seller-Funded Programs Do Not Qualify As Tax Exempt

Are you listening Sean...."taking advantage of homebuyers"..."mislead honest homebuyers"..."jack up the cost of the home"....?

Just because you can do something, doesn't mean you should do something.

And with property values dropping all over the country, putting unwitting folks into homes with the false belief they have equity, circumventing tax loop holes, just to do more loans is ...well, just plain wrong.

But you already knew that, right?

JUL

2007

Rob,

I guess I will stop doing Fha loans because you said that they are not good for my customers. I will look for a conventional that doesn't fit there needs but is better because you said to.

Yeah right. I appreciate your view point. Fha isn't the only option, But, it is a great option for some customers. There are many loan programs out there and they have different benefits. I still like Fha and for some people it may be their only choice beside sub-prime.

I would much rather put someone in an Fha loan than a Sub prime. The chances of them defaulting an fha is much lower than a Sub-prime loan since the interest rate is at least 3-4% less.

Shaun,

Sarcasm has no place in debate.

I noticed you didn't refute the HUD, GAO, or IRS reports calling what your doing with FHA loans combined with "non-profit" down payment assistance programs "taking advantage of homebuyers"and "mislead honest homebuyers".

Instead you sarcastically reply, "I guess I will stop doing Fha loans because you said that they are not good for my customers."

Let me be clear...I didn't say FHA loans were bad for your clients.

The IRS, GAO, and HUD said the way you are using FHA loans is bad for your clients.

It's not FHA that's the problem here, it's you and your "non-profit" companies perverting the system to circumvent a long standing FHA rule of no seller contribution toward down payment.

Lastly (as I can see you've lost the will to continue), I'll ask before you make the statement "...the chances of them defaulting on an FHA loan is less likely than a subprime loan..."or words to that effect...check the facts.

A year ago when the GAO did their study of these down payment assisted FHA loans, their foreclosure rate was 4.65% virtually identical to the subprime foreclosure rate at the same time. Whereas the normal FHA loan without down payment assistance was the normal 1.5% foreclosure rate.

Do you ever check the facts? Or do just believe what you want to believe, facts be damned?

Rhetorical questions...of course.

Are we talking about a year ago or now? 1 year ago I did very little fha loans. Now the market has changed and I do more Fha loans than conventional. It is obvious that you feel that it is not a good deal to do an FHA loan. So if you wouldn't mind, when you are not able to get a customer approved on a conventional loan. Give the customer my number and I will try to help them into a home.

I respect you for your research and your knowledge of the industry. However it is more important to me to help someone get a home so they can pay their own mortgage instead of making some investor rich.

Have a happy 4th of July my friend.

just think about it

its a govt loan

govt

need i say more

just a big pain in the butt

much more hastle then conventional

and for what?

JUL

2007

Mr. Blake,

When you mean to say "you are" in a sentence, it isn't supposed to look like this:

"The IRS, GAO, and HUD said the way your are using FHA loans is bad for your clients."

Are you saying the IRS, GOA and HUD all used poor grammer?

And who specifically is the "you" in that statement?

Just a question. Continue the debate.

Rob - Typing "your" when "you" was meant is the most common typing error on the Web...but thanks for the heads up ...I'll get it changed

BTW- It would give you more credibility if when correcting typos, not to have any yourself. You wrote "GOA"...when it's "GAO". It stands for Government Accountability Office.

The "you" in the sentence is clarified by "your clients" at the end. Read it again, you see.

JUL

2007

Sorry to butt in this debate. FHA does require 3% down. there were nonprofit companies covering the 3% plus closing costs up to $10,000-$25,000. A majority of those companies have shut down and are not providing that anymore as a result of these studies that you have mentioned. So now we are back to basic FHA with clear underwriting guidellines and 3% down.

You are saying that underwriting and all these fees are increasing the buyer's costs (according to the studies.) We do that with any loan. That is the reason for the TIL right? To show the cost in terms of interest of getting the loan.

FHA has provided a service. It is an option - just like all the other loans. FHA and VA are not the only ones with the charges you have mentioned. We have the same thing being said against subprime and A- paper loans. How do those studies compare to these ones you have mentioned? There will always be naysayers in our business. Most of them are not dealing with clients face to face. Why should we listen to them? We are the ones responsible for making our clients' lives better.

Just a point. Go back to your debate.

Marie,

Thanks for jumping in...

The numbers I see say these programs are still operational...and mortgage companies are using them still at an alarming rate.

Shaun, said he closed one with down payment assistance just "last Friday".

They may not be as popular as they once were, but they are certainly not gone. If that were the case I doubt if HUD would bother with the proposed Rule.

And I agree that all loans have costs, but these downpayment assisted loans have an "extra" cost to the buyer in that the seller raises the price of the house to cover the "assistance"...both the fee to the "non-profit and the "down payment" itself.

This was the finding of the studies.

Shaun,

I had a great Independence Day...hope you did too.

Now in response to your last comment....you said, "Are we talking about a year ago or now?"

The GAO, IRS, and HUD studies on "non-profit down payment assistance programs" were done a year ago.

We are discussing the results and your assertion you still use these obviously buyer punitive programs as recent as "last Friday".

So it doesn't bother you that the buyer gets taken when using these programs?

Is putting a guy into a house with no equity or maybe negative equity when using these "non profit assistance programs what you mean when you say, "it is more important to me to help someone get a home so they can pay their own mortgage instead of making some investor rich".

I would say you are not using the ugly programs in combination with FHA loans to help...the ridiculous foreclosure rate shows that can't be "helping" even in the most lax use of the term...but it's a way to exploit a loophole to uncover a new untapped market of loan volume for you a your company...on the backs of the least lendable prospects.

Sound familiar? Just like the subprime originators throwing common sense to the wind, with their 'everyone gets a loan" mentality, consequences be damned.

Shame on you.

Hopefully we won't have to rely on industry exploiters to control themselves on this one...HUD will close the loophole and save the FHA programs before guys like you bankrupt it.

I think the FHA programs have a much more limited usefulness, but I don't want them gone.

Shaun, at least you inspired me to write a significant article on this topic on my "outside" mortgage blog.

"Just like the subprime originators throwing common sense to the wind, with their 'everyone gets a loan" mentality, consequences be damned."

Does the Mortgage Broker have any Social Responsibility in this?

JUL

2007

wow.... and wow.... where to begin?

Rob, to start off and to say that I read your blog on your other site. I see that you mentioned this a few times in your comments. So, again, I did read the WHOLE thing. Oops.... I shouldn't use caps, because you are here. But doesn't it catch people's attention? Make a point sometimes? Just my .02. I guess I need to read up on the blogging rules.

In any case.... sorry if this might be somewhat long and garbled. But I am very passionate in what I do.... so...here goes.

Rob…. sorry, but I don't agree with most of what you are talking about. I see that you sell videos and books that you have done. In my life experiences, people need to attack one part of the business, to drive business to another part. There is a point to that comment.

But let's keep to the topic. Let’s touch on your topic of Congress trying to get rid of these gov’t loans. I didn’t read anywhere that mentioned that congress wants to stop these types of loans and why. This sounded more like your opinion. What is in the news is that many would like to see the DAP programs disappear. The Down payment assistance programs, better known as Nehemiah and AmeriDream. Yes, these programs, but NOT FHA. And I read your comments to Shaun.

So, keeping on topic in regards to the down payment assistance programs. You, Rob Blake, said that people that use these programs are cheating their clients? How is this? They are only cheated when the value of the house is raised high enough and that this is not the real value. [I'll use highlighted words instead of caps. ;o) ] If I wanted to compare the DAP (using FHA) program to my community program and state the value is real. I am sorry, but the FHA program will be much better. Who cares about the 1.5% financed MIP. The payment will still be lower than your 100% loan. If we want to compare apples to apples, put 2.25% down on that 100% program. The rate on that program will be about 1/2% higher which means that the FHA payment, with the 1.5% financed MIP will be $67 lower on a $250,000 sales price. You even said yourself that numbers don't lie. These are facts down directly from Point.

You said that FHA has dropped off considerably in the last few years. Gee, the last 5 to 6 if you want to get technical. Yes, FNMA has come out with more programs. 100% and everything else that can deal with the less than perfect credit. But did you go on to say that there are penalties for the 100% program, that rates are higher than FHA rates? But you talk negative about the up front MIP insurance? And I already gave you an example in the difference on payment. In my honest opinion, you are substituting FNMA for subprime. The only difference is that FNMA is not whacking you with higher rates than what I just mentioned.

On another note, you talk about FHA and that congress doesn’t like these loans because … you wrote “FHA loans require 3% down and the borrower can finance the closing costs (roll them into the loan amount).” You can’t roll closing costs into a FHA loan on a purchase…. where did you get this information from? Did you mean seller assistance? If so, FNMA can do the same.

Overall, I could be here all day. But your blog on your other site is misleading to the general public. If I am dealing with less than perfect credit, no matter what the credit score is, apples to apples on the 2.25% down payment (3% total monies out of pocket).. I will beat out any other rate and or program that you can offer on the FNMA side. Hands down.

In any case, sorry if this sounds harsh, but information like this is very one-sided and misleading to the public. And if you knew everything, CONGRESS might be about 2 to 3 months away from approving higher loan limits. And this is inside information that is accurate, not speculation.

And too anyone else reading this. Sorry if it seems that I am attacking Mr. Blake. But I am very passionate in what I do. And I myself have 15 years in the mortgage industry. People have opinions, which is fine. But when I actually crunch these numbers on paper or in a computer, these numbers don't lie. If I compare the same loan amount with the same less than perfect credit, comparing FHA to FNMA's best programs that allow for this kind of credit, FHA will win in payment and in rate.

jeff belonger

Now...let's talk about VA... again, some bad advice in my opinion. Simple comparison. If the client has a 660 credit score, putting 10% down and we add the VA funding fee back into the loan, the VA loan is still going to have a cheaper monthly payment. (keeping mind that 80/10's are much harder to do now also)

People.... one point that Rob Blake makes that is true is that FHA and VA have more paperwork. That usually with the less than perfect credit, the loan will have to be manually underwritten. Unlike the my community home buying program, to where it is underwritten per se online. But... you have to have an approved eligible. You can't have a refer on this type of deal. It's dead. FHA, you can get a refer and the underwriter can override this. But the FHA rate and payment will still be lower.

In regards to the comments made on this, tells me that some loan officers and Mr. Blake are pushing quicker loan approvals, not payment. Didn't the subprime business do the same?

Lastly, you talk about stats. The 100% loan from FNMA hasn't been around long enough to compare to the DAP program stats. You want some stats on FHA loans compared to FHA loans that utilize the DAP programs? Please read this. : FHA Money Down Assitance Programs vs 100% financing.... What's the difference? Here are stats on what has happened in the last few years.

Thanks Jeff for helping to bring things into perspective.

FHA/VA are great loans for some borrowers.

I never understood why realtors recommend loan programs.

Jeff,

Thanks for drop in to add to the discussion. Let me say from the start I'm not "attacking" government loans at all and especially not for the motives you suggest anymore than you are defending them to support your marketing as the "FHA Expert".

Can't we leave conjecture about motive out of the debate...and simply say, "Let's discuss this on the facts"?

I'm game if you are...

So, back on topic. Abolishing HUD and the FHA programs they administer has been a topic of interest (mainly for Republicans) going back to the early 90's. An acutal Senate bill S.1145 was proposed and discussed.

In Sworn testimony back in 2001 John Charles Weicher,Assistant Secretary for Housing and Federal Housing Commissioner, said, "I was almost the only Republican interested in housing policy who didn't want to abolish HUD".

So I am not "making up" the extreme view that HUD thereby FHA be abolished. Nor am I in agreement with those views....quite the opposite in fact should you decide to read more of my site.

But I digress...the real thrust of the article (and this debate) was that the government programs were becoming (if not reformed) irrelevant, obsolete, ...name your adjective.

That focus I got directly from HUD spokesman, Brian Montegomery, when he testified before the House Financial Services Committee...April 2006...on "Transforming the Federal Housing Administration of the 21st Century"

He says, "Unfortunately, over the last few years, the housing agency that helped bring the nation out of the Depression, the agency that helped our grandparents and our parents buy their first homes, the agency that stood by the oil patch and rust belt states in the 1980s when the entire real estate market sank in parts of California, Texas, Louisiana, Michigan, Ohio, New York and Pennsylvania - that agency became an almost invisible presence."

"almost invisible presence"...now does that not sounds like "irrelevant" to you?

He goes on, "Over the last ten years, the industry changed dramatically. Reliance on automated underwriting systems and risk-based pricing is standard operating procedure today. A multitude of innovative new products were created. The secondary mortgage market was transformed into an investors' paradise, where the array of investment options seemed endless. While this transformation happened, FHA stayed the course; the world changed and FHA remained the same. Simply put, the dynamic mortgage market passed FHA by." (emphasis added by me)

When HUD's own people admit, the FHA programs got passed by, they make my post more on point with every word.

FHA is attempting to "upgrade" if Congress approves, with the FHA Modernization Act which Mr. Montgomery says includes, no payment loans doing away with the complicated loan amount and cash to close calculations currently the hallmark of an FHA loan. Also they want to raise the loan limits, which has probably done more harm to the program than anything. This Act would also treat condos more like single family homes allowing for more approvals. Also they are thinking about "risk scaling" the mortgage insurance....which I think is a great idea.

But again, this is If, Congress agrees.. These reforms were proposed in 2006 and rejected. You mentioned these reforms are coming back this year, and we'll have to wait for the outcome. But from what I've read Congress will actually have less motivation to do it this year than last. I'm not sure Congress wants to put all those subprime escapees into the publicly insured FHA coffers.

Can you blame them?

Kenneth Harney wrote a Washington Post article outline why these reform are no "slam dunk"

I won't address the DPA programs as we agree these programs are all but gone, and good riddance.

I'll quote Mr. Montgomery once more, "Simply put, the dynamic mortgage market passed FHA by. For example, in CongressmanTiberi's district, FHA's volume has dropped from 3,096 loans in 2000 to 1,735 loans in 2005. For Congresswoman Harris, during that same time period, FHA's volume dropped from 2,354 to 621 loans. For Ranking Member Waters, FHA's volume has all but shriveled up from 2,207 loans in 2000 to just 34 loans in 2005"

Those dropping FHA loan volumes I'm sure were due in large part to subprime encroachment, but we can't discount that FNMA Flex with expanded levels played a part in that too. As well as the My Community programs, and now the new HomeStay program.

But my basic point that FHA programs in there current form, have limited utility and are only a "good" option when comparing against subprime or when conventional is not possible. You've said nothing yet to convince me otherwise.

Should the loan limits be raised to reflect the market, the down-payment requirement eliminated, the mortgage insurance be tiered and have the ability to be removed at 80% LTV ( and be tax deductible like pmi) all without being more expensive rate-wise, than the conventional programs, I'll convert...but not until.

PS: I stand corrected on FHA financeable costs...yes, only on refi's.

Boy, this is one heated discussion, however, from a Realtors stand point, this is incredibly confusing reading the article and your comments. We just had a sales meeting today with a Mortgage Broker who has been in the business for 13 years and one of the major topics that he discussed was the value of FHA loans and the advantage in utilizing these programs for our clients. Personally, I don't recommend any type of loan to my clients. I have them meet with the lender and discuss what is going to be the best program for their needs. I have full confidence in the lenders I work with that they are looking out for my clients and their best interest. If it does happen to be a situation, such as a City grant, of course I will jump in and make a suggestion. That is a different topic however.

Rob... I am a good natured person. You can quote who ever you want. You made an assumption that 'people'...congress, whomever, want to abolish FHA. Let me read in between the lines for you. You talk about John Charles Weicher stating that he was the only person that didn't want to abolish HUD. First off, almost one of the only people. One of how many? Second, this is someone making a statement, based on what proof? maybe his own opinion?

Rob, I can see that you are a very good writer and that you laid this out very well. I might be a little less polished because I am not a politician. Because I like to speak the truth, so it comes out less educated at times. But I can read between the lines. And you have failed to tackle the main thing here. What you wrote. You actually made reference to FNMA and their programs being better than FHA. So why care about FHA would be your opinion.

Rob.... in all honesty, let's forget about who said what and why in regards to congress. It's irrelevant in my opinion because you made a specific statement on your own blog site. Yes, I read the whole thing. Did you read it?

Here is what you wrote..... The 100% conventional loan programs also don’t leave the new home owner in an “upside down” position like the FHA program. This was from your own blog site. Me. >>>How does the FHA program leave the home owner in an "upside down" position, but the 100% conventional program doesn't?

And in the post above these comments, you wrote : Plus it's a good primer to remind you of the real uselessness of these programs now that we have other more competitive programs in the marketplace ( and I'm not talking about subprime programs)....conventional loan programs most retail loan officers rarely tell you about since they know little or nothing about them as well.

My thoughts on this..... if you do the numbers and compare apples to apples, FHA is still your better program, even if it is used less. Why is it used less? Please read my blog this evening. Getting back to figures. If I compared a 100% conventional deal vs a FHA loan, while using the DPA, FHA is better. Example : $250,000 purchase price.... credit score of 580 Then we would have to add the 1.5% MIP and finance it into the FHA loan. And don't forget, your rate will be about 1/2% higher on the my community loan than the FHA loan. After all said and done, the FHA loan will be saving more than $80 a month. That is a huge savings. SO, how can you say that FHA would be useless? Again, I will have reasons in my blog to why it's easy for you to make these statements.

But one thing to remember, FNMA has come out with more programs. But when you are relying on zero down loans and you can make it happen with FHA and the DPA, this is far better than the my community program.

Another thing that I wanted to point out. I am not sure if you changed up your post on your blog site, but you did talk negative a lot more, in regards to FHA and even said yourself that conventional loans are better. For some reason, I can't find this anymore.

Overall... we just disagree with each other. Even though some things seem to be missing, your comments reflect that you are pro conventional and against FHA. And I can say this in all honesty because I had others in the lending industry read your other blog. And they all said the same thing. Just wondering why it doesn't sound as attacking of FHA loans now than it did earlier today.

Again, read my blog later to why FHA has been disappearing more. The main reason is opposite of your answer. My answer is because more loan officers know less about FHA loans and that they take a little more time. You even admitted that it's quicker to get an answer on a 100% conventional program. But only if it says yes, they will do it. Also... because not every lender is FHA approved, because it costs money. These are things that you leave out. Sorry, but it just proves some things to me.

As I stated, you are a true politician, because you can state comments and phrases. Me? I am a true stats person. I don't sugar coat the facts with chit chat or other people's comments and or opinions. I state facts with provable examples that anyone can do on paper.

So, please back up your statement to why you think conventional loans are better than these so-called gov't loans. And please, don't dsipute this with comments from congress. That doesn't count. Numbers count and not the numbers stating that FHA originations have slipped in the last several years. Again, I will state these reasons in another blog, because you failed to address these.

thanks, jeff PS... see, I will put my client into the best program. Not the easiest program for me. FHA loans usually take elbow grease. That is one of the big differences in today's lending.

jeff belonger

Jeff,

Your desire to ignore the facts by saying "let's forget about who said what and why in regards to congress" is understandable.

I guess if I were in your shoes, I'd want to ignore the facts too. When HUD reps themselves admit they let the program slide into virtual obscurity...I'd want to sweep those statements under rug as well.

I addressed your "get back the figures" argument in my comments to Shaun above. A FHA loan combined with a DPA, when the DPA was funded by raising of the sales prices, puts the borrower "underwater". The GAO and HUD studies supported the same conclusions....since you're a "stats person" maybe you'll review those studies stats...hopefully you wont' brush of those numbers aside just because they came out of Washington.

Here it is again,

Once you allow the seller to start manipulating the sales price to cover his cost of the DPA, the sales price has to be raised enough to net the buyer his 3% down...and pay the DPA company their fee...so the buyer is underwater by the "non-profit" DPA company fee at the very least, . Now that the seller is monkeying around with with the price of the home, how do you know they didn't add a little more for good measure?

You don't...which is why these DPA programs being used to get nothing down deals combined with FHA loans are worse than the conventional 100%, FNMA Flex. The FNMA buyer negotiated his price, doesn't need a DPA program in the middle forcing the seller to raise the sales to cover their fee and the 3%. No need to over inflating home values (GAO & HUD conclusions, not mine) is what makes the conventional programs better...they don't put the buyer underwater from the get go.

And the rates on the Flex 100 program (not the MyCommunity) are with .5 (680 scores)-1.0(below 680) of FHA which the seller can pay...making the rates identical. And I don't see any study, by HUD, GAO or the IRS saying sellers paying a 1% toward costs are going to raise the sales price. And yes, if the 580 borrower gets credit leveled to 3 or worse, denied...then and only then, take a look at FHA, but only if the seller agrees not to bump the sales price. The seller can't "recoup" just do the FHA/DPA structure.

It's not a matter of which loans take more time, the FHA system is broken...they allowed DPA's to screw those home buyers who's over zealous mortgage "professional" decided getting "more deals done" was the ultimate goal...regardless of who it hurt...FHA solvency, higher risk of foreclosure to the buyer, etc.

After all the same studies showed FHA downpayment assisted loans defaulted at more than double the rate of FHA loans without downpayment assistance....as a stats guy...what do you make of that? By the way, it's intellectually dishonest to compare the default rate of FHA loans using downpayment assitance to anything other than FHA loans without downpayment assistance...comparing them to subprime or conventional default rates is silly since the underwriting is different.

You mentioned,"I will put my client into the best program. Not the easiest program for me. FHA loans usually take elbow grease. That is one of the big differences in today's lending."

Subprime loans take a lot of elbow grease too...but that didn't' stop the "get it done, damn the consequences" type loan officers...and you see where that got us, right?

I see the perversion of the FHA loan program combining it with a DPA as the same thing...

You probably disagree...

BTW: That last quote of yours sounded a lot like a "Use me as your next loan officer" salesy type statement. Not really needed here. Jeff, you're better than that...besides, we bored to death any possible clients about 15 paragraphs ago... haha

Rob - thanks for stopping by - Yep, I think we all have to say "enough" with all the ways to "shoehorn" even the worst borrowers into a home. Why is we all think getting some one a home is our job? It's the borrower's job...it's out job to confirm he did.

Tom - Good question...I'm hoping they'll stop doing it. This very convoluted but I'm hoping informative discussion will shed some light on just how complicated our industry is. Always in flux.

Julie - Thanks for commenting. Find the most ethical mortgage pro you can find and hang on to him/her for dear life. They won't get "every deal" done, but that's not the goal. They'll get ever deal that was in buyer's best interest done. Some folks just aren't ready, and getting them a house and mortgage before they are is a foreclosure waiting to happen. You don't any part of that.

Rob.... we can be here all night. You are assuming that the DPA loans are raising the sales price. This is not always true. Stop using examples that are not always done.

Do this... can you just say... sales price, $250,000... and compare my example now.???? That's all I asked. Leave the smoke and mirrors at the front door. NOT ALL DPA loans raised the sales price. Besides... who is to say that they 100% financed loan isn't buying a house that is over priced? Who can you blame in these cases? The appraiser.

Rob, I am not your average loan officer. I am not going to talk circles are you are doing. I am not a politician. Let's talk about the actual programs and not how people abuse them. Because we could be here for hours. Lets compare apples to apples.

You are talking about people abusing programs. May it be raising sales prices or whatever.... it can still be done on a conventional loan to cover seller assistance. Right? Again, we can be here all night. You are avoiding my main subject. My FHA payment will be cheaper than the my community loan. Yes or No?

In regards to boring people... yes. That is why you and I are the only ones really talking. You make valid points on what has happened to FHA. But you still aren't acknowledging which is better in payment.

jeff b

I am still here. Sorry, I was just finishing up on another Fha loan with down payment assistance.

Rob-you just said this" And the rates on the Flex 100 program (not the MyCommunity) are with .5 (680 scores)-1.0(below 680) of FHA which the seller can pay...making the rates identical" Right? What is the difference asking the seller to pay this thanto ask them to participate in a down payment assistance program. When you ask them to pay .5 or 1.0 are you asking them to raise the price to match the rate of an fha loan.

Where does the money come from to pay that .5 or 1.0?

Right the same place the down payment assistance comes from. You said it yourself.

I'm not "assuming" DPA raises the sales price...the GAO and HUD studies proved it..

And HUD is so sure of this they proposed a Rule which will very likley pass to stop it.

Don't read my comments.

I did address your example...and I'm not comparing MyCommunity to FHA. The FNMA 100% Flex is the most used 100% conventional loan and has the same rate with as little as a .5% seller paid discount...not 3%+ seller help. Comparing FHA to the worst FNMA program rate-wise is a 'rigged-game" If you want to compare "apples to apples", its FHA with DPA vs. FNMA Flex 100%.

The rates are equal...and the loan amounts are the same since the seller bounces "your scenario's " sales price by more than 3%...so the payments are the same.

It's just that my scenario did not play "make believe" with the value of the home giving the buyer the false impression he has equity.

I know like most good loan officers you're trying to impress with your "loan crafting" skills...and I'm sure you can "craft" one hell of a loan...put virtually anyone who wants a house, into a house, right?

But when do you take a step back, and say, "Just because I can do it, doesn't mean I should"?

In light of all the evidence (granted you won't acknowledge its existence) that FHA with DPA, is not in the best interest of the borrower, FHA solvency, and circumvents long standing underwriting standards, what more can I say?

I have study after study supporting my position...you have, "I don't care about studies"

I think we're done.

Shaun,

Show me the proof.

Where's the HUD, GAO or other study showing what you say is true. I'll grant you that is may seem the same, but until someone proves it, we can't assume it.

1. The seller cannot raise the price to cover the 3% if the appraisal won't support the value of the house- Based on comparables.

1a therefore they are not upside down in the home.

2.down payment assistance can be used with Fha,some convetional ,and subprime loans.

2a This is used for more tha just fha loans

3Did I mention that they were GIFT funds?

3a Gift doesn't have to be repaid.

scenario:

sales price 200000.00 if the appraisal says that it is worth 200000. and the buyer gets 3% gift funds , and you add the 1.5% fha fee. That comes up to a loan amount of 196210.

Now a purchase price of 200000.00 and 100% financing that would be a loan amount of 200000. right?

I don't use an hpIIc But,you would agree that 196210 is less than 200000.00 and I don't have to pay .5 or 1.0 to buy the rate down to match the rate. Right?

So, if the home has an established value of 200000, and the loan amount is 196210, how do you figure that it is not in the best interest of the buyer to finance less loan amount and pay a lower interest rate.Do you really think that they are setting themselves up for default with all of the benefits described above?

Shaun,

I'll just repost the studies until you actually go and read them...all the rest of your points are meaningless since you don't have any fact to back up your assertions....

-----------------------------------------------------------------------------------------------------------------

The HUD Report said (and it is also the reason for the new Rule to eliminate these programs),

The HUD report also noted that the foreclosure percentage doubled on downpayment assisted FHA loans over those not assisted.

The IRS chimed in with:

IRS Targets Down-Payment-Assistance Scams; Seller-Funded Programs Do Not Qualify As Tax Exempt

I am sure that you can run the numbers as easy as I can. But as a Mortgage Banker, I can tell you that I have ran the nubers time and time again. and Fha beats Conventional. Time after time.

Rob... my blog has been posted. Assuming or studies, you are still missing my whole point. Put aside fraud. Put aside how some lenders do business that is illegal. Put aside HUD reports, because this type of loan was abused. And it can be with the my community program also. Give it time. We (lenders) all don't operate this way. These studies are based on lenders and loan officers that are unscrupulous. This can happen with any program. Show me the money.... meaning, compare my apples to apples. ??? Dollar for dollar.

Rob.... another point that was made that you ran circles around. On conventional loans, prices can be raised also to cover seller assistance also. Subprime loans at 100% financing have a high foreclosure rate also. And this is now happening and showing up in stats. Why... it's not that old, that type of financing that is. Just as the 100% my community program. Give it some time.... it's new.

Other than that, this has lost it's luster. It's like swatting at a fly that will never get near you. No sense in going further. I am not here to change your mind, but to educate the average consumer reading this.

jeff belonger

And we thank you. We want accurate information. We do not want people leading us astray.

Rob - I know Brian Montgomery and you have taken his quote out of context. Brian Montgomery is Director of FHA and the changes he has instituted within FHA have been seismic to say the least. Two months ago I had had the privilege to driving around Dallas with him and my boss. Brain has breathed new life into FHA and over the last three years, he had changed most of the regulatory rules and guidelines that were archaic and brought them into the 21 st century. He has been instrumental in advocating the necessary statutory changes still needed and thus has spearheaded FHA Reform in Congress.

You insinuated that Congress has thoughts of eliminating FHA altogether, however that is FAR from the truth. It looks very likely that HR 1852 (Democratic bill) is going to pass and make FHA Reform a reality. MBA President John Robbins has publicly stated if FHA Reform passes in Congress (MBA fully expects its passage), FHA market share will triple with 12 months. There seems to be overwhelming support amongst the Dem's and Repub's. Brian Montgomery and Alfonso Jackson (both Bush appointees) vocally support FHA reform and Bush has already stated he will sign legislation when passed.

DPA'a have been abused and resulted in inflated values in many cases. FHA Reform addresses with 100% program with appropriate RBP.

You have mentioned FHA is a more expensive option, I have seems numerous studies and have crunched figures myself and while true occasionally, have found that is not true.

FHA endorsements are already up over 40% over 2006 YTD. If FHA Reform passes, FHA market share will be any where from 10 - 30% (will vary by market). That is not an insignificant product.

You also indicated all FHA loans are manually underwritten. That is not the case. Approximately 60-70% of all forward FHA loans are SCORECARD Auto approved.

Please call me directly if you would like further clarification in greater detail.

Tony,

Thanks for dropping in ...finally a voice of reason. I agree FHA needs reforming to keep pace and not fall any further behind. If they want to be competitive in the 100% market...cease the dubious DPA "workaround" and get the necessary reforms passed through Congress. Montgomery knows what's needed...he just couldn't get Congress to agree with him last fall.

He'll try again this fall, but it's not set in stone just yet. As I said above, if Congress believes the FHA fund will get stuck with a bunch of subprime refugees, they could run away.

I actually hope they get the reforms past and revive the FHA programs. I'll be the first one touting their usefulness once that happens. I grew up in this business 15 years ago in an FHA shop typing up MCAW's on an IBM Selectric...ah, memories...lol!

FHA mortgages are the best loans on the planet for a huge chunk of the population...just not ALL the people on the planet

JUL

2007

Rob -

A little background on the FHA Modernization bill that languished and died last year.

First - Even though FHA Modernization Act passed overwhelmingly in House, after the elections and Dems took control of Congress, they in essence let bill die since current Repub's were lame duck controlling party. Work immediately was started on drafting new bill for Dem's to introduce (working hand in had with HUD - Meg Burns and Brian spearheaded).

Second - Subprime implosion came and FHA Reform became rediscovered favorite long lost relative. Immense pressure to pass FHA reform in D.C. From all accounts, it is going to pass. Word out of Washington is increased loan amounts could come as soon as late September or early October, with other reforms to follow.

While there is no guarantee it will pass, MBA, mortgage executives and politicians feel it's passage is most likely.

There are a some in Congress that are worried about being stuck with subprime loans, however there appears to be overwhelming support to override those against and pass very comfortably.

Credit Suisse recently released a major study in which they found over 50% of the loans in their sub-prime MBS pools would have qualified for FHA financing. Additionally the study stated if those loans would have funded FHA, the foreclosure concerns would have been greatly mitigated because of being in a better loan program that would not be recasting and HUD has far superior foreclosure workout experience.

The FHA fund is solid and with proposed FHA Reverse changes, the fund should be shored up even more.

Tony,

Thanks for the "inside the Beltway" scoop on the Modernization bill and the Credit Suisse data is very interesting too.

I wonder if that 50% would have qualified at origination or at the time they conducted the study. If it was the former, a lot of brokers screwed their clients by going subprime in the place.

I wonder too if the former was the case how many could have gone FNMA Flex or MyCommunity in the first place.

Those subprime brokers really did a number on the consumer and we don't even know the potential fall-out for the housing and fixed income markets.

Rob - I've only seen high level and admittedly anecdotal data that indicates 5-10% could have gone Flex or MyCommunity.

It is my belief (again anecdotal) lenders and brokers put their clients in sub prime loans for the following reasons.

Path of least resistance - even if LO knew FHA or other conforming product was better
High barriers to FHA Lender status- It's cumbersome and expensive to get and renew FHA approvals each year as a lender or correspondent.
Influx of Newbies - They didn't bother to learn or work for company that was FHA approved.
Alternative programs- MyCommunity, sub-prime, Alt-A, Stated, etc...- See number 1.

There are other reasons, those however are the main ones in my humble opinion.

Rob- agreed we disagree on fha's

Lets move on. You say that you have a radio show. Is it something I can listen to on the net? I am in Florida and I am only aware of one local Real Estate- Mortgage program on the radio

I have been reading and watching this debate now for almost 24 hours. I believe that you all have done a great job of stating facts and working through some discrepancies via the comments.

I am a firm believer in the benefits of FHA. I have seen first hand the powerful options this program provides for the right borrowers. Jeff makes a lot of good points about the comparison of FHA to conventional loan programs. In many cases, FHA will beat conv....in some cases conventional is better. But, that's just the point...we are all educated enough and experienced enough to know that each situtation is it's own situation. Hence, each situation warrants a loan that is the best fit for the customer. I believe it is unfair for any of us to make sweeping comments about one particular loan program (government loans) and say they are irrelevant or passe. There ARE customers out there who it will be a great loan program for, same goes for conventional loans, same goes for Option ARMS, Accelerators, Balloons, etc. Our goal should be education. No one should be making a recommendation on a loan program to a borrower except the mortgage professional who understands there complete financial picture and future goals.

Tony, you said:

"Credit Suisse recently released a major study in which they found over 50% of the loans in their sub-prime MBS pools would have qualified for FHA financing."

This is a huge point!! This goes straight to the benefits of the FHA loan program.

Let's continue to give good education to consumers!

JUL

2007

Leah - My point exactly. Fha is a great loan that can help a subprime buyer buy a home and not have to pay subprime rates.

Example: Customer has a 200.00 medical collection that an insurance company refuses to pay. Credit score drops down to 595. Is this a bad person that shouldn't be able to buy a home? No. Even if they have the 3% to put down, They would save money to do a 97%fha verses a 97%conventional. And although they are considered subprime because of the score and collection,They should be given then chance of home ownership at a fair price.

Rob- Even if the price was raised to cover the 3%down like you say the studies say, Doesn't the home still have to appraise? If it appraises, how can they be upside down. I know that we won't fund a loan if it doesn't appraise. With or without dpa. Fha or Conventional.

JUL

2007

I have been gove on vacation and am really surprised to see the length that this debate has taken!!

Hooray for Tony!!!

Shaun, Jeff, Rob - You made this a really interesting and great learning experience.

Thanks Marie...

Shaun - Yes we do have a "radio show" you can listen too on the web...
Go to http://themortgageinsider/podcasts/

Also on whether the house "must appraise" point...

The HUD Report said:

The "eliminates any borrower equity" phrase it what tells me that HUD looked at those appraisals and disagreed with the appraisers work.

The whole world is up in arms, both at the state and federal level on the pressures put directly and indirectly on appraisers to hit "target values" and the DPA programs, are a prime example of banks and broker exerting appraiser pressure without ever saying a word.

Say, for example, Shaun, your bank with 30 million a month in FHA matched with DPA transactions, and you have an appraiser in each state, getting about 13 appraisals a month, is he more or less likely to risk losing the business by coming in low on all those DPA deals?

This is another reason these deals are a sham...they try to "game" the system by "passing through" seller paid down payments which are never allowed, and they put undue pressure on appraisers to "hit target values".

Gaming the system is what often times, kills the system. You've heard the phrase, "a handful ruined it for everyone"...that's what lenders who use the DPA to game this could eventually do....ruin FHA solvency by put "subprime" quality loans in the portfolio.

The reforms are what's needed...

JUL

2007

Rob, I think more agents and lenders should consider whether they're really doing marginal buyers a favor when they get their clients into mortgages thet the buyers likely won't be able to keep up with.

Brian -Exactly!

The cries of "I'm helping them get their slice of the American Dream" is self-serving.

You are not "helping" anyone.

When these loans default at 16%...subprime defaults at 12.5%...and conventional default at a rate of 1%...maybe 1.5% in bad times...who are you kidding?

Hurting people for money and then claiming your were 'helping' them is a special kind of delusion...one based on greed.

Yes I'm talking to all you DPA/ FHA mortgage providers...we see throught it...we know it for what it is.

And the same goes for you home builders and real estate agents "helping" folks into foreclosure...of course, your commission check cleared, right?

And shame on the NAR up on Capitol Hill last week testifying how HUD's new ruling to eliminate DPAs was going to hurt the less fortunate in this country...no, we'll leave that to you NAR.

You folks pay these guys, right? Do you really want your dues money going to lobby Congress like this?

I wouldn't...

Rob- Do you have a list of the loans that have defaulted that you have closed? I took a moment to review the conversations we have had with the owner of our company. Now we only funded 300 million dollars in loans last year. So, our risk isn't as much as some. But, according to our records- High ltv loans default more that low ltv's and conventionals default more than Fha. Now this is based on our own figures. And we do a lot more conventional loans than FHA. I personally have had no defaults either fha or conventional. I can't be sure about the validity of the reports that you are referring to due to the fact that we didn't fund those loans. But based on the loans that we have funded and are able to track. Fha is still a great product.

Please remember that another reason that FHA loans have not been used in the recent years is the cap on the loan amount. Now that the prices of homes is falling ,more home sales will fit into the FHA Bracket. Fha is a lot easier on the credit scores and was designed to help people purchase a home. As to dpas-with fha,this only accounts for a smal percetage of our Fha Loans.

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