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FHA mortgages vs Subprime -- Setting the record straight.......

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

September 03, 2007 02:21 AM

money

Who makes up these rumors? Subprime borrowers were taken to the bank because you can make more money on them and because it's easier. Folks, the same amount of money can be made on a FHA borrower or a conventional borrower, just as a subprime borrower. FHA loans just sometimes take more elbow grease and knowledge to help the borrower out. Many lenders were either lazy or weren't FHA approved. And now to say that FHA is back, when it never left, is ridiculous.

As the subprime meltdown started making headlines, we saw a lot of finger pointing. Ron Withers mentions that in his post, The Mortgage Mess: Stop the Blame Game and Fingerpoint Pointing-Let's Work to Solve the Problem! I agree, we need to work on solving the problem instead of trying to figure out who is too blame. My opinion? Everyone.... and here is a list of whom to blame.

Facing reality is sometimes difficult for those that are faced with a bad situation. That is reality. This is in no particular order, but the media, uneducated loan officers, and realtors that just listen to their preferred lenders assume that subprime lending was all based on greed and deceiving the general public. Reality is it was the abuse by some loan officers and lenders that made this product seem like the devil.

News flash, if I wanted to take advantage of a borrower, I could do the same with a FHA mortgage. The sad fact is that I could possibly make more, because of my yield spread, which is money that we can make if we charge a much higher rate. Yes, the rates are lower on a FHA mortgage compared to a subprime mortgage. But again, reality is that you can make just as much and the general public needs to know this.

Conclusion : It was a lot easier to hide the money in regards to a subprime mortgage because they could blame it on the clients credit score. FHA has no credit score requirements. But some lenders aren't buying loans with credit scores below 500. Besides, 99% of the people with credit scores under 500 will not have the credit to be approved FHA anyhow. And those that can obtain a conventional mortgage are usually to savvy per se to be taken for a much higher rate in order for the loan officer to make more money.

I might be beating a dead horse, but I am putting the gauntlet down and saying, enough with these false rumors. If you are dealing with a mortgage professional, one who is going to explain things to you and make sure you get into a good loan program, then it wouldn't matter which you qualified for. Each loan, whether is conventional, FHA, VA, or subprime, has it's own purpose.

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For more information on FHA loans, please go to this link. The FHA Expert You can also go to this group : The FHA Mortgage Group

For more information on how you can obtain your dream home, please click here : Mortgage Financing Options

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Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Good post, Jeff. I like your straightfoward focus on the facts. With so much being written on the mortgage industry recently it's hard for anyone to separate truth from fiction. Thanks for sharing your thoughts.

Jeff

Sep 03, 2007 03:01 AM

Susan Trombley

Trombley Real Estate - Wake Forest, NC

Broker/Realtor, Raleigh, Cary, Wake Forest, Youngs

Jeff

I was talking to a lender I have known for some time and he was like I never, yes I wrote NEVER use FHA, I was like why? Did you know I never got an answer he just moved on to another subject. Scared of them maybe? Firm is not signed up for them more that likely.

Sep 03, 2007 03:06 AM

Thomas Weiss

Thomas R. Weiss - West Palm Beach, FL

Jeff,

Yeah I see other brokers cringe!! FHA whats that? Well they got into the business think it was all a cake walk, throw them into a sub-prime loan, it's so easy. Jeff I remember writing a post about a client that I was taking B/C and you commented back stating all the ways to try FHA to get them a better deal, thats the real deal, you practice what you preach!! Good For You..

Tom Weiss

Sep 03, 2007 03:10 AM

Gary Miljour

American Financial Network, Inc. NMLS#207208 - Southern Pines, NC

Mortgage Originator NMLS Licensed in AZ and NC

Jeff,

Spoken like a true mortgage professional. I agree all loans can be good or bad depending on where the consumers goes to get that loan. You hit the nail on the head and the agents on AR need to read this post very closely. You said it perfectly, "If you are dealing with a mortgage professional, one who is going to explain things to you and make sure you get into a good loan program, then it wouldn't matter which you qualified for. Each loan, whether is conventional, FHA, VA, or subprime, has it's own purpose."

This is the bottom line truth.

Great Post

Sep 03, 2007 04:52 AM

Tom Burris

NMLS# 335055 - Baton Rouge, LA

Texas/Louisiana Mortgage Pro - 13 YRS Experience

Sometimes I just don't have the energy...... the media has it sooooooooo wrong!!!

Yes, you can make as much and MORE on FHA and the client gets a better deal.

Most of these 'bad brokers' Can't do FHA loans

Sep 03, 2007 08:40 AM

Leah Ross

Your Tampa Bay Mortgage Source - Tampa, FL

Tampa, Florida Mortgage

Hopefully with all the clean up in the mortgage industry...in other words sleazy brokers going to jail or going back to work at the fast food joint....FHA will make it's comeback in our industry.

Sep 03, 2007 10:11 AM

Tom Burris

NMLS# 335055 - Baton Rouge, LA

Texas/Louisiana Mortgage Pro - 13 YRS Experience

Leah,

I hope that this little slowdown will make a lot of loan officers go back to selling used cars.

Sep 03, 2007 01:49 PM

Cynthia Tilghman, Realtor® Onslow County NC Home Specialist

Kingsbridge Realty, Inc - Hubert, NC

Hi Jeff,
Keep putting the facts out there. Perhaps this the time for the cream to rise to the top?

Sep 04, 2007 12:30 AM

Bill Nazur

First Lending Solutions - Riverside, CA

Jeff

Oh soooooo very true! You have to point out one of the primary reasons that people did not use FHA financing is their lender or broker was not approved to write the loans and/or they did one loan and realized the paperwork was so specific that the lender/broker steered them to another product. Subprime mortgages were so easy to write that my dog could've put them together at some point. Big mistake when you're talking about clients with bruised credit already putting them into a high risk deal.

I've only written 2 subprime deals in my LIFE! There was always a way to put them into something else, and improve their credit as we went along. FHA on the other hand, I will admit......I HATED and used to fight about the date required for disclosures, etc with my processor......(I did win that argument however). :)

Keep putting it out there....you always put out great content.....

Sep 04, 2007 01:38 AM

John Popp

Charlotte, NC

Jeff,

Lets not forget that Brokers/Bankers need Audited Financials and have to manage at a higher level of comliance.

Sep 04, 2007 01:45 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Jeff D. ... my pleasure. I just got tired of everyone in the last year stating that subprime loan officers made so much money off of everyone. In reality, you could make more on a FHA, that's if you gave them the highest rate. Which would still be lower than a subprime rate, that's if you could still get that client a FHA loan. Thanks for the compliment.

Susan.... there are a lot of lenders that aren't approved FHA. And there are some out there telling others that you don't need to be if you want to do business with them. Meaning, lender to lender. Sad...

But overall, I wonder why this loan officer never replied back. The worse part is that their clients aren't getting all options in regards to mortgages. Better for me, but it could hurt the consumer, that's if they decide to stick with a lender like this and not get a good mortgage.

Tom W. ...... hey, it can be more business for us. The problem is that some lenders will still be able to talk their client into something else that might just hurt them. If the consumer has not so perfect credit, they need to shop around if someone doesn't offer them a FHA mortgage. Thanks for the polite compliments.

Gary..... yes, we both agree, placing the consumer into the best program suited for them. Not what the lender only has to offer or what is easiest for that lender. Thanks for stopping by and for the compliment.

Tom B. .... you hit the nail on the head. Most of these bad brokers can't do FHA... so true. We need to keep educating and getting this out to the public. thanks for the comments.

Sep 04, 2007 03:12 AM

Lisa Hill

Florida Property Experts - Daytona Beach, FL

Daytona Beach Real Estate

It's obvious that a lot of people should have financed through FHA instead of sub-prime. It's a shame that so many people are in the positions they are today, as a result of not doing so.

Sep 04, 2007 11:47 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Leah..... I don't think there will be many going to jail, but I hate to say this, but I hope many do leave.

Tom B. ...... just like Leah, I don't care where they go, but just to leave this business to those that care and know what they are doing.

Cynthia.... that's all that I am trying to do, is putting the facts out there. Thanks for stopping by.

Bill.... many of us that are approved know the reasons why. I even knew some that I worked with, even though we were approved FHA, just didn't like FHA because it was work to them. Others just weren't taken aside and told what to do. The lenders sometimes didn't care, as long as they closed a loan. That part is sad...

In regards to subprime deals... I have done 100's. One year, 65% of my business was subprime. I wasn't looking for it, but those individuals just didn't have the credit to do it. Or... I had two that were less than a year out of bankrupcty, but good credit scores.... 100% financing, bingo, subprime. See, some people that were loving FHA and got a bad deal, didn't feel like working it subprime also.

John..... very true. Thanks for your feedback.

Sep 04, 2007 03:23 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Lisa.... this is true. But we can't always blame the client. You can only shop so many times. And some of these loan officers are very good at what they do when it comes to selling something. Meaning.... they will make you feel good by over promising. And by making it sound good. We just need to educate.

Sep 04, 2007 03:26 PM

Chrissy Harrison

Referral Only Realty - Longmont, CO

I agree, Jeff. Working with a good mortgage expert is the best advice. However, it's going to be very interesting to see what happens to those subprime pushers that were shady. There's a few in our area I can think of who will most deservedly go under. One guy would have the potential client sign an agreement to use him and if they didn't use him and bought withing 12 months of signing, they would owe him $5000. Then he built in so many back-end fees and points, he was making more money than everybody combined. I actually told some subprime borrowers I wouldn't represent them if they worked with him, luckily they didn't. Good riddance to bad rubbish. Sorry this turned into a rant. I hope this time of change in the marketplace elevates good lenders like you and weeds out the garbage.

Sep 04, 2007 04:39 PM

Theresa Sprindis @ Keller Williams Cherry Hill, NJ

Keller Williams - Cherry Hill - Maple Shade, NJ

Jeff -- I am not very well versed in mortgages as a new agent, and this put things into perspective for me. Thanks for that. I suppose I am even more fortunate then most that I do real estate in Maple Shade, NJ... so close to home :)

Sep 10, 2007 02:48 PM