Over the last five to six years, I've seen a gradual decline in the loan officer's ability to effectively write, close and process FHA loans. I attribute this to two main reasons, the first being a lack of proper training. I've found that the average mortgage company does not employ an individual who has enough knowledge of FHA loans to effectively teach others or the managers themselves have little knowledge about FHA.

The second reason is the massive amount of lenders that "where" lending high LTV sub-prime products. There where hundreds of companies that can close 100% loans with 6% seller contributions, all with a 580 credit score. Now that the smoke is clear and lenders have taken a bath will bad loans, FHA has not changed their guidelines and is now becoming the first stop for many seasoned mortgage bankers.

Let's take a closer look at some of the reasons why FHA loans are a great niche for you, your company, buyers and sellers.

FHA loans are not credit-score driven. Although many wholesale lenders have minimum credit scores, many do not. They traditionally underwrite the file, according to FHA guidelines. FHA loans also allow you to use alternative credit. Monthly obligations like gas, electric, and cell phone bills-wherever money's going on a monthly basis-as long as you can document it, it's possible to essentially build a credit history for applicants.

Another feature of FHA loans is that all funds can come from a gift, either from a family member, through the seller, or from a down-payment assistance program. Moreover, it's permissible to have a six percent seller contribution on top of the gift funds.

Customer loyalty is especially significant when it comes to FHA loans. The FHA product is a very stable one for customers, and they're very happy to have that type of loan. This means that they will gladly refer you to their friends who are also going to be buying a home, providing you with a higher percentage of repeat business.

The number one reason why most loan officers don't write FHA loans is because they haven't been given the proper training, and therefore they don't have the confidence to successfully attack this market. The second would be that they work for a small broker or lender and they do not have the resources or funds to get FHA approved.

Why is FHA loans a must have for any company that is going to succeed in this market?

Why is important for Realtors to make certain that their "Preferred Mortgage Banker" have knowledge and ability to close and fund FHA loans?

Simple answer is that this market is changing almost every hour, for some the market is going to a market that is very different from the market they started with. For seasoned veterans we are just coming back to a “normal market” or back to a market similar to one before the huge increase in SUB-PRIME and ALT-A lenders or some would call it the “REFI BOOM”. For those that came into the industry prior to this boom we are just coming back to a normal market for those not, the adjustment will be a harder one.  

So what was it like then? First off FHA loans where the first option for mortgage professions, because of the low down payment, flexible credit terms, etc. Although FHA loans were first option for most they still had their limitations. No chipping paint, 3% down, smaller loan limits........(you all know what I mean)

 Once sub-prime lenders hit the market FHA saw their market share decrease each year. FHA wanted to compete for that market and due to that they have became less restrictive over they years in many ways. In fact most people the get an FHA loan today can do so with almost no money out of their pocket.

I remember my first week in the business about 10 years ago. Being new to the industry and scared of not being able to succeed, I learned FHA loans and I've always been focused on developing my purchase business. Now with the turmoil in the Sub-prime and Alt-A programs FHA loans are coming back. Here are some highlights about FHA.

• The product has been in existence since 1934.
• It usually has the best fixed rates for 30 year and 15 year fixed mortgages.
• There are no credit scores. At this time, the government does not observe credit scoring. Although many lenders do put minimum limits on their credit scores, there are plenty of wholesale lenders out there that do traditional underwriting and don't observe credit scoring.
• Use of alternative credit is allowed. It's possible to virtually build a credit history for people that have no trade lines showing up on their credit report, which we will explore in greater detail in another section.
• 100% of the money for the purchase can come from a gift, from a family member, or from the down-payment assistance program.
• It's a purchase-based product. If you want to develop a purchase-based business, many of the first-time home-buyers out there are going to use FHA financing.
• Six percent of the closing costs can come from a seller contribution, so you can be very flexible with the way you structure these purchase transactions.
• The personal rewards that come with doing FHA loans are enormous. There's nothing more satisfying than taking a family that's renting and helping them become a homeowner. These customers often feel a great deal of gratitude to you for helping them achieve home ownership. As long as you keep your name in front of them, you're the first person they're going to contact in three to five years, when they go to buy their second home.
• Just like we seen a huge increase in loan officers, I have seen the same on a smaller scale with Realtors. With growth in the market we where just in many Realtors I worked with have little to no knowledge of FHA loans. For any mortgage banker, Realtor, loan officer or mortgage broker to not just "survive" in this market but to grow and prosper knowledge of FHA loans will be a key factor in determining your future in this market.
• Everyday we are seeing lenders fold, go out of business, and take certain loan programs taken away (sometimes days before closing, or even worse during the funding). Not sure about you but I would feel a lot more comfortable know my client was closing an FHA loan instead of some special Sub-prime loan.  This is make sense underwriting, or in my words "back to the basics

Lately I have been hearing people in our industry taking about what they are going to do to "survive in this market...blah...blah... I was recently talking to someone about this and asked them why they got into this business? Their answer was “It was the money and the financial freedom this industry give us.’ Since then I've told myself that I am not looking to just survive in this market, because just surviving doesn't sound like a too much fun for me. Rather than just surviving, I've make a commitment to myself to succeed in this market and with so much of my competition just looking to survive it looks like this should be pretty easy.

If you are a Realtor or a mortgage professional I would urge you to learn the in's and out's of FHA loans and position yourself to succeed in our normal market we are in.

www.federalhousingauthority.com/ - Unofficial FHA web site with a lot of good information.

http://www.hud.gov/buying/index.cfm Official site for FHA loans