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Is it just me...or is this just plain dumb

I met with a client this past weekend. They have a 2 year ARM and an adjustable Home Equity loan, both of which are about to adjust. Between the two they have a high ltv and I felt they would fit right into an FHA loan. Their ratios are a bit high, but consolidating their debt would actually put them in a better positon. Since they have one of these targetted programs and the adjustment is near, I figured FHA woyuld be a solution before they began having trouble with delinquent payments.

WRONG ANSWER JOHNNY!

With the new rules they will have to wait for the loan to adjust, become delinquent, wreck their credit and then I can refinance them through FHA. They feel bad enough that they have to do this since they should have gotten a fixed rate loan a couple of years ago, but now I get to tell them this? By the way, I did not originate the previous loan so I have not created my own hell.

So basically unless they want to kill their credit we can't offer a reasonable solution.

Does anyone have a reasonable way for me to explain this to my clients?

Hi, I am from the government and I am not here to help.

Posted by John Klassen on 09/24/2007 11:45 AM

Comments (13)

fha reform, arms

13 Comments on Is it just me...or is this just plain dumb

SEP

2007

wow, but how am I not suprised a govt program is set up this way. I hope you can help them.

I am thinking lottery may be an answer.

That SUCKS! For lack of a better word!

SEP

2007

yes I have heard of this program- you would have to have a clean healthy mortgage history and show a late payment once it went adjustable. I had just discussed this option with one of my lenders for someone I know and to me is is really worth putting that mark on your credit?

What if you want to sell and buy another home in a year? The lenders will frown on the late payment and it could cause other future credit problems.

SEP

2007

All of these are vey true statements. In additon adding the late fees and increasing the pay off amount causes this to spiral out of control. Is anyone inside the beltway thinking?

John, I am an FHA originator and I don't understand your reasoning. Could you please explain why they have to wait for a delinquent payment? Why can't they do an FHA refi now with a clean credit history?

SEP

2007

Sorry for the delay in responding. I was out sick for a few days. We spoke with our underwriting department. The ratios on this file were high. Eventhough the payements were on time on the mortgage I wanted to use the new rules regarding the ARMS that were about to adjust to get the loan approved. The lpan would not spin throuh DU to be approved for FHA. I sought to have it manually underwritten and they told me that the rtions woyuld have to be lower. (48 to 43). I said that since tey were moving out of a two year arm wouldn't they be able to stretch the ratios based on the information in the news targeting these borrowers for help? Our department told us that they had discussed the reforms with FHA and people who were going to be using expanded ratios needed to go delinquent first.

OCT

2007

Wow, that is amazing that they have to do that. If the government really wanted to help, then wouldn't allow this to happen. Is there not another loan program they could get under that would get them close to the same rates, but without them having to ruin their credit to do it?

It's amazing that if you have good credit, they will not give you a loan. But, if your credit is ruined and you owe to the wazooo, everyone will give you a loan. Does this make sense?

OCT

2007

Were they in a sub-prime loan originally? 2 year arm and targetting FHA would indicate "yes" but HELOC would point to "no". Can they super-streamline or streamline down with their current mortgage company, at least to stop the bleeding until they can dig out enough for you to refi them into a better product?

I agree, FHA secure does not seem to be living up to the hype, so far.

OCT

2007

They are with Option One and attempts there have not helped. They have a first and a second. We tried to spinb in through DU and got a refer to EA 2 which doens't help on the rate. The DTI is a little high (47%) so taking it manual doesn't seem like an option.

OCT

2007

Take it to a different lender that accepts FHA Secure! You do NOT have to be Late 1st....you only have to have your ARM adjust 1st.

:-)

So it must adjust first. What about ratios etc?

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