There's something going on in the world of FHA loan origination that I find very troubling. Particularly since the FHA loan program is being so highly touted as the savior of the housing crisis.

Every day, loans that make sense but are "on the borderline" - i.e require extra documentation and extra effort on the loan officer's and borrower's side to present a clear picture to the underwriter - are becoming increasingly difficult to do. Underwriters are becoming more and more reticent to move ahead with loans that used to be almost a slam dunk for an experienced, competent FHA loan originator to package and get approved.

After talking to several underwriters at different lenders, I think that I have unearthed the problem.

You see, one of the procedures that has saved the FHA loan program from the fate of the subprime lending programs and even the problems developing in the Fannie Mae/Freddie Mac universe now is the fact that everyone in the process from the originator on through the underwriter and the lender has been held accountable for keeping the default rate under control on the loans they are involved in. And I mean really accountable to the point of being cut off and excluded from the FHA program if defaults stay too high for too long. This applies to everyone regardless of whether the loan is held in portfolio or sold off on the secondary market. This type of quality control never existed in the subprime world, but is still the rule of the day in FHA lending.

Now that subprime is gasping its last few breaths, almost all the mortgage originators have set their sites on getting approved as FHA lenders and have started calling FHA "the new subprime". And now our underwriters are being deluged with files that are poorly put together and often don't even make sense to begin with. But once that file is in the system, it has to be underwritten and a decision issued. In spite of the fact that underwriters are almost forced to actually process the file in order to underwrite it! This is severely overloading the underwriters, and even their assistants who have to help clear the hundreds of extra conditions these approvals necessarily produce.

The result is that overworked underwriters who are having to make decisions on poorly documented files are starting to require more documentation and more explanation in order to "feel good" about the file and believe the borrower will actually be ready willing and able to pay back the loan. In addition, lenders are being forced to tighten their guidelines and quality control procedures as more and more poor loans are being pushed through by the same crowd that substantially helped the subprime crisis develop. You know, the originators (often pushed by real estate agents with the same attitude) who just want to close every deal for every potential buyer interested in a house.

Let's everyone please band together and try to stop this one before it develops into a full blown crisis. Company owners - please start insisting that your loan officers get some training before they are allowed to put your company name on an FHA loan. Originators - please start thinking about whether the loan you want to do is actually a benefit to the borrower and please take the responsibility to get yourself trained. There are many ways to accomplish this. Many of the wholesale lenders will train you for free. More detailed training is available for very little cost.

Carl Pruitt specializes in FHA mortgages for borrowers who have had some credit problems. More information on FHA mortgage broker training can be found at http://fhatrainingsource.com and http://fhaloanadvice.com.