I've seen so many mixed opinions over the recurring strength that FHA Lending Programs are having and gaining in the current market and oddly to me as a veteran of HUD's programs the majority of those opinions are negative!
It has always been my experience in the business that mortgage professionals are intimidated and annoyed by government lending programs and practices. With easy money lying around in the sub-prime market why would they have extra disclosures signed and deal with specific appraisals and appraisers when they could just take the file elsewhere? Well the idea that they could have made more money should have popped into their head first! While remaining at a competitive market rate the average yield on an FHA loan is far higher than you could ever earn on a sub-prime loan. (Check your rate sheets)
The chart below is statistical data as found in the Mortgage Bankers Association's Press Release dated March 6, 2008 from the National Delinquency Survey (NDS) titled "Delinquencies and Foreclosures in latest MBA National Delinquency Survey". 1
These statistics reflect information for the last quarter 2007.
| Percent of Loans | Percent of Foreclosures |
Prime Fixed | 65% | 18% |
Prime ARM | 15% | 20% |
Sub-prime Fixed | 6% | 12.0% |
Sub-prime ARM | 7% | 42% |
FHA & VA | 7% | 8% |
© 2008 Mortgage Bankers Association (MBA). All rights reserved, except as explicitly granted
•1 This information is used with express permission from Mortgage Bankers Association. To read the complete press release click here. To learn more about MBA and their services please visit them on the web at http://www.mbaa.org/
Compare the percent of Outstanding Loans percentage for each category to the percent of Foreclosures Started for that category. As we can clearly see the Sub-prime ARM has the highest percentage for foreclosures started and the second lowest percentage of outstandings. It also shows that foreclosed government loans play only a small role in current national foreclosure levels.
Here's why:
1. FHA and VA Loans are full doc loans. No Stated Programs for first-time qualifiers. (*FHA Streamline Refinances allow for streamline documentation for existing FHA Mortgagors with acceptable payment history.)
2. There are no Pre-Payment Penalties for FHA and VA loans. This allows for conversions (refinances) to better terms should they exist without penalty to the borrower. (**Access to conversion without penalty facilitates more active borrowers which translate to more potential business. This is good for you!)
3. Rate resets for FHA and VA loans are lower than competing products. FHA raised caps from 1/5 (1 percent per year with a max increase of 5) to 2/6 when HUD Insurance Programs opened the door to more ARM products. (***Are higher CAPS actually good for the consumer with an FHA Product and does this type of change serve HUD's Housing ideology and mission? What's your opinion?)
FHA and HUD's Homeownership Ideology
I have seen posts and read blogs that admonish FHA as the "New Sub-prime" and believe that as an industry if we take advantage of FHA that we'll just be right back where we are in a few years and ultimately make things worse for ourselves in the long run. "FHA the New Sub-prime Toilet", "Throwing Gasoline on the Fire: Is There An Even Worse Subprime Disaster Around the Corner?"
Well here's the skinny. FHA was Never expected to have a low delinquency or foreclosure rate because it's designed to offer reasonable access to all borrowers, including those who might not qualify for other programs. Its purpose and design is to stimulate Homeownership and as we all should know Homeownership and all those industries involved in creating and servicing Homeownership are economic indicators.
In recent testimony FHA Commissioner Brian Montgomery stated:
"In Fiscal Year 2007," says Montgomery, "FHA provided loss mitigation support to 91,000 borrowers, 86,500 of whom then cured their defaults and stayed in their homes.
"While not every one of these borrowers will be successful in the long term, historically 89% of all borrowers who benefit from loss mitigation still have active loans two years after the assistance.
"This success is responsible in part for a reduction in both the number and percentage of FHA foreclosures, with the foreclosure rate dropping from a high of 1.74% of insured loans in FY 2004 to 1.45% in FY 2007."
So with the idea that FHA should not have low expectation in delinquency and foreclosure...Government Loans Lead the Way in Loss Mitigation and certainly have the lowest percentage of default. Something must be working right!!
Ladies and Gentleman, in the current market and in future markets (as we can historically see) your attitude toward Government Loans has to change! Educating yourself on FHA and VA programs will lead to nothing but more funded loans in your pipeline. No they aren't the easiest, but were any programs easy when you first started them, and in the current state of the economy you just shouldn't expect an easy paycheck!
Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.
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