FHA TO TIGHTEN CREDIT STANDARDS
As reported in the Wall Street Journal Saturday, FHA will require or tighten the following areas:
- Raise the net worth of the Mortgage Banking firm from $250,000 to 1 million. The move is to ensure that Mortgage Banking firms have funds available to compensate the FHA if their loans fail to meet quality standards. WOW! This will eliminate some of the good, local small Mortgage Banking firms in Texas. Also, when FHA audits a loan that went bad, they can and will always find something that the lender could have done differently. I have been in those meetings and have experienced first hand what FHA can do. This will put the fear in underwriters making it harder to get the "marginal" deal through.
- Appraisals will be valid for only 4 months instead of 6 months. Obviously this rule is to make sure the house being purchase or refinanced has a more current value. In markets of declining values this will be a problem but probably not a bad policy.
- Procedures in ordering FHA appraisals will be changed to mirror the change that took place in May for all Conventional loans. It will mean that the Mortgage Loan Officer, or anyone that has a financial interest in the loan, will not be able to order it from his or her favorite appraiser. We in the industry did not like it when it took place in May for Conventional loans but we have adjusted. It sometimes delays the appraisal report especially when the appraisal comes in low and it is appealed by the real estate agents/seller.
I have been in the Mortgage Lending business in Texas for 26 years and we in the Mortgage Lending business in Texas sometimes forget the definition of risk and we do stupid things like making loans without proof of income, assets, etc. I have seen these kinds of adjustments to relaxed policies in the past. The adjustment usually is far shift to the "right" but in time will adjust back to the "center" and/or we just will get used to it. The industry will survive because it has to; people need to have home to live in and the economy needs us.
This blog was written by Steve Brown of Gold Financial Services, universal City, TX. Gold Financial Services is a full service mortgage banking firm with a wide variety of conventional and government loan products, including Texas Veterans Land Board assistance program. www.mortgagesbysteve.com (210)862-2885 firstname.lastname@example.org