Sub-Prime Mortgage Alternative

By
Mortgage and Lending with Right Start Mortgage (NMLS #35960) NMLS #19622

As most of us know, the sub-prime mortgage market is in a shambles. Many sub-prime customers who are looking to refinance out of high interest rate 2/28 adjustable mortgages can't even qualify for another sub-prime loan today. And, I've found in many cases their credit hasn't improved dramatically even though they've paid their mortgage on time. There's also equity issues to contend with.

I had a wholesaler come to my office today for lunch who works for a bank that aggressively manually underwrites VA and FHA loans. If a loan makes sense, they'll underwrite it. They told our office stories of approving customers with very low ficos -- high 400's to low 500's -- and getting them high LTV FHA loans with very competitive fixed rates. We're talking 7.25 - 7.50% versus much higher sub-prime rates. There needs to be compensating factors for approval -- mortgage history, reserves, debt ratio -- but it seems like a tremendous alternative product. This product doesn't replace your conventional FHA loans but rather provides a sub-prime alternative.

I do not personally have a lot of FHA experience, but I'm pretty excited to have a product to offer my credit-challenged customers that will really benefit them in the long run.

Comments (9)

C Laverock
C Laverock - Accomac, VA
We have a lender like that also.  FHA will be seeing a lot of new biz.  They surely will have the best rates for 95% cash out full doc for those with scores below 600 - and even some above 600.
Jul 28, 2007 07:47 AM
Bruce Bourgault, Vice President, Mpro
Central Pacific Homeloans - Honolulu, HI
Hi Steve -- With the death of the sub-prme business, VA and FHA are the way to go.  A year or so ago I got a VA loan approved with credit scores of 460!  As long as the deal makes sense VA and FHA will do it wihout regard to scores.  It is the best loan program for folks who got a little sloppy with credit but are back on track now.  Aloha
Jul 28, 2007 12:27 PM
Shelly Capps
Fairway Independent Mortgage Corp - Hernando, MS
Steve - you really need to learn and take advantage of FHA.  Since our company became licensed last September, we have jumped to about 80% of our loan originations being FHA.  The other government program to take advantage of is USDA, depending on your market and eligible areas.  This is basically VA, the funding fee is only 2% and there is no MI with conforming rates.  I hope you are successful and have the opportunity to take advantage of both programs:)
Jul 28, 2007 02:48 PM
Steve Hawk
Right Start Mortgage (NMLS #35960) - Tempe, AZ
Licensed In AZ, CA, OR & WA

Carol -- I can't wait until FHA raises the loan limits. I understand that should happen shortly. They'll be seeing alot of new biz. Thanks for the comment.

Bruce -- I was predominantly a sub-prime guy until about a year ago. FHA and VA should help me refinance some of my former customers. Aloha and thanks for the comment.

Shelly -- Thanks for the feedback. I agree that I need to learn more about FHA and VA. I believe having access to these programs gives us an advantage over broker shops that can only offer sub-prime programs.

Jul 31, 2007 03:39 AM
Shawn Gerhardson
Waterstone Mortgage NMLS#186434 - Cambridge, MN
Top Rated Mortgage Professional
Fha is a good option for alot of buyers. I sure would like to see these 400 fico's that your wholesaler said he could do. Sounds like he's over exaggerating a little.
Jul 31, 2007 04:00 AM
Steve Hawk
Right Start Mortgage (NMLS #35960) - Tempe, AZ
Licensed In AZ, CA, OR & WA
Shawn, he might have been exaggerating some. I believe there would need to be a few compensating factors to get a loan like that approved. I'll probably put that exaggeration to the test at some point!  Thanks for the comment.
Jul 31, 2007 04:08 AM
Kris Krajecki
Kris Krajecki - FOX VALLEY MORTGAGE - Huntley, IL - Huntley, IL
Mortgage Broker Huntley, IL

I had a 480 mid score that went FHA!

Decent rate and they are out of thier ARM that was going up to 12.5%!!!!

OUCH!

Jul 31, 2007 06:16 AM
Steve Hawk
Right Start Mortgage (NMLS #35960) - Tempe, AZ
Licensed In AZ, CA, OR & WA

Kris,

That's awesome to hear. I know some guys in my office said they've done sub-500 scores too!

Jul 31, 2007 06:24 AM
"Tommy" Decebal
HomeSpector Inc. 516-851-5833 - Farmingdale, NY
Adamescu Long Island NY MASTER Home Inspector

Wish you a Merry Christmas and best wishes for a great year in 2008.

Tommy   New York Certified Home Inspector Long Island NY Nassau/Suffolk/Queens Home Inspections

Dec 25, 2007 04:28 AM