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.