I keep hearing mumbling within the real estate about these "new" requirements for FHA loans. It may surprise you to know most of them aren't really new requirements at all; they're old. It's just that now they are being enforced.
To understand what I am about to tell you, it's important that you recognize what an FHA loan is. On a basic level, it's a loan requiring very low down payments. Since that makes it riskier for banks to do, the Federal Housing Administration insures the loan against default. It works just like your homeowner or other type of insurance. If the lending bank has a loss because of your default, they file a claim and according to the policy guidelines get reimbursed for all or part of the loss.
In the good old days, when the word foreclosure was rarely uttered, underwriters were waiving FHA requirements... allowing exceptions. This happened often. But, now that we're seeing short sales or foreclosures, both of which are a "default", on FHA loans, the banks are having to file claims so they can be reimbursed for losses on these loans. It's happening enough that the FHA itself is suffering.
So the FHA, or others are their behalf, are conducting audits. In the audits, they are scrutinizing the exceptions that underwriters have allowed, and they are not paying on many of the claims. This results in banks telling underwriters they can not make exceptions on the requirements.... and so, old requirements are being enforced.
It's true what they say, "There is nothing new under the sun." Time and time again I find this old adage holds true, especially in the real estate world.
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