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FHA must be the answer in 2008.

By Joe D'Agostino

Mortgage and Lending with NMLS# 729950 NMLS # 729950

December 19, 2007 10:21 AM

The beginning of the week it was announced that the House & The Senate were trying to come up with a "Better FHA Loan" Some of you were concerned that this would be another "Sub-Prime" problem in the future. As a Mortgage Banker for over 35 years I must tell you that nothing is farther from the truth. Let's consider the FHA Loan and it's guidelines:

FHA borrowers must have jobs. The income must be verified and the debt ratios must be met. Job stability is another factor in approving an FHA loan. Payment history (rent ) is also a major plus in dealing with the FHA borrower. Pay stubs, bank statements,and co-maker's ability to give any gifts must also be well documented. Most FHA loans are fixed rate 30 years and FHA ARM loans have a history of being at or below the 30 year fixed rate. No FHA loan has a Pre-Payment penalty, and none have Balloons. In general the FHA borrower was not a "Credit Criminal" but simply young couples who could not afford to put 10-20 % down on an average home of $300,000. Many were First Time Home Buyers! All FHA loans are assumable(this is a good selling factor for you Realtors to know when you take a listing). I take Great Exception when the FHA borrower is miss-understood as someone who makes little money, has a history of bad credit,and cannot qualify for a "NORMAL" loan. True the FHA is more willing to except borrowers who may not have had perfect credit, but only after that "Less Than Perfect Credit" can be explained and documented away. Even Realtors would tell me that their Sellers would not take an FHA commitment. This line of thinking must change in 2008. If the FHA limits are increased and down payments reduced or at present levels,this may be the lift we all need. No, the FHA loan is not a SUB-PRIME loan. You need more that a CPA letter and/or a business License to get approved. You can't state the income and there are no BALLOONS to burst here. Yes,FHA could be the the governments answer, but remember this. The FHA is only one of a very few government programs that actually makes money. In a way it would be the government helping itself.

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Vicky Poe

Good Ole Rocky Top - Crossville, TN

Realtor/ Auctioneer

I am confused about the "all FHA loans are assumable" I didn't think that any loan was assumable any more. Is this something new that FHA is coming out with?

Dec 19, 2007 10:52 AM

Joe Adams

Major Mortgage USA/Branch Manager - Montrose, CO

yes they are assumable, but I advise all my clients that unless the market rates are so high do not allow the assumpation..... have the buyer get their own FHA loan. There is a release of liability, but it is safer and better to just have the borrower get their own loan. FHA is one of the easier and better loans to qualify for in any market.

Dec 19, 2007 11:02 AM

Wendy Smith

Wendy Smith Real Estate - Clearwater, FL

Real Estate Advisor

wouldn't the borrower save money by not having to pay points or other lender fees on an asumption vs new loan?

Dec 19, 2007 11:10 AM

Joe D'Agostino

NMLS# 729950 - Manahawkin, NJ

Mortgage Officer 46 years!

Vicky:

FHA Loans have always been and will still be assumable. Most of the time the difference between the loan balance and the sale price are too much, but I have seen some cases where the buyer had a co-maker pay the difference and assume the lower fixed rate mortgage. Remember, under the current guidelines the gift can be any amount. The new FHA may not allow the seller to pay any concessions, c`currently with 3 % down the seller can pay up to 6% concessions. As Joe Adams said"FHA is one of the easier and better loans to qualify for in any market." The Mortgage banker has always known this, but many Realtors were and still are Negative about FHA loans. This MUST change in 2008.

Dec 19, 2007 11:14 AM

Joe D'Agostino

NMLS# 729950 - Manahawkin, NJ

Mortgage Officer 46 years!

Wendy:

In my 35 years as a Licensed Mortgage Banker I have never charged points to do an FHA Loan. You seem to have been well schooled by whoever does your FHA deals. You can buy down an FHA loan like any other Conventional Loan, but one does not have to pay any points. I guess you were told that they had to pay an "Origination" fee too. That is also not true. Sometime when a seller was willing to pay 6% concessions I would use some of that money to buy down the rate, but I never, Never, Never told my clients that they HAD to pay any POINTS.......

Dec 19, 2007 11:21 AM

Joe Adams

Major Mortgage USA/Branch Manager - Montrose, CO

the problem with assumptions is that most FHA deals are little to zero cash from the buyer...... so where do the Realtor fees come from and where does the sellers profit come from?

just my 50 cents worth (inflation ya know)

Dec 19, 2007 11:44 AM

Joe D'Agostino

NMLS# 729950 - Manahawkin, NJ

Mortgage Officer 46 years!

Joe:

As one in the same business as I ( Are you a Banker or Broker) I know where you are coming from, so let me answer this in a way that may make some sense. The assumption of an FHA loan may not be of any Value to you or may be one of the most Valuable transactions you will ever do. You will not make any money but you may get more out of this any any million dollar deal with 3 points on the back end and one up front you will ever do. The last assumption I helped a REALTOR with was in December, 2006. As I said I do not do them very often, but this was one in which the Sale Price was $325,000. and the mortgage balance was $287,000. at 5.75 % with 23 years left. The buyer's father was an "Accountant Type" you know what I mean. After he crunched the numbers this is what he wanted to do. He put the down money to make up the difference. The Realtor sold the home for $325,000. at 6% commission. This was put on the HUD-1. FHA came to the table with the $287,000, the buyer with $38,000. plus CCosts. Everyone got paid but Me. Except the referral business I got from this "Top Producing" realtor. We closed 9 deals in 2007. I think you get the idea. I have made a 35 plus year commitment to the mortgage business. I have just one main code. My Integrity Is More Important Than any Loan. Oh, I also get calls from the accountant father. He is a financial planner. You also have much time invested in OUR PROFESSION, so lets hope all the NONPROFESSIONALS are out of our industry, and only the good survive. I firmly believe that everyone in our professional should be Licensed. My License costs $2,000. every other year. I am subject to an Audit unannounced, and I think it is needed by all in a position of trust. I, like you do not work for free. I live a VERY GOOD life, but I sleep well every night. Good luck to you in 2008. Would love to share ideas with you. I have a program where I market my Realtors for free. It's called RECAMP are you aware of it.

Dec 19, 2007 12:14 PM

Joe Adams

Major Mortgage USA/Branch Manager - Montrose, CO

Joe, yours was a special special circumstance and in your case your deal works BECAUSE someone (dad) had cash..... this is such a rare occasion that let us both be honest......... this is rare and is not normal. For this forum to work we need to speak more in real world and not in once in a blue moon....... and as for doing something right for the client........ can not be more right in helping them lower their rate by using the Bush bail out ........ as I posted earlier

Trust this I know about doing something to gain referrals........ BUT

Ours is a profession of trust and honesty........... your example is less than 1% of real world

Dec 19, 2007 02:16 PM

Carl Pruitt

FHA Loan Advice - Buford, GA

http://FHALoanAdvice.com

I think we need to concentrate on the core message of the original post which is that, although FHA provides loans for borrowers who have had credit problems, it was never and never will be a subprime loan in the normal sense of the word. FHA is a common sense loan. The mortgage lender/broker and the underwriter are held accountable for future defaults. Many people do not know that lenders can be cut off from the FHA program if their default levels rise too high. This is a strong motivation to try to make good common sense underwriting decisions.

It was absolutely crazy for all those subprime programs to grade the borrower based solely on the number of lates within 12 months combined with credit score regardless of the reason for the lates! FHA underwriting looks at the patterns of credit over the borrowers lifetime and determines whether the loan is a benefit to the borrower. Nobody ever cared about that in subprime.

In addition, HUD has a tremendous loss mitigation program that keeps people in their homes even when they are having financial difficulties. Because of this program, HUD has lower foreclosure rates than conventional mortgages in spite of similar late payment occurrences.

In the instance of the assumption above, I'm sure everyone was happy at the time but to put that much money down while "catching a falling knife" (to use the Wall St. terminology) with dropping or stagnant property values was probably a pretty bad financial mistake. All that down payment money would have been much better off in a good, appreciating mutual fund even if the borrower had to draw on it to make the difference in the payments. It would also have been available as cash in the event of an emergency. Paying down real estate too quickly during a down market doesn't make sense. Doesn't benefit anyone but the bank.

Dec 22, 2007 01:43 PM

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