FHA: The new Fannie Mae
posted at 8:35 am on November 20, 2008 by Ed Morrissey
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They’re baaaa-aaack. The same people who engineered a global financial meltdown with bad loans covered by government backing have begun exploiting the Federal Housing Administration in the same manner as Fannie Mae and Freddie Mac. Lenders who have bad track records in subprime loans have begun flooding FHA with questionable paper as part of the supposed rescue plan:
Thousands of subprime mortgage lenders and brokers—many of them the very sorts of firms that helped create the current financial crisis—are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means.
You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country’s swooning economy.
For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there’s a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what’s happening—or incapable of stopping it. They’re giving mortgage firms licenses to dole out 100%-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.
Ever see the movie Boiler Room, a decent hybrid of Glengarry Glen Ross and Wall Street? At one point in the movie, the lead character figures out that the company has planned for a quick move and reincorporation in the event the SEC starts to figure out their scam. Apparently, some of the subprime lenders have also seen this movie.
The Cugno family ran a subprime shop called Premier, which wound up losing its license in five states for its business practices and had one unit and its manager plead guilty to felony charges in its business practices. Despite declaring bankruptcy in mid-2007, Premier has sold $250 million in loans to the FHA since then without informing the agency of the bankruptcy. Now, though, the Cugnos have opened a new shop called Paramout Mortgage Funding — operating in the floor below Premier, and with an FHA license.
First Magnus Financial offered mortgages without income verification during the subprime boom years. State and federal regulators went after First Magnus hard for its lending practices, and it finally shut down last year. First Magnus’ executives reorganized as Stonewater Mortgage, in the same building that First Magnus leased, and now have an FHA license.
Lend America in New Jersey got an FHA license too, despite the track record of its chief business strategist, Michael Ashley. He pled guilty to two counts of wire fraud in 1996 in federal court in connection with his family’s lending company, Liberty Mortgage. He got probation, but his father got four years in prison. Ashley now says, “It doesn’t affect my ability to do lending,” and he’s right. His company also has a 5.7% default rate on its FHA loans, more than 50% above the national average.
Business Week has plenty of examples of this kind of shell game maneuvers in the FHA licensing pool. We’re heading to yet another collapse through yet another government intervention in the lending market. Until we stop encouraging the purchase of bad paper in order to achieve social policy, taxpayers will continue to be at risk, and we risk the collapse of Western economies.
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The only thing we learn from history is that we don’t learn from history.
1% rates blew up the housing bubble. What has Ben just lowered rates to?
Fannie and Freddie created the moral hazard which allowed uncreditworthy borrowers to get loans. What are we doing now? We’re rewriting loans and offering backstops and insuring subprime borrowers.
Massive deficits have weakened our dollar and are mortgaging our future. What are we doing now? We’re increasing the deficit.
Americans have spent too much money and got cheap credit they didn’t qualify for. Now we’re encouraging consumers to spend even more and encouraging banks to lend again.
lodge on November 20, 2008 at 8:44 AM
Pritzker is being named as Commerce Sec.
SlimyBill on November 20, 2008 at 8:44 AM
Bing. FHA - it’s the new/old subprime.
This program has always been a government social engineering program, with less than 3% down, a variety of smoke and mirrors programs to get around the minimum down payment - down payment assistance - and no minimum credit score, and other liberal underwriting rules.
The program doesn’t look that bad on paper, but FHA licenses underwriters to approve their loans, and those underwriters can be compromised by their own inhouse lenders just like the subprime lenders were.
There is not nearly enough oversight.
Jaibones on November 20, 2008 at 8:45 AM
(Buries head in sand)
hippie_chucker on November 20, 2008 at 8:45 AM
My husband and I are lower middle class. I stay at home with the kids while he designs for a point of purchase display company. He makes great money but we are super tight and wanted a good mortgage. We are working WITHIN OUR MEANS to acheive stellar credit and someone suggested awhile back that we get an FHA loan. On it’s face, it is a great thing. It helped some family friends to get their first house decades ago and they are now quite well off and fiscally responsible. What is terrible about this is how it cheapens EVERYTHING.
WHERE IS THE MEDIA?
This is a conspiracy. It is obvious now.
Mommypundit on November 20, 2008 at 8:45 AM
Want a little hair o’ the dog that bit ye?
Akzed on November 20, 2008 at 8:46 AM
We need to protest on Capitol Hill to fire Paulson and for government to hold these banking executive loons responsible.
shick on November 20, 2008 at 8:50 AM
Ok here we go again. First Magnus offered products that every lender offered the last 8 years, you could’nt walk into Countrywide, Chase, Wells Fargo etc. without being offered a stated income loan.
FHA has been allowing up to 95% Loan to value on cash our refinances. That will be ending in a couple of weeks going back to pre 2008 levels of 85% loan to value. They also increased the amount of their up front mortgage insurance premium from 1.5% to 1.7% on every loan. Even if it is under 80% loan to value. Some even pay up to 2.25%. They are collecting a pretty penny for the foreclosure pool.
FHA has no stated income products. None. Its all full documentation.
As far as licensing, FHA is strict. Minimum net worth, you are on probabtion for 90 days and all of your files are scrutinized. If a certain percentage of your files dont pass the smell test, your license is gone and you start over next year.
Most lenders now have what is called “Second level review”. When your file is about ready to close it goes to another DE FHA underwriter, a veteran, that goes through it with a fine toothed comb to make sure no fraud was perpetrated.
Lending right now is doing everything it can to make sure the past is not repeated. They are losing business because of how hard they looking at the files. Purchase money deals are being put off because files are being looked at so closely. Also there are no more 100% financing deals either, and the FHA appraisals are nitpicked as they should be.
If these criminals from the past are back in business, blame the state licensing requirements for allowing them. In Missouri, no way these people are in business because once a year your license and background go under review, but nothing is there to stop a shop from getting a license under a strawman that is clean, is investing his money and has nothing to do with the day to day.
FNMAE and FREDDIE are basically done lending. Unless you can prove you have the money in the bank to pay back the loan after you get it, your not getting it.
Just one guys perspective that has done this job the last 8 years honestly.
broker1 on November 20, 2008 at 8:54 AM
Not going to happen on Obama’s watch, is it? Especially when he plans to throw ‘long and deep’.
I expect Obama-Reid-Pelosi to launch their ‘new New Deal’ without regard to bailout costs or to limiting overall debt.
petefrt on November 20, 2008 at 8:57 AM
I heard an ad on the radio the other day about FHA backed loan or some such thing. I didn’t catch the details, but I did think “uh oh”.
forest on November 20, 2008 at 8:57 AM
What do you call it when a meltdown melts down? A supernova? And they’ll still try and blame in on Bush.
EnglishMike on November 20, 2008 at 8:57 AM
YES!
We need to start protesting EVERYTHING!
This is the best way to get media attention and sway public opinion over the next 4 years - and beyond.
We have valid, intelligent points that need to be expressed beyond FOX News, talk radio and right wing blogs.
Mr Purple on November 20, 2008 at 8:58 AM
Oh mama. Every now and then I think to myself, maybe it’s time to buy a house again. Then an article like this comes along and I think, nope, I’ll keep renting a house for a fraction of what it will cost to “own” and wait for another 20% drop in prices in the coming year.
angryed on November 20, 2008 at 8:58 AM
Lets review. FHA is not the new subprime. There are minimum FICO scores of 580, unless you go to a bottomdweller that will do them that offer much higher rates, and you still need a perfect mortgage history with a low credit score which usually isnt the case with a low credit score.
FHA no longer allows Down Payment Assistance programs, they saw that they werent performing so the gutted it.
FHA DE underwriters are not compromised. Their underwriting licenses are just like your drivers license, if your loans dont perform, you get marks against your license and eventually it gets yanked and you lose your livelyhood. Underwriters arent taking that chance. So many files go “upstairs” to clear conditions so the underwriter doesnt have to take responsibilty of the file. They are doing great jobs.
broker1 on November 20, 2008 at 9:01 AM
Paulson I believe is just plain ignorant of the problem and solution. The banking execs are just plain greedy. They know what they are doing.
shick on November 20, 2008 at 9:03 AM
WOW!! 580!! That’s like a 350 on the SAT. You get it for simply showing up. 580 FICOea means you are a deadbeat who has had late payments on a consistent basis.
I remember when I bought my first house I had a fico of 710 and I was sweating whether I would get a mortgage or not. And now laughably, we are in a situation where 580 is considered a tough standard.
Give me a freaking break.
angryed on November 20, 2008 at 9:05 AM
To the posters who say “i’ll just rent awhile longer”. If you can truly afford a home, then buy one. The rates are low. Actually, this is a helluva time to buy a house. Everyone here wants those who can afford their mortgage to own their own home.
kelley in virginia on November 20, 2008 at 9:09 AM
This is the change that democrats voted for, and this is what they will be paying for. I wonder if they lost hope yet.
DannoJyd on November 20, 2008 at 9:10 AM
My wife and I got an FHA “First-Time Buyers” loan ten years ago. The qualifications were pretty stringent–no new homes over $120k and no pre-owned homes over $80k. We had to make under $40k per year. I had just begun teaching and my wife had just finished student teaching. We found a great sub near where I teach and had a home built. Nothing fancy, 1,300sqft “starter” home. Young and just starting out, we were appreciative of getting out of paying $750 per month for our craptastic apartment. We only needed a few thousand bucks and work equity to get a home. Our mortgage on our new home was actually LESS than the rent we were paying–and we were out of da’ hood near the university.
We’ve been in our home for going on ten years. Never missed a mortgage payment. We love out house–we don’t have any children, so our low mortgage three-bedroom home is perfect for us.
I do believe the baselines for new/used homes has changed, however.
robblefarian on November 20, 2008 at 9:11 AM
That’s funny! Who’s going to fire paulson? He he’s the one calling the shots.
peacenprosperity on November 20, 2008 at 9:13 AM
Again, you are wrong. Let me explain. 580 is the minimum FICO but must also pass minimum requirements. Perfect mortgage history, 2 years out of BK with clean record since then. No foreclosure.
You can have a 580 FICO with a few medical collections. So no 580 does not make you deadbeat. Things happend to people in life and genuinley are good people that will pay back what they borrow. Most of those 580 FICO files never close, just remember that the whole premise of the economy coming back along with the housing market is the credit market. FHA is doing a great job at getting this back on track.
broker1 on November 20, 2008 at 9:13 AM
I suppose I should get used to the taste of government cheese.
Bishop on November 20, 2008 at 9:14 AM
I’m sure Barney Frank and Chris Dodd will get right on this. Dodd will probably want to refinance (again) to a lower rate.
GarandFan on November 20, 2008 at 9:14 AM
I blame the voters.
Mojave Mark on November 20, 2008 at 9:16 AM
You know I’d tell people to use FHA. The interest rate is going to spike if Barack tries to spend his way out so get a property now while the mmarket is tanking and before the interest rates go through the roof. Then save, when the interest rate comes down again buy another property.
Theworldisnotenough on November 20, 2008 at 9:18 AM
That’s what they said 6 months ago. And 12 months ago. And 18 months ago. It’s a helluva time compared to 6, 12 or 18 months ago. Sure. In 6, 12, or 18 months from now it will be an even better time. Alan Greenspan said housing had bottomed in 2006. I wonder how many suckers listened to him and bought a home that’s worth 25% less today?
And what exactly do you mean by ‘wants those who can afford their mortgage to own their own home’. People who can afford their own home, buy with cash, like I will when I do decide to buy. If you are using a mortgage, you don’t own anything, except a 30 loan.
angryed on November 20, 2008 at 9:23 AM
I have to support broker1 on this one. I have an FHA loan. It was to say the least, a nightmare to get.
FHA’s have more stringent home inspection requirements. It also had more levels of underwriting than I remember. I had to explain every large withdrawal from my savings and checking, had to documents every living piece of investment that we had.
Also all FHA loans have PMI. There’s no way you can get out of it. So there’s a much better safety net there for those since there’s no 80/20 BS to escape paying the mortgage insurance.
Archades on November 20, 2008 at 9:27 AM
So broker1 let me see if I get this straight.
We had a housing bubble and subsequent crash that was caused by people buying more house than they can afford using a hodge podge of govt subsidized loans.
And your solution to as you say, ‘getting the economy back along with housing’ is encouraging people to buy more house than they can afford using a hodge podge of govt subsidized loans.
Let me ask you this question: why does everyone need to buy a home? If I as a borrower can’t qualify for a loan without having the govt get involved (via FHA), don’t you think that maybe, just maybe, I should not buy a home? All FHA does is encourage the same kind of behavior that was witnessed during the bubble. Instead now we don’t call it Fannie/Freddie we call it FHA. The results will be the same.
At some point in the 70s or 80s, it was decided that everyone should go to college regardless of ability to succeed in college. In the 2000s, it was also decided that everyone should own a home, regardless of ability to pay for one. The result is colleges that have become nothing more than remedial classes and an economy in free fall.
angryed on November 20, 2008 at 9:35 AM
BUSH! or the president-elect.
shick on November 20, 2008 at 9:36 AM
Here’s something interesting too. For the past week or so I have been getting robo-calls informing me that my government has passed a bailout plan that allows me to get help with my mortgage.
I’m not behind on that, never even checked with anyone about help, have currently about 85% equity, and have an unlisted phone and am in the do-not-call list. So who is pushing this and how’d they get my number in the mill?
MikeA on November 20, 2008 at 9:43 AM
No the housing crisis was caused by subprime lenders, with stated income loans and inflated appraisals. Not because of FHA, FHA has been around for 50 years. FHA was non-existent the last 9 years because guidelines were much tighter then FNMA and FREDDIE MAC. We are now at pre-CRA levels when it comes to lending, FHA has not changed their guidelines execept in the last year, they increased the LTV on cash out transactions and loan amounts. In the next 2 weeks those guidelines are gone.FHA is big now because its the only outlet to lending. The ONLY way government has changed FHA in this market is with the FHA SECURE product that was supposed to help people with ARMS. It did absolutely nothing, nobody qualified for it.
If your income documents say you cant afford the house, guess what, you dont get it. Its that simple.
In closing, you must PROVE you can afford the house, and much of the housing bubble was caused by speculation of investors into investment properties. Now you need at least 20% down to by an investment property and guidelines for FNMA to approve them are ridiculous.
Look all I am saying is that FHA is not this monster that this article makes it out to be. They are doing the best they can, knowing what happened in the past.
broker1 on November 20, 2008 at 9:45 AM
broker1 on November 20, 2008 at 9:01 AMTim Zank on November 20, 2008 at 9:54 AM
Here we go again.
Johan Klaus on November 20, 2008 at 9:54 AM
oops…not sure why I hit the strike button…my apologies…
Tim Zank on November 20, 2008 at 9:55 AM
i like the kindergarten treatment and understanding of mortgage financing… so many ‘experts’ out there now - most of which wouldn’t have a clue how to fill out a 1003
gatorboy on November 20, 2008 at 9:59 AM
Muggers!
ronsfi on November 20, 2008 at 10:06 AM
Gatorboy,
This 10003?
https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1003.pdf
Let’s see it’s a form with sections for name, address, occupation, income, assets, liabilities, other real estate owned, and a signature.
Yes indeed, it is very complicated and I’m sure it is only after years of being an apprentice that one could possibly understand the complex ways of this form. Or maybe you take a weekend course?
angryed on November 20, 2008 at 10:11 AM
This is just one of 10 e-mail ad’s I get per day from loan & mortgage brokers…I simply copied & pasted the text, and removerd any info about WHO is offering it, just suffice to say, this is indicative of most brokers.
Take a look at the criteria and stips….It’s kind of like “If you can put fog on a mirror, you’ve got the loan”.
Tim Zank on November 20, 2008 at 10:17 AM
Ed, your ignorance on all matters related to mortgages is stunning. It ought to be criminal but at the least, it should cost you all credibility and lose you readers. Instead, the posse follows you like blind sheep.
It matters not what bank offers FHA because FHA isn’t really approved by said bank, but rather by FHA itself through their system called Desktop Underwriter, or the acronym DU.
In fact, Fannie/Freddie have their own systems.
Sub prime, when it existed, on the other hand was approved by the individual investor, usually a heavy hitter on Wall Street.
As such, it is entirely irrelevant who gets into FHA since FHA will be approving those loans regardless. It is also ludicrous to blame Fannie for the roots of said crisis since they didnt specialize in sub prime and got into the business when it was already in a state of being speculative. Sadly though, the truth is rather unimportant here. More important it seems is to blame those folks for which you have an ideological bent and other demons.
mike volpe on November 20, 2008 at 10:20 AM
Ed, this is the first time I feel compelled to be critical of a lack of research on your part. FHA has been around since 1934. The FHA underwriting guidelines have been time-tested and yield surprisingly consistent results.
It is true that people who fit a “subprime” profile can qualify for an FHA mortgage. Subprime is now a dirty word but it once described products, designed for a specific group of borrowers, that could not be sold to Fannie or Freddie because they didn’t conform to the Fannie/Freddie guidelines.
In order to qualify for an FHA mortgage, a borrower must meet fairly stringent credit guidelines and, above all, must demonstrate a strong track record and/or likelihood of timely mortgage payments. For first-time homeowners this can be a difficult hurdle. For existing homeowners, their mortgage history is the bellweather.
FHA-approved lenders who deliberately approve non-qualified borrowers do exist. But they don’t last very long because their performance is tied to the performance of the loans they close. Each loan is insured and the borrower pays the insurance premium. The average lender has no way to get a loan insured unless it meets FHA guidelines because each file is reviewed when it is submitted. Larger lenders use an automated system and HUD determines which files it sample and audit. They may be able to sneak a few loans in, but the cost of mitigating an uninsurable loan is quite steep and not something most companies have the financial wherewithal to handle.
Broker1 is correct–FHA loans have always been Full Doc products. Self-employed individuals who don’t receive W-2s have the ability to document their income through the use of tax returns. In any case, it must be clearly demonstrated that every borrower has the ability to afford the mortgage. The guidelines for debt ratios are pretty stringent as well.
FHA offers and very safe, stable product line and should never be confused with the ridiculous loans that were being made during the subprime boom. Many banks knew full well that there was little likelihood that the borrower would consistently make timely payment on some of those loans.
HotJavaJack on November 20, 2008 at 10:32 AM
Uh…I’ve had people approved and closed FHA many times at over 60% debt ratio. Your definition is “stringent” is pretty flexible.
Tim Zank on November 20, 2008 at 10:42 AM
Tim Zank on November 20, 2008 at 10:17 AM
A great illustration of the reason for the ongoing tension between real estate professionals and mortgage professionals. One party knows just enough about the other’s business to be dangerous.
Tim, PMI companies have absolutely no involvement in FHA lending. The mortgage insurance premiums go straight to FHA. Appraisers are paid to establish the value of a property. This is true of any mortgage–period. They generally charge a higher fee for FHA appriasals because there is added work. I guess in your world extra labor and time are worth nothing.
And nice of you to take a shot at loan brokers. They’ve been the easy target in all of this. My company relies on loan brokers to fulfill its role in the marketplace and I’ve found the vast majority of them to be very hard working individuals who put more effort into closing home sales than the average realtor. Unlike other parties in the mortgage food chain, brokers actually work for the borrower. Who do you work for when you’re not critiquing the other players?
HotJavaJack on November 20, 2008 at 10:45 AM
It is possible to approve such a loan with clear compensating factors as defined by FHA. It is a rare borrower that would fall in that category. If you’ve done this many times as you say, you’re part of the problem.
HotJavaJack on November 20, 2008 at 10:56 AM
Uhhhh, I’m a real estate broker, not a loan broker. How you pay for your house, and IF you pay for your house is between you, God & your lender.
Tim Zank on November 20, 2008 at 10:59 AM
Sorry, but Loan brokers are F&I guys, traditionally ripping off peoples heads, shi%$ing down their necks and stuffing balances with enormous fees. They are the problem, not the real estate brokers. We have disclosed set percentage fees that are very clear. Loan brokers perform the most obfuscated disclosures in the financial world.
I’m all for “getting more deals done” but I don’t like doing it at the clients peril.
Tim Zank on November 20, 2008 at 11:06 AM
Unbelievable. Again, another Real Estate broker calling Mortgage brokers names. All of them believe they know more about lending than we do, that is why I go straight to the buyer and don’t deal with real estate agents.
And what does a real estate broker do? Oh they make profit, considering FHA limits the amount we can make on a loan, how about the 6% you guys make on the sale of a house? Such arrogance from real estate agents makes me want to vommit. Keep telling yourselves that you are the epitomy of character and class, I dont know how many times I have had agents tell me to fake income docs to get a deal done. I would hang up the phone and call the real estate board, give me a break.
broker1 on November 20, 2008 at 11:09 AM
That article was poorly researched and misleads the public into thinking that FHA has changed to sop up subprime borrowers left out in the cold. The basic FHA loan programs have not changed substantially for a decade, and in fact as of January 1 they will be requiring more money down - 3.5% - and the amount of equity a person can draw out for cash-in-pocket or debt consolidation is being scaled way back in the first or second quarter of 2009.
FHA has never been much of a problem in this overall mortgage mess. The loans have always required full and verified documentation. Default rates within FHA mortgage pools have been lower than in comparable blocks of ‘conventional’ loans. We need to come up with common sense approaches to sealing up entry points for abuse by unscrupulous mortgage brokers, unscrupulous banks, unscrupulous borrowers, unscrupulous real estate agents and unscrupulous appraisers. But attacking a program like FHA in this way is throwing the baby out with the bathwater.
bryanmyrick on November 20, 2008 at 11:38 AM
I don’t claim we are the epitome of character, there are bad apples in every industry. The biggest difference is, the real estate industry has been around in this country in the exact same form since the 1880’s. For a fee, we sell your property, period.
The mortgage brokerage industry began about the same time, and was formed to act as a “middleman” between those that could not get traditional mortgages (turn-downs) and wealthy people to supply mortgage money them for a fee.
The two have a similar function in that they provide a service for a fee. The difference being, the mortgage “brokerage” industry was formed (and remains to this day) a tool to supply funds to those who can’t get funds traditionally because they are “risky” by definition.
Unfortunately, broker1, your business model never was and never will be altruistic, as it’s based on obtaining money for those that don’t really deserve it to begin with, else a bank/mortgage company would have loaned them the money. In essence you thrive on turn-downs and ill-educated consumers, which are much easier to profit from, as you have them “over a barrel” so to speak.
Tim Zank on November 20, 2008 at 11:41 AM
I recently purchased a home, well about a year ago, and my wife and I are young first timers in the housing market. We ended up finding a 3 bedroom ranch home within our means (payments less than 25% of our income), one that would yield us a better deal than renting (and is in fact about $100 less than renting every month including escrow) , and a home we could put some work into. Our loan is an FHA loan. After the extremely thorough and stringent process we went through to qualify (and we both have good-excellent credit) I have a hard time believing this type of program would even remotely amount to the same thing as what happened in the sub-prime lending spree.
I don’t claim to know anything about the lending industry, but it just seems like it would be pretty hard to falsify anything as it was checked what seemed like 30 different times by many people.
thequeball on November 20, 2008 at 11:48 AM
i have to agree. ed, you’ve drank the koolaid on this one. this article was poorly researched and contained numerous misstatements re: FHA.
DrW on November 20, 2008 at 11:55 AM
In Las Vegas, they have been reporting that the state has gotten $20,000,000 dollars to be used under the “Community Stabilization Program”. They will be using the money to buy up foreclosed homes under appraised value and putting low income families into them. So, there was no help for the families who lost that home, instead, other more needy and deserving families will be given it.
In Nevada, low income generally means illegal immigrants who don’t speak English. But, hey, maybe it will relieve the problem of three or four families living in a single home.
Jvette on November 20, 2008 at 12:05 PM
What it means is you just watched $20m get flushed down the proverbial commode. In three years, the homes will again be available and they’ll be more torn up and distressed than before.
Tim Zank on November 20, 2008 at 12:12 PM
Tim Zank on November 20, 2008 at 12:12 PM
Well, the powers that be in Nevada are real good at that. Several years ago, the state Supreme Court ruled that the legislature could ignore the constitution and raise taxes without the 2/3 majority it requires. The taxes were raised and there was a revenue surplus of $300,000,000 dollars. The governor then suggested that the money be returned to the citizens of the state and we all got a check in the amounts of $75.00 to $250.00 depending on what you had paid to register you car the previous year.
No talk, of course, of repealing the taxes and the next year they just increased the spending in the budget. Now, we are in a budget deficit crises with all the factions of government whining about cuts in their budgets. The schools are being ravaged, but not in the areas that would make sense. No, they are cutting the things that directly affect the kids in the classroom. Why? Because of the parents are upset by it and are now calling for increased taxes to adequately fund education.
Oh yes, they know how to do it in Nevada, as long as the “it” is screwing the taxpayers. We used to be a great state, with low taxes and cost of living. Then all the commies in California and other western states that screwed up their own communities are moving here and screwing up ours. Yea for us.
Jvette on November 20, 2008 at 12:25 PM
By the way folks, I base my disdain for FHA insured loans on my personal experience in Indiana. The link provided from the Mortgage Bankers Association page paragraph 2 illustrates my point, FHA loans have a delinquincy 3 times that of conventional loans nationwide.
http://www.indianamba.org/Downloads/Indiana%20Mortgage%20Foreclosure%20Analysis%20Jan%2015%2003.pdf
as for thequeball, yes you had to jump through a lot of verifications, that’s not the problem. The problem is that (not in your case but most) all they are doing is verifying and documenting, they are still insuring loans for people with 580 scores and open delinquincies. Huge difference between documenting and denying.
As of this morning there are 613 HUD homes for sale in Indiana….those were insured FHA loans…
Tim Zank on November 20, 2008 at 12:27 PM
zank, to me at least, appears to be speaking out of all sides of his mouth. He claims to be a real estate broker who also claims to know a lot of information that real estate brokers wouldn’t know. How would you know what the DTI for any borrower ever was? You have no access to a credit report. Most real estate brokers don’t even know how much a borrower makes. They certainly wouldn’t have access to information to determine DTI. Most of the time, real estate brokers don’t even know what type of a loan is being done.
It’s possible to approve a loan through FHA at 60% with compensating factors. Each situation is unique. That said, FHA is usually pretty firm about DTI. FHA has had an alarming number of defaults. It’s a little more than 1%, last I checked. That’s small compared to everyone else, but if FHA fails also then we are really in for a nightmare.
mike volpe on November 20, 2008 at 12:28 PM
You must work with some pretty naive real estate people. I can spend five minutes with anybody and by virtue of casual conversation tell you pretty close what they make and their DTI. It’s called qualifying your client for what they can afford. What market do you work in, the deaf dumb and blind one?
Tim Zank on November 20, 2008 at 12:33 PM
In addition to what has already been said about FHA, it also is actually scrutinized heavily by Congress, unlike Fannie and Freddie. FHA has never lost money, but last year it got close and Congress went ballistic. It closed down the downpayment assistance programs because the claims rate on those loans was very high. HUD’s Inspector General regularly examines FHA.
FHA also has a scorecard for every lender, and a Mortgagee Review Board that regularly suspends and revokes licenses. It’s really hard to scam FHA - you might get away with it for a little while, but eventually they will catch you and shut you down.
A few years ago I represented a very large lender that got in big trouble with FHA over fraud in its broker channel. It paid over $35 million in fines and had to repurchase all of the fraudulent loans and give back the money FHA had paid in insurance claims on them. The company took a huge hit on this.
First Magnus was not shut down because of legal problems with FHA or anyone else. Like many other purely wholesale lenders, it ran out of funding in early 2007 and was forced to close.
rockmom on November 20, 2008 at 12:39 PM
zank,
I work in Chicago and realtors aren’t normally what you claim to be. Anyone can say anything on a site. Frankly, it doesn’t matter. Your point is either and anomole or ridiculous. FHA is not normally in the business of approving FHA loans with outrageously high LTV’s. If it happened multiple times to you, then it was an anomole. More likely though, you are just saying it did.
mike volpe on November 20, 2008 at 12:46 PM
Jeez, Tim. Cut people some slack. Now, you’re painting borrowers who work with brokers with the same broad brush you’ve slapped brokers with. Each player fulfills a role in the market place. Brokers actually work to find a program to suit each individual case.
In your world, people who don’t get loans through banks are deadbeats. No so. Many of those borrowers have relationships with brokers and gladly work with them. In many other cases, borrowers have complications. Banks and the other lenders you speak of have no desire to roll up their sleeves and deal with messy complications–they routinely cherry pick. Brokers don’t mind walking the extra mile for their borrowers. That’s why mortgage brokers still have a role in the market place.
Your envy of what the borrower is willing to pay the broker is only rivaled by your double standard. I mean c’mon 6% for hanging a sign on a house? And before you go all postal on that remark, I fully appreciate the realtor’s role in the market–just wanted to demonstrate how easy it is to lob unfair criticisms.
HotJavaJack on November 20, 2008 at 12:49 PM
TimZank,
I have to disagree good sir. Former broker of 8 years here, now working with a bank toting a DE FHA license, my mentor being a DE underwriter and all around killer guy.
The whole reason brokers exist(ed) was to fill in the cracks that banks refused to fill or weren’t there to fill at all. The big national banks cannot now nor could not then equal the reach local loan officers have in their own communities…the contacts, the relationships, the knowledge of the area, and in many cases the simple act of having an office. As well of as BOA think they are, they don’t have a branch in each and every hamlet in the entire country. No one can. That’s one reason why brokers came to be: reach.
Another is that with the sheer number of product lines available for a broker to sell, very often an astute broker could find a wholesaler offering a cheaper loan for almost any borrower…I’d say 80% of the time I was knocking down a big bank when I went head to head with them. The ONLY times brokers weren’t/aren’t as competitive was when you had a vanilla 750 score conforming borrower at 25% debt-to-income and perfect everything…in essence, the model conforming Fannie Mae loan. THEN the ‘bank’ would likely get me by an eighth of a point or something.
As it was, I was able to outprice a certain bank whose name rhymed with ‘Mock Ovia’ in a $400k and up subdivision and usurp the entire development because I had better jumbo rates than they did. Little ol’ three-person-company me.
Banks more often than not (at least back then) would have killer rates, but only on a narrow range of borrowers and properties…they only took the cream of one certain crop. Brokers exist(ed) to disperse the various loan products offered in the country for all those other circumstances that normal banks wouldn’t offer. That includes/d self employed people, commissioned employees, contractors, people with messed up tax situations, a large number of first time homebuyers, folks without bank accounts, people working under the table or for cash, non-resident coborrowers, oddball properties, manufactured housing, loans above/below a certain dollar amount, and a host of other factors that left a huge number of good borrowers high and dry.
Now as far as lending to folks with bad credit? It depends on if there was a good reason if they were trashed up…divorce, illness, job loss. Ironically FHA was and is the outlet of choice for those kinds of people, and thanks to the injection of screwed up paper from crappy brokers running loans without licenses (don’t ask, there was a loophole now closed) folks can’t come in and buy below 580 credit…WE can, but we don’t wholesale to brokers.
Those folks with bad credit who got it because they just were slackers on their bills? THAT’S where subprime began to go wrong. To an extent, that part of subprime came to life because it was a bitch to get an FHA licnese, so presto chango, offer your borrower a loan three points higher than they’d get through FHA and off you go. THAT was not right, and it was fast and easy. They’re called bandaid loans…a patch to either let them get their act straight in 2 years before refinancing into a much better loan, or they sell/foreclose out.
The problem is those folks should rebuild their credit BEFORE getting a house, not BY getting a house. Cheaper that way. And those folks should’ve been going FHA anyway for the most part, but your average bank back then wouldn’t DO an FHA hard case believe it or not because it was too dirty, took too much work and time. It was snobbery by the giant banks that drove the subprime market to begin to help those people in the first place as they had nowhere else to go, and without the mechanism to effectively separate the chaff from the wheat of those bad-credit-score borrowers like FHA has, and with Fannie/Freddie actively PUSHING subprimers to just lump the 540 score deadbeat with the 540 score car accident victim, the govt effectively drove a good outlet into the dirt.
But that can’t happen, as broker1 stated, with FHA. Too many security layers and too much quality control.
Apologies for the rambling…was up late…
MangoDaddy on November 20, 2008 at 12:54 PM
TimZank,
Banks were/are VERY particular about who they help and on what kind of property. Just because a bank doesn’t help you, doesn’t mean you’re a deadbeat. Snobbery was/is the rule of the day at a lot of places. When you’re a bank, you can live by taking only the creamiest of the crop.
My mentor in Georgia is going gangbusters at a golf resort there because the in-house bank of choice with the builder there was turning down 91% of the applicants…now, sifting through the turndowns, he is qualifying three times the borrowers, and you don’t get deadbeats trying to live on a golf course. Those were good people, good borrowers, and they got gunned down for not having 800 scores and five figures sitting in the bank liquid. And we aren’t brokers anymore, we’re with another BANK, albeit one with common sense!
Brokering was/is a needed thing, just not to people who don’t pay their bills.
MangoDaddy on November 20, 2008 at 1:03 PM
That’s the whole point………… after Trillions of money being thrown at the problem, the root cause has not been changed, those that caused it are still in control of it, no one is being held accountable, the MSM press have been criminally negligent, and the economic collapse that is right around the corner is going to hit everyone right in the face………………… I guess it will be OK, Mr. Obama, President Elect, the Office of will be in charge to turn the United States of America into a third world nation.
Seven Percent Solution on November 20, 2008 at 1:12 PM
Some of what you say is true, MangoDaddy. My wife is a 20 year mortgage lender and top producer (leaders club)with one of the largest and soundest bank/mortgage companies in the country rhymes with bells largo. I’m intimately (yes pun intended) familiar with the process and the players. My perspective comes from my little slice of the country, and agreed it varies greatly from state to state and community to community. I don’t really mean to disparage mortgage brokers as a whole I guess, but I can tell you from my experience and my market there is a preponderence of throat-slitters in the brokerage biz around my area.
Tim Zank on November 20, 2008 at 1:17 PM
TimZank,
Ha! The wife’s on the stagecoach huh? Our bank sells a lot of our FHA stuff to them! Small world…actually, I think they did a good job keeping their noses (relatively) clean (like Flagstar) and think they’ll come through this mess smelling like roses.
I’m in SC personally…most brokers were legit here, but I know in FLA, NY, and CA there were some seedy people. There will always be a need for local brokers, but the security has to be there. Really, we can’t blame this on the brokers as it was the feds pushing the market on them. Besides the scumbag brokers of course, you can’t blame the rest of the good ones for selling products given to them and supposedly risk-priced accordingly.
MangoDaddy on November 20, 2008 at 1:29 PM
agreed, sorry to rant! Good luck in SC!
and broker1…I apologize for being so one sided…sometimes it’s hard to see past one’s own backyard, ya know?
Tim Zank on November 20, 2008 at 1:49 PM
Sadly, no one in DC will do anything rational until our economy completely collapses.
Then we can rebuild…or succumb to a Strong Man, or a Messiah type.
Gulp.
PattyJ on November 20, 2008 at 3:26 PM
Why not bring back debttors prisons?
The first thousand people locked up will send the rest scurrying for cover.
(when I was a kid, twice I was made an example of, and it sucked to be me, but it worked for everyone else.)
enough is enough
OneEyedJack on November 20, 2008 at 8:02 PM
If Barney and Chris had anything to do with it they will come away unscathed; they could jump in a cesspool and come out smelling like a rose…..
DL13 on November 20, 2008 at 10:04 PM