FHA: The new Fannie Mae
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……

Then we can rebuild…or succumb to a Strong Man, or a Messiah type.

Gulp.

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?

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.

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.

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.

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…

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

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.

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.

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.

“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?

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.

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…

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 12:05 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.

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.

Ed, this is the first time I feel compelled to be critical of a lack of research on your part

i have to agree. ed, you’ve drank the koolaid on this one. this article was poorly researched and contained numerous misstatements re: FHA.

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.

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.