For many that don’t know, FHA was created by the National Housing Act of 1934. What people need to understand is that FHA doesn’t make the loans, but that they insure the mortgages for the lenders sake. The investors/lenders are the entities that make loans to borrowers. HUD, which stands for U.S. Department of Housing and Urban Development, is a government agency that was started in 1965 to help homeowners achieve that American Dream. They help borrowers with HUD approved programs, approves lenders to be FHA approved, and helps borrowers utilize the programs and guidelines set forth for FHA loans. Again, FHA is does not lend money. I only mention this because I get so many calls telling me that FHA will do this or do that, because it states it on the HUD website. The average consumer needs to understand that they set the guidelines for investors to follow, but it’s the investors that have specific overlays, meaning that they can add to the guidelines to make the loan more sell-able on Wall Street. A great example is that FHA has no specific credit scores, but most lenders won’t go below a 600 credit score. That is the investors choice, which can super-cede anything set by HUD for FHA loans.
The Assistant Secretary of Housing, Brian Montgomery, put out a new mortgagee letter just recently. FHA always puts out new mortgagee letters when there are changes in guidelines, but in this case, HUD wanted to make others aware of the seriousness of this issue. This mortgagee letter, ML 2009-12, is about Mortgagee Monitoring. The letter talks about FHA reactivating its Special Work Assessment Teams, which is called SWAT. SWAT is to conduct on-site reviews of the lenders whose loans are exhibiting signs of distress. In my opinion, this is a great sign that HUD is holding mortgagees accountable for their lending practices which will protect the FHA insurance fund which has been in trouble as of lately because of the many defaults and foreclosures.
Here is a great example of how much the usage of FHA loans has grown over the last 1 1/2 years because of the higher standards of conventional loans and because of the demise of the subprime loans. Just in New Jersey alone, in 2008, there were about an additional 500 new approved FHA underwriters. This number went from around 300 to 800. Just in the last year, there have been more 1st payment defaults, foreclosures, and certain detections of fraud. It’s been shown that many of these new underwriters are missing specific issues or are being more lienent on their approvals. Hence why HUD came out with this new mortgagee letter, letting lenders and underwriters know that they are reviewing certain practices. So here is a list of what HUD expects each lender to review and to insure a good loan : (this list has come directly from mortgagee letter 2009-12)
Conclusion : Overall, the Department of HUD would expect each mortgagee to originate a mortgage with the same care and underwriting the FHA loanjust as it would for a loan in which the lender would be entirely dependent on the property as security to protect it’s investment. In basic terms, that the lender would care for the loan as if it were it’s own child for the next 20 years. And if a mortgagee, the lender that approves the mortgage, fails to comply with HUD’s policies, then HUD would take appropriate action. Such actions would be to suspend the lender from originating FHA loans or to actually terminate that lender’s DE license. (delegated underwriting license)
In regards to my 16 years in the mortgage industry, I think it’s about time that we crack down on those that fail the integrity of lending and the lending quidelines. It’s one thing to try and to make a loan work, but another to ignore specific guidelines and or to commit fraud.
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Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger
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Over 17 yrs in the mortgage industry & real estate market, I bring expert knowledge and creativity to financing options & loan programs. Being honest and serving your individual needs is my desire!
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AMEN BROTHA!!!!!
Saw that ML (mortgagee letter) when we were on the phone yesterday and still hadn't had a chance to read it. Thanks for the clear and concise synopsis and for the FHA/HUD history lesson. This is a great post Jeff, and one I hope everyone in our industry, from Realtor to lender and consumer too, takes very seriously.
Gerry Suarez, Jr.
Your FHA Loan Pro!
Jeff,
Phenomonal post! Very technical, and GREAT for all of us in the industry! Fast read too, so that really helps! I have already forwarded on to about 50 realtors in my area to read as well! Hopefully, they will see the value of joining AR, if for nothing more than for blogs like this!
This was great! Thank you!
D
GERRY..... . you haven't had time to read it yet? Read it while in your private library... lol .. aka the reading room that I call it. lol Seriously though, it's good to hear a comment like this from such a pro as yourself. A comment from someone as yourself, a part owner of a mortgage company that actually understands mortgages and the value of a post such as this. thanks
DARIN.... . well, a boring post at that, but thanks for the enthusiastic and polite comment. But I agree, many need to read this because it is a quick education and to the point of what FHA is all about. thanks
Great Post,
Again overdue by HUD but at least measures are being taken.
Thanks for keeping us informed about the FHA program! I always get the latest from you first!
Jeff - as usual, a very informative post that all of us in the industry need to know as well as consumers. I was also glad to see HUD doing something when I saw the letter. Better late than never, I guess.
Hopefully, this will go a long way in cleaning out all the garbage that is still out there operating.
As always you have the info, points and important parts of an FHA loan to educate all of us.
Jeff- Great Post. As FHA has become the main funding option for the market it is really important that HUD step up the control efforts. I remember HUD use to conduct annual origination audits on site at different branches of multi branch lenders. They really cut back on that though over the last 10 years, in fact we just had our fist in 6 years. We had to dust off the old audit manual. It also seems that HUD is really stepping up the efforts to crack down on lenders that working with non-approved mortgage brokers as well.
JP Lowry--President--Preferred Financial Funding, Inc
GARY.... . I agree 110%, that it's way overdue. I have been screaming about the bait & switches and false advertising in rates since I got into this business. But I think they have seen their insurance funds get depleted also, so I am sure this is part of the reasoning. Thanks for the compliment.
MICHAEL.... . thanks, I try to stay on top of these things. Not only does it educate the consumer and others in this business, but it keeps me updated also.
DONNE.... . I hope it does clean out some of the garbage. I know it won't always work, but as you stated, better late then never. thanks for the comment.
SALLY.... . I enjoy educating others and it actually helps me in getting new business. And thanks for being a strong supporter.
JP..... . that has been one scary thing, that FHA has been one of the main options and some are abusing this. Or at least putting out misleading information. We just went through a few audits in a few states. Unfortunately, they haven't forgotten about us... lol But I did know that they did cut back some. thanks and thanks for the polite compliment.
Great post as always Jeff! Love your passion for what you do!
Jeff, can we clone you and have you in several States?
Bettina
CHARLENE..... . thank you very much for the polite compliments. I always find it great to meet others in this business that are passionate also.
BETTINA..... . sure.... and I'll make sure that he charges your clients half price, since I won't be doing double the work... lol I know I am in NJ, but I can do loans in Indiana. Not sure if you'll be back to see this comment, so I'll send you an e-mail. thanks and thanks for the kind words.
Thanks for posting this, as usual, Jeff. Well written.
Jeff you are the FHA pimp. Great post and keep em coming. I am going to have to re-post this puppy
Hi Jeff -- I learn a lot from your posts, and you write so clearly. I love your background graphic!
Jeff, it's so challenging to find a lender who really can stay "leader of the pack". I can see you spend every waking moment staying informed.
I am one of those people who believe more accountability and regulation in the mortgage industry is a GOOD thing for all of us. Thanks for the info Jeff.
Jeff, They are finally cracking down here in New York...as I'm sure you know. Thank goodness, there were more scams then ever.
Congratulations on the featured post. We have seen a large number of FHA in our area as well.
Jeff, I say it is about time. HUD has to do something to stem the amount of loans that ae gong bad. I will say hoeer, that some of these poorly performing loans are not necessarily a result of bad lending practices but the poor eceonmic status of many coommunities that homeowners rely to pay their daily bills. It is however a good start.
Good info
Bo
Jeff- I am glad that there will be some expectation of accountability. Let's see how well they can follow through.
ERICA..... . my pleasure and thanks for the support & for the kind words.
WINSTON.... . funny, the FHA pimp. thanks for reblogging this and for the compliment.
CHRIS..... . thanks, thanks, & triple thanks. Seriously, I enjoy educating people and thanks for reading.
VICKIE..... . no, I actually sleep 3 hours a night... lol Seriously, I appreciate the kind words. I do enjoy writing these, even though many of them are boring and not as entertaining. But I also strive for business from these and not just comments. thanks for the support.
AMBER..... . I think many of us feel the same. The problem that I have seen in the past is that they talk about it, but don't seem to enforce it as much. It makes you wonder, because I hear so many problems out there and see it often. Especially the false advertising. thanks
CAROLE.... . I would like to see them crack down even more. I think in many cases in the past, they didn't do as much as they should have. Just my opinion.
JOHN..... . thanks... and yes, there has been more FHA loans in the last 6 months than in the last 2 years all together. The only part that is sad about this is that many of these loan officers pushed the subprime and conventional, when the borrower should have been put into a FHA loan first. They were more into how easy it was for them.
BO.... . as many of us have agreed, it's been long overdue. And you are 110% correct, that it's not just the bad loan officers. Yes, the economy has made many of these loans go bad. I stress this often when others mention that most of the mortgage mess were from bad loan officers and bad loan products. I still say a lot of it was because of the economy, such as you stated. thanks
Jeff - The reactivation of the SWAT team is a good thing. Weeding out all those failing to follower guidelines is so important so that the scenarios that are now playing out will not occur in the future.
This was a good read. I'm trying to keep up with the FHA stuff. It is such a big part of the current market.
Thanks for the information. We need all the information we can get to help us.
AJeff: Thank you. I appreciate it. I was reading recently about the importance of us in the business staying on top of what's going on. You are my source! Thanks again!
When I started in this business in 1989, I seem to remember that my mortgage banker said that until a borrower makes 13 payments, FHA insurance would not cover the amount of the total debt. If this is not in place now, it sure seems to be a good idea for a deterrent to making questionable loans. Lenders need to have that kind of skin in the game also. Let me know if that is still in place, or if it ever was. I trust that what I heard years ago was true.
Thanks for the information and clarifying FHAs function.
Great post Jeff you had some good info and made it very clear. Peopel always confuse the actual FHA program from the lender who is actually lending the money. Its funny they say mortgage fraud is on the rise but I think its on the decline but now banks are not turning their backs to it like they were before when anyone with a credit score and a pulse could get a loan and the pulse was optional. Rules and Regulations as much as they may make things more difficult are necessary to protect the industry from itself. Its a great way to stabalize the market and put mortgage brokers and lenders on notice that fraud will not be tolerated.
Great info, but are they going to enforce these new guidelines? They don't seem like they are new and mostly common sense policing.
Congrats on your feature in the newsletter BTW.
Jeff there is no question you are the master of the FHA loan!
I had seen this too. Great that you are getting it out there. I will help by re-blogging. I'm dealing with several FHA fisrt time home buyers now and it hadn't been that way before.