An article in CNNMoney by Jeanne Sahadi written Here makes several points about the changes in the mortgage industry, with most of the changes being a back to basics approach for mortgage lending with fewer piggyback seconds and an increased emphasis on FHA Lending. The article also points out three major changes lawmakers are looking to make regarding FHA Loans. They are raising the loan limits, reducing the down payment requirements, and reducing the complexity of an FHA loan.
I agree that FHA loan limits should be increased, at least to the current conforming loan limit of $417,000 and maybe even $625,000 for high cost areas. However, I disagree with the elimination of the 3% down payment requirement and the reduction of FHA's "complexity". Many homebuyers do struggle to save the required 3% for a down payment, but that is why FHA works in my opinion: 3% is enough money invested in a transaction for some people to ensure that they make every effort to keep their home. As far as FHA's supposed complexity, the Federal Housing Authority has already reduced the appraisal requirements for FHA appraisals, and any additional disclosures the borrower has to sign are designed to protect and help them. If more FHA loans were written rather than 80/20 loans in the last 5 years, we would not be in the precarious position we are now.
Michael Byrne, Mortgage Banker www.mortgageprosforum.com
Michael Byrne
Mortgage Specialist
NJ Mortgage Banker USDA Loans Jumbo Loans FHA Loans VA Loans my site
Zillow Blog My Blog stated income loans Loan Officers: Do More Loans
Foreign National Mortgage Financing Rehab Loans Conforming Jumbo Loans
Co-Op Financing Union Plus Mortgage Super Jumbo Loans Harp Loans
"A referral is the greatest compliment I can receive"
I tend to disagree with the article. There will always be the loans that fall outside the box for whatever reason and you'll always find an investor that can identify an investment that meets their Internal rate of Return, (IRR) and be willing to make a loan.
I've got a borrower who has 740 Fico, willing to accept a 80% LTV, no derogs past 24 months, loan amount $250.000, and with $50k in verifiable cash and willing to pay the equivalent of prime plus 4 for a secured 1st TD. Would you make the loan?
There are some great loans that can be made, as you only need to tighten the guideline to eliminate the garbage credit, borrowers with no character, and include borrowers with the propensity and ability to pay the monthly obligation and willing to accept a higher lending rate.
They will probably have the name changed again. You got to remember a subprime loan is was initially called junk loans. Now that they have been exploited as Subprime the name will need to change to clean up the image.
The real problem was these loans were based on a model that included continually spiraling real estate prices. Once the market adjusts, corrects or start a down turn, the premise these loans were based on becomes faulty then fear, panic and home defaults enters the market.
Ntsike, thanks for the input.
I think the point is that FHA is a prime loan, and that subprime lending started to try to take on "prime" characteristics, such as high LTV's etc.