Linda and her husband are from Texas and had been approved
for an FHA loan on a single family residence. Their lender
had told them that they needed two months reserves in the
bank at closing or the loan would not close. They were
confused by this requirement and came to me for
clarification.
Well, I was confused too! FHA does not have a requirement
for reserves (unlike conventional loans). The only reserve
requirements with FHA are if a buyer is purchasing a 3-4
family unit. If purchasing a 3-4 unit, the reserves
required are three months.
The answer here was a no-brain-er and is actually available
on the HUD website. There is however, a really big issue
here. Can you see it? Bear with me, here is another example.
Another couple was approved for an FHA loan in March of 08
and the company they were working with said the couple had
to pay their 2007 taxes before the lender would close the
loan. Hello, 2007 taxes aren't due until April 2008. This
couple asked if there was a law stating this. Well, NO!
There is not even an underwriting guideline that calls for
it.
What is going on here? Do you see the big issue yet?
I have a web site where I answer Mortgage questions from
home buyers, sellers, real estate agents, loan officers,
and yes, even underwriters. These underwriters and loan
officers are from some well know companies. This isn't
about my web site, ... I'm not even going to give you the
URL. I only bring it up because that is why I see a big
picture that others can not. I get questions every day from
all over our country, India, and other countries in the
middle east.
I see at least four major issues with this information so
far but I'm only going to cover two.
First, Why don't Loan Officers and Underwriters know basic
FHA underwriting guidelines? Simple, they have no
experience or training on FHA! FHA loans are and always
have been a terrific option for people that didn't quite
fit into conventional guidelines. Best of all the interest
rate is considerably lower compared to a sub-prime loan and
as I write this today FHA rates are equal to par on a
Fannie Mae. It doesn't get any better than that, right?
Well, FHA loans are fairly complicated to put together and
they used to have stringent appraisal and inspection
requirements. So, if a borrower didn't fit into Fannie or
Freddie it was easier and quicker to slap them into a
sub-prime. It was a slam dunk and so what if the rates were
higher on a sub-prime, few consumers understood their
options anyway. (that mentality is why I built my site in
2002)
Another reason companies didn't do FHA loans was because
they had to be HUD approved which meant they had to have a
minimum net worth and pass a costly Audit every year. So
again, why bother when sub-prime was so easy and available.
Now, of course the sub-prime days are almost a thing of the
past or at least not as "sub" as they use to be. The
savior? ... FHA Loans of course, except that very few,
including underwriters have any experience with them or
understand the differences between FHA and Fannie. Thus, in
the two examples above, underwriters and LOs are just
making stuff up or worse case, running scared because of
all the flack in the industry right now.
In defense of the underwriter (as in example two) I will
say that they have the authority to require what ever they
deem necessary to improve a portfolio. Many of the
questions I have received from underwriters seem to reveal
that it is really a case of inexperience and over caution.
The mortgage industry professionals are struggling to catch
up/learn FHA guidelines. If you are a consumer you must be
very careful to find someone that has been HUD approved for
at least two years. And Do Check, seriously. Some companies
are doing FHA loans and they are not HUD approved. They are
under the disillusionment that HUD will allow a non-HUD
approved broker, to broker, to another HUD approved broker!
Sounds a little flaky, no?
How in the world did we ever get in this mess? We can throw
some of the blame to the politicians and presidential
candidates that are hyping it up for their own agenda. It
is not as bad as they say but they are speaking so loudly
that the rest of the world is now listening. Did you read
what is going on in the UK's market today? Good grief.
I don't believe in bailing out our large lending companies
and here is why. Back in this article I mentioned getting
questions from India and other countries in the middle
east. Now I ask myself, why would a mortgage underwriter in
India, who I can hardly understand due to "no speaking good
English", be calling me on the telephone at 3:00am about a
loan in Texas??
Go Figure!
----------------------------------------------------
Connie Sanders is available to answer any mortgage
questions you have and can be reached from her web site.
Find out more about FHA Guidelines at
http://www.fha-mortgageunderwriters.com
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