Dennis' Mortgage Blog

Time was FHA was the go to place for challenging mortgage applicants.  All funds for closing a gift, low down payment, deragotory credit profile, co-signers needed, some or all of the above would put an applicant into the FHA pool.  Low down, reasonable mortgage insurance and competitive interest rates fed the FHA mortgage program.  FHA was not subprime lending but filled the gap between the conventional loans from Fannie Mae and Freddie Mac and subprime mortgages.

Then in the 2000's Fannie and Freddie really loosened up their underwriting guidelines under pressure from Congress under the auspices of the Community Reinvestment Act.  Mortgage applications with no down payment, stated income, stated assets, no appraisal, lower credit scores, very high debt to income ratios all became approved through the Automated Underwriting Standards.  FHA mortgages in many high cost areas became non-existant due to low maximum mortgage amounts and with Fannie and Freddie acting like subprime clearing houses who needed the added expense of FHA mortgage insurance.

With the housing bubble explosion and credit crisis that began in late 2007 FHA again became an option.  Loan limits were raised to meet the conventional limits, high-balance limits were put in place to replace the extinct Jumbo markets, and suddenly FHA filled the void that existed due to the tightening of Fannie and Freddie underwriting back to more traditional criteria.  Fundings of FHA insurned mortgages have grown steadily each of the past three years. 

FHA foreclosures have also risen, but at a much smaller pace than conventional defaults and foreclosures. Primarily because FHA mortgages were not used to finance the growing housing bubble which greatly reduced the voluntary foreclosures that have hammered conventional lenders.  Foreclosures in the FHA markets are not too far off their historic numbers, and most are due to job loss and not because of over-encumbered homes.

Due to the tremendous numbers of foreclosures nationwide Congress, which has previously pushed to loosen lending standards for Fannie and Freddie, has taken a very keen eye to all things housing and mortgage related.  Part of this scrutiny has been FHA and its ability to withstand another major foreclosure wave should it hit.  Congress has demanded FHA increase its capital reserves and strengthen it balance sheet; afterall they have already allowed the Treasury to back Fannie and Freddie and cover over $100 billion in losses that were uninsured, they certainly do not want to back the government program in which almost all the mortgages are insured.

In reaction FHA has steadily increased its mortgage insurance premiums to raise capital reserves.  This has created a bit more difficulty for applicants to qualify and certainly has increased the price of their mortgage costs and payments, but overall FHA had pretty much left its lending criteria alone for the past several years.

Now we are getting word from major lenders that FHA has not officially changed any of its guidelines but, to quote one lender, "they (FHA) wants the government to have fewer loans and tighter requirements are how they are doing it." 

FHA was created under President Franklin Roosevelt's New Deal in order to make homeownership affordable to Americans. It introduced the thirty year mortgage and eliminated clauses allowing lenders to call mortgages due at will.  FHA has always enabled young families to purchase homes with affordable mortgages and pay insurance that would protect the program to ensure it would be available for future generations.  A system that has worked for over seventy-five years.

Between the regulations imposed by HUD and the Fed on mortgage originators and lenders the past few years, the Dodd-Frank Act and higher and higher costs for mortgages imposed by FHA it should be no secret that the Washington, or at least the Administration who appoints the heads of all the regulatory agencies, is waging a battle to reduce home ownership.  Having FHA officials comment to major lenders they want fewer mortgages pretty much confirms the anti-homeownership position many in Washington seem to hold.

Not everyone deserves to be a homeowner, but many people do.  Those who deserve to be homeowners are finding it harder and harder to see their homeownership dreams realized as federal officials keep moving the guidelines for mortgage qualifying.  It is becoming and "us" versus "them" mentality between Washington officials who live in their reactionary bubble to a crisis that has come and should be gone but for more meddling and Americans who just want to own their own home.  First guidelines that were too loose that allowed too many families to purchase homes they could not afford, and now guidelines preventing seemingly qualified families from buying a home. 

I'm for "them," backyard barbecues, kids playing in the yards across the street and the sense of community and pride one gets from sitting on our own porch in our own neighborhood.

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118