| In a move that appears to be aimed at increasing the | | | | requirements ie. Loan Officers still had the right to |
| number of available outlets for customers of FHA | | | | order appraisals directly from an appraiser and to |
| mortgages the Federal Housing Administration has | | | | have unlimited contact with that appraiser through the |
| announced that so-called 'third party' mortgage brokers | | | | process. This is a bad idea. While the VAST majority |
| no longer need to register or meet the agency's net | | | | of Loan Officers that sell mortgage services in the |
| worth requirements. The FHA also announced a more | | | | current marketplace are trustworthy professionals, |
| stringent appraisal ordering process that mirrors much | | | | there are still those 'rogues' that try to exploit any |
| of the Home Valuation Code of Conduct (HVCC) that | | | | wrinkle for their own gain. Having the FHA mortgage |
| currently applies to Agency (Fannie Mae and/or | | | | originator comply with the most basic part of the |
| Freddie Mac) mortgage products. Both of these | | | | HVCC (no direct contact with appraisers) will benefit all |
| moves will bring the FHA mortgage loan products | | | | parties (consumers, brokers, lenders, etc) in the future. |
| policies closer to those of Fannie and Freddie. | | | | These two moves along with what appears to be a |
| Heretofore, mortgage brokers that wanted to originate | | | | top down reassessment of credit policy within the |
| FHA mortgage loans were required to submit audited | | | | FHA leads me to wonder what other changes loom |
| financials showing a net worth of at least $250,000 for | | | | on the horizon. As FHA loans inch closer in credit policy |
| review to the FHA in order to originate FHA mortgage | | | | to the Agency loans, the next logical step would be |
| loans. Fannie and Freddie do not have such a | | | | credit score based pricing. Both Fannie and Freddie |
| requirement. This move can be seen in both positive | | | | have moved over the last 2 years to an aggressive |
| and negative lights in my view. The idea that the | | | | tiered pricing schedule based on credit score. The |
| removal of this requirement will lead to more outlets | | | | better ones credit, the better the rate one can expect |
| for potential FHA borrowers (in the form of more | | | | to receive when obtaining a Fannie or Freddie backed |
| participating brokers) makes some sense to me BUT | | | | mortgage. As strange as it sounds in this "post |
| bear in mind that the vast majority of the brokers who | | | | meltdown" era, for a long time a borrower would |
| are now eligible to originate FHA mortgage loans have | | | | qualify for the same rate (regardless of credit score) if |
| never done so before. FHA mortgage loans have | | | | their loan was approved by either Fannie or Freddie's |
| always been a different animal from the Fannie | | | | automated underwriting engine. FHA loans (to a large |
| Freddie loans and they come with a whole different | | | | degree) still work in a similar fashion. While there is a |
| set of guidelines and nuances that will be a foreign | | | | theoretical 'floor' to credit score at a 620 FICO, and |
| language to many of these mortgage newly eligible | | | | many lenders have add-ons for sub 660 scores, there |
| brokers. I have always been in favor of the net worth | | | | is still very little difference for a borrower with a 640 |
| requirements for FHA as well as stronger licensing | | | | FICO and a 740 FICO. In the Agency 'world' a swing |
| requirements across the board for mortgage brokers | | | | from 640 to 740 is often at least a 0.75% difference in |
| and bankers because for a long time this industry was | | | | rate, sometimes more. |
| akin to the "Wild West" when it came to regulation. I | | | | What do this past week's changes mean for the |
| see this move as a step in the wrong direction in that | | | | potential FHA Mortgage borrower? |
| regard as it will give many 'marginal' broker operations | | | | First and foremost the consumer must ask any Loan |
| a new lease on life. | | | | Officer what kind of FHA experience they have. |
| The other announcement regarding who can order an | | | | Based on the dropping of the Broker approval process |
| FHA mortgage loan can be seen as a positive step in | | | | and net worth requirement, there will be a slew of |
| the right direction. The Home Valuation Code of | | | | inexperienced and ill trained Loan Officers jumping into |
| Conduct (HVCC) was enacted to head off possible | | | | the FHA arena in the coming days and weeks. This |
| collusion between underhanded Loan Officers and | | | | trend, along with the fact that the typical FHA |
| crooked appraisers. One of the prime tenets of HVCC | | | | borrower is less experienced with the mortgage |
| was the elimination of direct contact between Loan | | | | process as a whole than other borrowers, is a recipe |
| Officers (or anyone involved in loan productions) and | | | | for real disaster. If you are in the market for an FHA |
| real estate appraisers in the hope of averting inflated | | | | loan make sure you ask how long the Loan Officer |
| appraisal values based on need rather than actual | | | | has been doing this type of loan. Total Mortgage has |
| market data. While far from perfect as it is currently | | | | been doing FHA loans for more than 10 years and has |
| written (a topic for another discussion), the HVCC is | | | | some of the lowest FHA rates in the market today. |
| absolutely the right idea and will lead to fewer | | | | Make sure that you contact one of our Loan |
| instances of 'pushed' values in the future. To this point | | | | Specialists today to satisfy your FHA mortgage loan |
| FHA loans have not followed any of the HVCC | | | | needs. |