The comment period for HUD’s rule banning the use of seller assisted down payment programs is still underway but in the meantime, as I noted in my previous post today, House Financial Services Committee Chairman Barney Fran, D-Mass., recently told The Washington Post (registration required) that the House has agreed to accept Senate provisions that ban seller funded downpayment assistance on FHA loans and impose a 12-month moratorium on the charging of risk-based premiums by the FHA. The White House has also dropped opposition to the bill, so it is now on the fast track to passage.
On Thursday June 19, 2008 HUD issued a press release indicating that they were sending out letters to 675,000 “at risk” homeowners. As has been the case with most of HUD’s efforts for troubled borrowers, the gist of the letter leads this writer to believe that HUD is really going after borrowers with good credit. Syndicated author Peter Miller agrees with this viewpoint in his Friday post on FHA Mortgage Guide. As he notes, many of these borrowers might well have qualified for an FHA loan in the first place.
On Oct. 30, 2007, I published a post entitled “FHA Mortgage Co-brokering: Watch Out!” in which I warned of potential violations of FHA’s policy regarding payments to non-approved mortgage brokers. HUD made an announcement that day outlining their policy, but it was not issued in the form of an official Mortgagee Letter and it did not clearly identify that the policy applied to any fee paid by the borrower and not just payments made through yield spread premium.
This may sound harsh, but divorce is not a good excuse for bad credit.
Considering the number of credit explanation letters I see in FHA loan submissions which prominently promote divorce as the explanation for borrowers’ credit foul-ups, it appears clear to me that many loan officers are not aware of this fact. As a result, many loan submission files end up unnecessarily in the turn-down stack.
For ages, your borrower’s nontraditional credit has been acceptable to use to qualify for FHA loans. In the past, though, HUD wasn’t very specific on exactly what they expected to see when alternative credit was used. Were letters from creditors acceptable proof or did it need to be added to a nontraditional credit report? What types of accounts are acceptable?
Many new loan officers are streaming into FHA loan origination. Their FHA loans are being turned down left and right by frustrated underwriters who can’t believe such junk was put on their desk. It was not their intention to submit junk. The problem is that they are accustomed to the conventional mortgage submission process, not the FHA manual submission process.
The advice I’m about to give goes against the grain in the mortgage business where everyone likes to advertise that they offer 1200 different loan programs for borrowers with all types of credit. I’m going to give it anyway.
The very best way to make your mortgage marketing successful is to concentrate it on a very tightly defined niche and position yourself as the expert in that niche. Borrowers aren’t attracted to those one size fits all ads and you are throwing away your money.
Here are three niches that an FHA mortgage specialist can use to close more loans in less time with more profit and, most importantly, happier customers that are anxious to refer their friends and relatives.
1. First Time Home Buyers.
This is the most obvious FHA niche market. After all, this was the reason the FHA program was created in the first place. In spite of what you hear in the news, a housing downturn presents the best time for smart and well advised first time home buyers to enter the market.
The key to marketing to first time buyers is to understand that they need a lot of information and guidance before they trust. Study their needs in today’s market. Those needs are a little different than they were during the boom times.
Create a free report that shows how FHA mortgages can help meet those needs and put that home buyer in a position to profit when real estate values start rising again - as they always do. Create a series of follow-up letters and reports that you can send out over time. Get their email addresses and set up an automatic series of emails that can be sent out to them over a long period of time. Educate them and they will trust you.
Here are five quick tips loan originators can use to help prevent FHA mortgages from falling through during processing. For some mortgage originators these tips will seem ridiculously basic. Unfortunately, conversations with FHA underwriters show me that many loan officers haven’t caught on to these ideas yet.
1. Make sure the loan you are submitting makes common sense.
Incredibly, this is one of the most common mistakes made by originators who entered the mortgage business within the last 5 to 7 years. Subprime programs generally only required that the loan fit into their matrix and never cared about the reasons the person had credit problems. Make sure that you can verbalize a good case that it makes sense to believe that this borrower can reasonably be expected to make the payments on the loan. Often this requires asking a lot of uncomfortable questions of the borrower to make sure that you truly understand their situation. Even when your submission is approved by the automated underwriting system and theoretically the underwriter needs only to validate the information and not make a credit decision, the underwriter may well find something wrong if the loan does not make common sense. Lenders are held accountable by HUD for loans that default. They can always find a reason to override the automated underwriting findings if they want to.
Many new loan officers are streaming into FHA loan origination. Their FHA loans are being turned down left and right by frustrated underwriters who can’t believe such junk was put on their desk. It was not their intention to submit junk. The problem is that they are accustomed to the conventional mortgage submission process, not the FHA manual submission process.
