I want to tell you a story about a recent loan I completed. You may recall part of the President’s economic stimulus package included provisions for a FHA loan called the Secure Loan. It gave a homeowner, who had an adjustable rate mortgage that had adjusted to a level that they could not pay, the opportunity to refinance it into a “safe” FHA loan. Among other things the loan required the borrower to be current when the loan adjusted, as I recall they had to be behind on their loan after the adjustment, and they had to have equity in their home to satisfy the current FHA down payment requirements.
I knew of one qualified borrower that could qualify if FHA raised the loan limits. Believe it or not they actually did raise the limits temporarily under the same stimulus bill. When the FHA loan limits went up I called the borrowers and told them to apply. Let’s call them the Smith’s to keep it simple. The Smith’s applied and met every facet of the requirements to get the Secure Loan in my opinion. There is always underwriting that has to take place but all in all they met the guidelines and we got them approved. They had equity in their home that made the loan solid with an 87% loan to value ratio and their payment was going down after the adjustment by some $800.00 per month. When the President announced the program he perfectly described the Smith’s and their need for help. To put it more simply if it had not been for this loan the Smith’s would have had to sell their home.
What I didn’t expect was that the investors that buy and service FHA loans for the most part would not buy the loan after we closed it. There was one investor that would finally buy the mortgage and so we did get to close it.
Here’s the problem, the President wants to help the people who have these bad loans but the market place does not want to buy the loan as it would be perceived to have more risk. The loan is almost impossible to qualify for and if you do then the capital markets don’t want it.
If the government is going to do any good and stop playing politics they are going to have to change the way HUD does business by giving some incentive for investors to take the added risk on these type loans. As mortgage funds dry up for the people who need loans and who would be good borrower’s things have got to change. An aggressive posture by HUD through FHA would work if it was well thought out and implemented.
Instead we read the news that the secretary of HUD Alphonso Jackson will probably resign today for multiple reasons. Politics as usual is the name of the game….as usual.
More to come
Lonny
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Noticed today where Credite Suisse and Duetschbank are writing off huge loses on American sub-prime loans. When they became big players in the market I knew they were exposed and a look at tax rolls to see who owns repoed homes only confirms this exposure. They were the ultimate loser in many a Countrywide scheme. Good to know that not all the dupes where home grown.
In response to the memos on how to cheat, account executives have pushed that envelope for years. Production matters. If you turn someone down they'll go elsewhere and not come back because the bottom line is that commision check. Don't know how to fix that. We're forced to reward duplicity and in many cases downright fraud. It's tough to keep a balance between ethics and income. I recommend never taking the walk down that dark avenue. You'll sleep better in your cruel little bed in your wee little house.
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