Bryan Flynn's Central Massachusetts Mortgage Blog

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FHA, the new sub prime, or is it?

I have seen posts on here and I have talked with quite a few account reps and brokers proclaiming FHA is the new sub prime. 

 FHA may be saving people who have not totally lost control of their finances after a rate adjustment, but loan officers out there have a duty to do what is best for clients, and WE ALL KNOW that was not the general practice in the 2002-2006 period.  People where making a quick buck at the expense of the new homeowner or uneducated one.  These fly by night lenders artificially extended the bull market in real estate by easing their guidelines by the day and creating these crazy programs, allowing more buyers into the marketplace causing unrealistic demand and prices.

STATED (because I make $11 working 30 hours a week), don't really pay my bills on time ever, ..your APPROVED for $275,000 and we don't want any money down, you can pay interest only and we guarantee that rate for 2 year.

Or the people who bought their house at a great price and got swindled into thinking if they cash out and pay off all their debt they will save $500, of course paying interest only, guaranteed for 2 years...BUT never changing their spending habits and living within their means.

I could go on and on.

Back to FHA....how many people have you seen out their in sub prime loans who could have very well qualified for the FHA loan?  Way too many should be the answer and why?  Many of these brokers did not want to go through the paperwork process to get on board and never mind the expense of getting their financials audited.  Too lazy and now struggling or out of the industry all together.

FHA is very lucrative for broker, but you got to understand the program and be able to process these loans or hire a processor who knows what they are doing.  It also provides the clients the ability get a fixed market rate with more flexible guidelines over conventional programs. 

So is FHA the new sub prime...I don't believe it is, maybe the FHASecure will save a very few of these adjusted sub prime loans, so that could be considered the new sub prime.

FHA helps the okay type credit, or the working class person to get a mortgage in a safe, conservative way.  There is no reason it should ever disappear from the mainstream again, remember these times, and remember the homeowners who are struggling and the financial ruin going on. 

Just think of how many people who would still be in their home right now or not be in financial stress if they were put into a FHA fixed mortgage a few years ago, we would still have higher foreclosures but I guarantee it would not be as bad.   Make it your responsible as a real estate professional to go the extra step to provide value to your clients and not let this happen again.

Comment balloon 4 commentsBryan Flynn • February 26 2008 08:41AM

Comments

I am new to FHA... but I find it amazing... your right we could have put alot of these subprime loans in FHA

Posted by Rick Kellow, FHA & Reverse Mortgage Expert (Cherry Creek Mortgage) over 10 years ago
Rick thanks for the response, let me know if you ever have questions about the process, I would be more than happy to help.  Great place for answers for FHA www.hudclips.org
Posted by Bryan Flynn, Central Mass and Worcester Mortgages (Regency Mortgage Corporation) over 10 years ago

Bryan,

Good post, good topic. 

To a loan officer that has only originated sub prime loans, and or has only been in the business for a few years FHA is the new sub prime because the "old" sub prime is gone and FHA can take borrowers with credit that does not meet Fannie or Freddie  guidelines.

The old FHA before the days of Neighborhood Watch was more like the top tiers of sub prime. What the B/C lenders called A- or B grade credit. (but Neighborhood Watch is another post)  

Posted by Lee Walsh, Executive Talent Scout for Mortgage Professionals (SecurityNational Mortgage) over 10 years ago

totally agree with you, thanks for the comment

Posted by Bryan Flynn, Central Mass and Worcester Mortgages (Regency Mortgage Corporation) over 10 years ago

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