January 1930 - There are two great dangers to the continuance of prosperity. The first is the false idea that business is still governed by a cycle of boom and depression, and the second is that the leaders of business will think that the country is broke because some of their friends are. And also there is the danger that many executives who have been playing the market instead of working will not know how to get back to real work.
Samuel Crowther, The World's Work
The following news is old, a bit antique in the "live feed" internet world we live in. Yet, it's vital for the loan du jour these days in a very different lending atmosphere.
I've had two concerns with FHA Loans and those have been documented in writing. Here they are:
*Picking up so much funding slack (my guess is at record levels) because of conventional Pricing changes and the disappearance of the sub-prime market. Mistake folks, big mistake. I give you the "All Eggs..." analogy.
*Subprime folks who penetrated the FHA product early on. FHA is NOT subprime and certainly not a viable substitute.
And to the news...
* If it is a cash-out refinance over 85% of your home's worth, two appraisals need to be done. I've seen (in my area) appraisals being done for anywhere from $375.00 to $400.00. The positive spin on this is that your equity position probably won't be over-inflated. The reality is that you are going to have to pay for two appraisals. Make sure you have the cash-flow to do it.
* Property Condition Issues - Peeling paint is a No-No. GFCI outlets (those things that you plug stuff into) must be upgraded if they already aren't. They must have a reset button, which is usually red. (This applies to kitchens and bathrooms or anywhere there is running water)...
* The down payment has risen to 3.5% since the New Year.
* 620 may be the magic credit score. Don't count on civilian credit checks to see what you may qualify for. Of note, scores can be lower than 620... just make sure that right now... you know that credit scores mean a damn along the merry little way and may even mean more down the road. Ironically, I wrote this post in "draft mode" before this other post came to be.
* How about those DPA's:) Down Payment Assistance Programs have received more scrutiny than Mr. T attending a Richard Simmon's Summer Home Pajama Party. For me, it's another way for a seller to sell their house and the buyer to be able to buy it. Done legitamately, it is a worthwhile product & amenity to Mortgage Financing.
* 203K loans are one of the only Rehab Loans I know of at this point. You know, you find a property at a decent price that needs work but you don't have the cash to buy it and do the improvements yourself. These loans must be owner-occupied (as all FHA loans stipulate) and it's a great example on how you can turn a dive into a palace. Or, at least better your abode and respective neighborhood.
I've done a few more Conventional and even Hard Money Rehab Loans and most of the banks/lenders backed out of delivering the product. The FHA 203K Loans are alive and swinging.
December 2008 - People, especially Americans, started believing that they can live on other people's money. And more and more so. First other people's money in your own country. And then savings rate comes down, and you start living on other people's money outside. At first it was the Japanese. Now the Chinese and the Middle Easterners.
We-the Chinese, the Middle Easterners, the Japanese-we can see too. Okay, we'd love to support you guys-if it's sustainable. But if it's not, why should we be doing this? After we are gone, you cannot just go to the moon to get more money.
Gao Xizing, president of China Investment
If you've stuck around this long, here's a song...
Jason, well at least I understand the song----well the pictures anyway:)
The cool thing is that the two appraisals can even come from the same company, just not the same appraiser. I still think that's too close for ethics comfort, but it's still pretty amazing.
Jason... some good information here... but I will disagree with the credit score thing, which I am writing about this evening. And the "all the eggs in the same basket" comment... FHA loans are sold from GNMA pools.... FHA loans are then serviced through many different investors.... so it's not like the gov't is servicing these or holding onto them. I just think from talking to you, that the loan officer that did conventional or subprime before... has no choice but to use FHA now... and they don't know what they are doing. The loan still needs to be approved and in most cases, manually underwritten. There are checks and balances. But in a bad economy, job losses, it wouldn't be the loans fault. No matter if it was a subprime or FHA loan.... just my .02.
Charles - Catchy tune, right? I often times think I was born in the wrong generation.
Bettag - Yup. And I really don't begrudge the guidelines wanting two appraisals for a cash-out transaction that is of a higher LTV. At least, not right now.
Belonger - You're wrong and that's a fact;)
Listen, we disagree on the credit score thing and I commented as such on your post. As far as the "all the eggs in the same basket" comment, I understand the way that works. The FHA is an insurer (hope I spelled that right) of the guidelines provided by HUD and lended on by various investors. Am I wrong? My guess/opinion is that they are insuring (again with the spelling thing) much more than they have in recent history because of the changes in conventional guidelines and the loss of the sub-prime market. As far as those who have no choice but to utilize FHA now, I don't kick another for having to make a living in a Capitalistic Society. If they did Conventional, they will probably have a nice grasp on FHA. If they did nothing but sub-prime, I worry. My vision is not one-sided... as I think FHA has its rightful place. I just think that place isn't as big as it is right now.
I saw an ad at some ungodly time this morning for a new car (Hyundai??) that said the car can be returned in the first year after you buy if you lose your job.
Blue Moon... haven't heard that in ages. I like listing to Brooks and Dunn - Neon Moon.
Susie - I saw that same ad at about 9:00 PM EST. I don't typically dig Country Music but I will check out "Neon Moon".
I saw that same add too...I can't believe they'll really live up to it.
OK, Jason, this is all well and good. But we really want to see a post on that rumor that's going around the Rain!
Sardi - and don't forget the new FICO, FICO 2008, will probably have the affect of lowering current credit scores even with no actual change in the persons condition. And, the Hyundai deal is real.
Neal - Yeah, but you are a cynical sob;)
Patricia - Rumors? On a "Social Network"? Unheard of!!! Send a few buyers my way and I will think about it:)
Saunders - Yup, I heard the noise. Do you have a link on FICO 2008? Whether the Hyundai deal is real or not, I'm not interested. I buy them used and run them until they don't run any more.
I have now read yours, Jeff's and Eleanor's post on this subject. I my opinion you are all probably right from the perspective from which you approached the subject.
I seems to me the large lenders are imposing their own restrictions due to manufacturing quality concerns due to the scope of their operations.
The smaller lenders may lag behind, as they have greater control simply because they have less underwriters to manage.
The issue comes down to getting the loan insured. Larger volumes pose larger risk. So we see internal control.
The problem may arise for smaller lenders in that they may end up seeing a disproportionate share of marginal files. Forcing them to institute tighter internal controls.
Not based in fact, purely opinion.
Jay
Jay - I'm warning you now, I'm going to use the "W" word. In my opinion, watch what Wells Fargo is doing. That's where other lenders/investors/banks will eventually follow regarding guideline changes. I hope, to an extent, I'm wrong. Thank you for your insight Jay, always appreciated and definitely noteworthy.
More great info for people. The 203k loans can be great in the right place, we are working with one now.
JL - That they can. This is a prime market for rehab loans.
Jason,
Just a quick cybervisit to say hello and let you know that I share your two concerns. Good to see good content!
Funny you should bring up 203Ks - Brian Schulman on my team has been knee-deep in them this month
There is so much to pay attention to, nice to have some of it all in one place -- the credit score discussion is interesting to me. More important than ever for clients to pay attention to what they are doing or not doing when it comes to credit. Love the song - loved the movie -- are you saying the blue moon will turn to gold? :-) My guess is, more likely has gone to rust for a few folks!
Sardi - here is a link to an article on FICO 2008 that I wrote on an outside blog. You can skip to the last paragraphs for a couple of links, one to an article about all the changes and one to a credit score estimator.
Good morning Gentlemen,
Jason, this is well done. I'm going to avoid the credit issue at this time. I, too worry about so many eggs being added to the same failed basket.
Jeff, it's true that the ownership and servicing are sold off and dispursed, so were the Fanny and Freddy loans! FHA and VA create twice the risk, not only the implied guarantee of government support of GNMA, but the contractual obligations of FHA insurance and VA guarantees!
In deed all our eggs are in one big triangular basket! The corners called Fanny and Freddie have big holes, can Ginnie hold?
There is nothing in FHA/HUD's history to give hope. Longevity does not disprove incompetence and corruption, it simply demonstrates the fallacy of letting the government get involved in business!
That said even I currently recommend FHA to many consumers! There is nothing evil dealing such vile institutions when it's in the clients best interest! My job is to provided the individual reader, student and client what's best for him.
Consumers as such are not at risk from the weak baskets, taxpayers are unavoidably at risk.
Socially and politically I'd like to see these dinosaurs driven to extermination! Pragmatically, when they are the best available program for my student or client I'll gladly use them.
Bill
Great info Jason. I have never done an FHA loan but have clients in that price range thinking about buying a fixer so the 203K info was awesome. Love the MR. T. analogy:)
Thanks Ron, I appreciate that. I think they are legitamate concerns.
Jeff - Excellent! I did read somewhere that you and Brian had hooked up. Isn't AR the real deal when it comes to networking, business-wise?
Alexsandra - Did I ever tell you I love how you spell your name? Yeah, I think I did. Credit Scores are soooooooo importante these days, whether I agree with that or not. As far as the song, Blue Moons don't rust... at least I don't think they do.
Saunders - Thank you for the link! I was hoping you would provide come back and provide it. I will check it out. I don't care what the far left says about you, you're a good man;)
Bill - I was waiting for you. I will leave your comment as it stand and only address the following:
"Socially and politically I'd like to see these dinosaurs driven to extermination! Pragmatically, when they are the best available program for my student or client I'll gladly use them." From one pragmatic guy to another, that may be as astute as it gets. Though, I do believe before terminating anything, one has to know almost everything about it. As you know, I'm not myopic in my vision. Look out for the interests of those you serve, after all... if there is no "them"... you won't be serving anybody.
Diane - Did you realize Mr. T has the cure for our economic woes? If you don't believe, click here.
Jason - there has always been a pull between PMI (Conventional lending) and FHA. I think that the PMI companies are "Stiffer" in underwriting right now than any other group! My concern is that we have pulled in guidelines so tight - there is a growing tide of actions that point to us going too far in tightening guidelines beyond those that are in place... I'm hopeful that if there's a Nationalizatoin - it happens soon. Perhaps the "Nationalized" banks will be the ones with the "looser guides" and the Wells Fargos of the World will be the ones with the best price!?
You bet - I've got 3 great bloggers on the team now.
Eleanor - I agree with you in regards to the PMI companies being stiffer. Should be an interesting year ahead of us...
Jeff - That's excellent. Sounds like a nice success story that could be good fodder for a blog in of itself.
Hi!
Hola:)
Yeah... well at least we can get to the moon!
Russell - Fly us there, already!