This morning I’ve been trying to update articles I’ve written on FHA in an attempt to have the information be accurate during this day and age of the ever-changing-loan-guidelines. Please don’t rely 100% on information you find about mortgages on the web. Programs and products are simply changing too often to keep up and information is becoming quickly outdated.
This month, FHA loans have seen a few changes, many with the passage of HR 3221. Let’s see if I can get us all caught up in one post. 🙂
Effective for FHA case numbers issued October 1, 2008 and later:
- FHA mortgage insurance increase. First FHA mortgage insurance was going to have risked based pricing, then HR 3221 came along and put a moratorium in effect until September 30, 2009. Until then, for a FHA purchase 30 year fixed mortgage, upfront mortgage insurance has increased to 1.75% and monthly mortgage insurance is 0.55% for loan amounts over 95% LTV and 0.50% for borrowers putting more than 5% down on their home.
- Down payment assistance programs. Seller funded down payment assistance programs are currently not allowed. However there is a bill in Congress (HR 6694) that if passed, would allow DPAs once again but only to borrowers within certain credit scores. Home Buyers can still obtain a gift or loan from family members as long as it meets underwriting guidelines.
- Rental income credit when buying a new home and renting the existing residence. This actually became effective in mid September. When converting a primary residence to a rental home, the rental income can only be used for qualifying if:(1) the borrower is relocating or (2) the new rental meets at least 25% equity (to be determined by an appraisal < 6 months old or the existing mortgage balance is 75% of the original sales price). Both mortgage payments are factored for qualifying purposes. HUD (and Fannie/Freddie) have cracked down on this due to home buyers purchasing a new (less expensive) home and “walking away” from their McMansion mortgage payment.
Effective January 1, 2009:
- Minimum down payment increases to 3.5%. Home Buyers have until the end of the year to purchase under the 3% down payment requirement. Sellers can pay actual closing costs once the buyer meets the minimum down payment requirement (which can be gifted or loaned by a family member).
- FHA Jumbo loan limits to change. HUD is in the process of reevaluating median home prices and will announce new loan limits before the end of the year. With the passage of HR 3221, the maximum loan amount for FHA Jumbo was reduced to 115% of the median home price (currently, the $567,500 limit is based on 125% of the median home price). Should HUD determine that our home values are unchanged, then the new limit would be reduced to around $522,100. However, many areas have not had their values reevaluated by HUD in many years…so for now, we really don’t know what the new “FHA jumbo” loan limit will be.
A few more reminders about FHA insured mortgages…
- Not all lenders are approved to originate FHA loans. Check HUDs site to verifyif the mortgage company you work for is approved. One clue I’ve noticed by LO’s who are trying to “fake it” is that they’re charging more than a 1% origination fee. This is not allowed.
- FHA does not have income limitations or geographic requirements.
- FHA is not limited to first time home buyers.
- FHA is not just for lower credit scores.
Sellers, you are reducing your exposure to more buyers if you are not considering those approved with FHA financing…especially with the higher loan limits. A $700,000 sales price with 20% down is pretty close to the current limit. Anything shy of 20% down would probably lean towards FHA jumbo.
Want more reasons to consider FHA financing? Here’s how conventional compares:
- Tighter guidelines. And if you think DU 7.0’s been tough…wait until you get a load of version 7.1 which goes into effect in mid-December.
- Risk based pricing on credit scores below 740. (FHA has risk based pricing starting at 620 and below).
- More expensive private mortgage insurance for loans over 80% loan to value.
It’s easy to see why FHA has become very popular…you could say FHA is the “It Girl” of Mortgage.
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One of the things we have been trying to get Realtors here to do is inform condo association of the “right of first refusal” issues with condo decs and by laws and get them changed. FHA will not allow condos to have the first right of refusal which means that the HOA always has first dibs on a property being sold.
HOAs need to ensure they are doing things that make their development more marketable to the maximum number of potential buyers.
With lenders and PMI companies getting more strict on condos, a lot of developments are goingt o have a hard time selling because the development may not qualify for FHA financing OR even conventional financing.
True, Russ. HOAs should really consider having their condos become FHA approved if they are not all ready.
In a falling market, I think the 3.5% down payment is a mistake that will continue to cost taxpayers.
Alan, 3.5% is an increase from 3% and (currently) there is no more DPA. I don’t think the falling market is contributed to FHA as much as:
-stated income
-option ARMs
-100% LTV subprime financing
Alan wrote: “In a falling market, I think the 3.5% down payment is a mistake that will continue to cost taxpayers.”
I’d say just the opposite. If they want to stabilize the housing market, they should temporarily bring back the 100% loan, but only for people with stellar credit, and with the lower loan limits at a given income level. High loan limits and questionable credit scores caused more problems than the down payment amount.
Kary,
That is only true in areas where rents are closer to PITI. I was just at a condo yesterday that would rent for $750 and sell for $165,000. If someone bought it 100% down at 6.5%, their monthly payment would be $1042 principal and interest plus $186 in condo dues plus $65 a month in RE taxes (these are way under assessed and that is the tax for 2008). Let’s call that $1,300 adding only $7 a month for 2009 tax increase.
The reality is the payment would likely be double the rent amount, as 100% financing has to have insurance on the top 20% or a higher rate on the top 20%.
If someone is expected to be able to pay $1,500 a month that was previously paying $750, they should have to demonstrate an ability to put an extra $750 aside every month for an extended period.
Requiring the buyer to have some of their own funds as down payment, and not all gift or none at all, is a conservative approach to proving that the buyer has the ability to pay long term.
If someone who is currently renting at a payment of $750 a month is going to buy and take on an obligation of $1,500 a month, it’s not too much to ask that they put that difference away for a short time in advance of approving the loan.
3.5% down is $5,775 divided by $750 a month is less than 8 months. If someone is thinking of buying vs. renting, it’s not too much to ask that they put away the difference between the rent payment and their eventual mortgage payment for 7 or 8 months in advance of seeking a lender who will give them $160,000.
The answer to this crisis is not to find a way for people to buy more houses and other stuff. Yes, it would resolve “the problem”, but it would not resolve the issue that caused “the problem”.
It wouldn’t be difficult at all to demonstrate that someone has put $X into their savings account until they have reached what would be acceptable reserves (6 months would be the minimum I would suggest) by practicing making the proposed mortgage payment.
I also agree that there is little difference between 97% and 100% financing. Just because someone has 3 or even 5% of their savings invested into the home, doesn’t make them more likely to not walk away.
I’ve always believed that a home owner (with stellar credit) may be better off with 100% financing (Fannie Flex 100 type program) and keeping the 3-5% down in their savings rather than investing it into a home and not having that savings.
Cash is King. It’s King Kong now that the days of loose credit are dwindling (if not gone).
Also, consider depreciating values.
If you have two buyers looking at a $200k home. Both have stable jobs (jobs are very key these days too) and income and excellent credit. They both have about 10,000 in savings (not counting retirement, etc) to purchase a home.
Buyer A uses FHA and 3% down with the seller paying closing costs. This cost them $6,000 and leaves them with $4,000 in the bank.
Buyer B uses Flex 100 (no longer available BTW) with seller paid closing costs and is out very little. They still have $10,000 in the bank.
Both houses depreciate 10% to $180,000. Both are upside down on their mortgages…as long as they keep their jobs and make their payments, they’re fine. Neither one should have planned on moving anytime soon w/putting little down anyhow.
The difference is what’s left in the bank.
Buyer A still has $4000 (even though he did the “responsible” thing by putting “skin” in the game).
Buyer B has $10,000 in the bank.
Both have the same houses, valued at the same amount. Yes, Buyer B’s equity is more negative than Buyer A but if either of them get into a bind (loses a job, sickness, etc) atleast Buyer B has more savings to dip into if needed.
Fact is though, many who have down little to no down do not concentrate on savings. Savings has not been the American way…credit has been.
Defaults on credit cards will be the next big crash…and now most borrowers will not be able to refinance their way out of their cash/debt management issues as easily as they could in recent years.
“Savings has not been the American way”
High interest rates would encourage savings. It’s probably the only benefit of high interest rates, but when people could get 10% to 12% on savings, they put more money away. Also employer match programs do a lot to increase savings.
Ardell, I’m seeing more cash poor borrowers. Many (especially first time home buyers) are not participating in a 401k (even if it’s employer matched) or other forms of savings…they’re spending and charging.
Rhonda:
Timely topic.
FHA approvals are definitely more forgiving than conventional approvals these days.
Remember folks, FHA requires mortgage insurance for the first 5 years, regardless of the LTV, for 30 yr fixed.
I ALWAYS argue that it is safer for the borrower to keep more reserves, rather than increase down payment.
However, I have not seen the data that suggests that 3% down has the same default rate as 0% down. Probably not enough data on the new crop of FHA loans.
Kary, on the bright side, if we can end the war, and bring home all of those soldiers in Iraq, they can get 100% financing, and boy do THEY deserve it! That may stimulate the housing market a bit.
Roger,
I’ll add that FHA loans must also be paid down 78% to their original balance AND there’s a 5 year minimum required payments before MI is dropped (unless the mortgage is paid off via cash or refi).
I wrote this post to try to catch up to all the changes…I’ve added it as a link on posts I’ve written in the past on FHA at RCG. I hope I caught them all!
Dude–you need to upload your photo so you’re not an Avatar Monster 😉
“Many (especially first time home buyers) are not participating in a 401k ”
A common thought lately is that you are better off putting the money in a house because we’ve all read in various RE publications that the house will far outperform the stock market and it is a “guaranteed return-on-investment”. I don’t believe it’s true, but I know many people who do, from ages 24 to 57. People trust they will be better off with a nice house as their only retirement investment.
Cautious Buyer, do you have any examples from the RE publications you’re referring to?
I would never recommend that someone not utilize their 401k up to where they have an employer match. With that said, I’ve heard of employers no longer being able to offer matches.
It’s all about having a plan and researching your options. There is no one plan that works for everyone.
I haven’t seen any publications that explicitly say not to invest in a 401K. They just promise that a house is a much more lucrative and reliable investment than 401K type funds, and people make the next leap of logic themselves.
http://www.johnlscott.com/includeX/pdfs/whynowisasmarttimetobuy.pdf
Page 7 is a good example.
cautious buyer, page 7 is comparing the returns of 10k to stock to 10k if it was used as a down payment on a home. It’s not about using 401k (which can make sense depending on a persons individual financial plan) and I also would not call stocks “reliable investments”.
People do need to be logical and consider their own financial pictures and goals when it comes to investing and/or buying a home. If you play the market with either with the goal of a quick profit, you could get burned.
Rhonda,
You mentioned a lot of first time home buyers aren’t putting into a 401K or other savings, and I thought I’d chime in with a justification that some friends and acquaintances have used for doing that. Have you heard of anyone not investing in retirement plans specifically so they could purchase or make payments on a house? I have.
I do think page 7 is a little deceptive since it doesn’t include the difference between rent and mortgage payments and it leverages the housing investment at 20 times the amount, among other things.
cautious buyer, I think what I’ve witnessed more is people who are not planning for their financial futures. Even before I was in the mortgage industry, as a branch manager for a title/escrow company, I remember talking with co-workers who had elected to not participate in 401ks or other savings opportunities such as flex spending. It was not that they were trying to save for a mortgage payment or down payment.
You and I may be talking apples and oranges.
The lack of a down payment is not necessarily a bad thing. Just because you don’t put any money down does not mean you are at a higher risk of foreclosure. Foreclosures are caused by the loss of income regardless of how much money/equity you have in your house. A person with a 20% down and NO RESERVES is more screwed than the guy that does 100% financing and has reserves. The guy with reserves can pay his mortgage if he loses a job. The guy sinks all of his savings into a house can’t pay his mortgage if he loses his job.
Down payments are to protect the lender, not the buyer. As someone mentioned, the best way to stablize the housing market right now is to relax some of the guidelines that have tightened up, particularly around down payments.
Generally, equities are going to have a much better return on investment than a home. Whether you should invest in the market or your home also depends on where you are in your life. If you are nearing retirement, you should be decreasing exposure to the market and eliminating large liabilities such as a mortgage. If you are early in your career, you should be investing as heavily as possible into the market.
In fact, a study was done recently by some top b-school professors showing that younger buyers are better of NOT paying off their mortgage but instead investing in the market.
Russ, speaking of tightening guidelines, Fannie’s DU 7.1 is really going to cause some pain with reducing allowed LTVs. Borrowers who are looking to close at the end (after December 13, 2008) of this year need to make sure their lender is also FHA approved in case they need to switch programs. It’s quite possible that we’ll continue to see more “expanded approvals” even if the loan meets LTV guidelines.
Rhonda:
I agree. I have been trying to tell people that it isn’t about rate right now. It is about QUALIFYING. Low rates don’t help anyone if they can’t qualify for a mortgage! The banks are throwing the baby out with the bath water which is making the market worse.
We still need 100%, but it should just be offered to those with stellar credit and plenty of liquid RESERVES and low DTIs.
We still need stated for SELF-EMPLOYED borrowers with stellar credit and plenty of liquid reserves and reasonable down payments.
We need to make it illegal for a bank to not subordinate a second on a rate/term refi of a first mortgage that is lowering the rate & payment on a mortgage.
We need reasonable financing for condominiums. In some cities it is almost impossible to buy a condo with less than 10% down now. This is killing higher cost markets like Chicago where I am from where many first time home buyers typically buy condos which can easily run up into the upper $300s for a “starter” home.
FHA needs to chill out with the first right of refusal requirement. It would be a lot easier for FHA to drop their requirement than get HOAs to go back and correct something they may not even know is an issue.
Hi Russ, I beg to differ: “The lack of a down payment is not necessarily a bad thing. Just because you don’t put any money down does not mean you are at a higher risk of foreclosure.”
The lack of a downpayment is a very bad thing right now. We’re in a declining market.
If a person loses his or her job and has negative equity, the risk of foreclosure to a lender is extremely high.
Same person loses his/her job and has 20% invested in the home as a downpayment is much less likely to walk. This person is more highly motivated to find a way to continue to pay even with no reserves, than the person with no skin in the game.
Banks MUST continue to tighten underwriting guidelines until we get foreclosures under control.
If banks don’t, then we’ll continue to see bank failures.
The exception is, of course, if we see some sort of mass government intervention of all foreclosures.
Jillayne,
Lets say someone uses a majority of their savings and puts 20% down and they lose their job…HOW are they going to pay their mortgage? Walking away is only going to be more painful for that person.
If someone puts less down, they have the savings to make their mortgage payment should they lose their job (assuming they didn’t pay cash for a big screen tv to go w/their new home).
I agree that 100% loans “could” be useful in specific scenario’s, but the idea of 100% loans being utilized to get people into homes, that they otherwise would not be able to within todays underwriting framework, is to completely ignore what the heck is unfolding today.
100% loan programs were a key reason why we are where we are. Most of the short-sales our office is closing and even a glancing look at county records/title reports show that a overweighted portion of the folks in trouble have/had 100% loans or were serial refinancers.
In a declining or even neutral/ flat market, they are highly dangerous to the borrower. If people are moving around every 5-7 yrs or so and a flat market or declining market takes up 2/3rd of that time prior to any market recovery, the borrowers face being underwater on their property. And that brings upon markets a continual stream of distress property sales, which in turn put pressure on housing prices. It’s a tough cycle to break and will take quite a while to work through.
Don’t worry Rhonda, I’m sure they are getting that big screen with store financing (No payment till 2009!), not cash.
We probably were talking apples and oranges. I was concerned about some people’s financial plan of diverting savings away from retirement plans based partially on highly biased publications like the one I linked. You are concerned about people with no financial plan or savings whatsoever.
I do have to wonder if it’s in bank’s (or taxpayer’s) best interest to loan several hundred thousand dollars to somebody with no long term plan or demonstrated ability to save. I guess you and Ardell have already touched on that.
I agree with Jillayne on the need to toughen underwriting guidelines, both for banks and government loan programs. I see your point on reserves being important as well as the down payment.
A couple questions. Can’t the person with 20% down just sell at a loss and avoid foreclosure? For someone with less down and more savings, can the bank (or government) go after those savings if the person does become underwater and walk away?
jillayne/Tim:
We just have to disagree. I believe many foreclosures are being caused because banks won’t lend, not the other way around. It is a chicken or egg situation. The banks are saying values are decreasing so we won’t lend and we are saying of course they are decreasing, you won’t finance anyone to buy the home!
I am not advocating 100% financing for credit challenged (or any other challenged borrower for that matter). 100% financing does not cause foreclosures by itself. It just so happens that 100% financing was extended to people who had no business buying a home under any circumstance, even if they could put 5% down. People with bad credit, no reserves, and poor job stability are going to have problems paying a mortgage at some point regardless of down payment, economy, etc.
I don’t care how good things are, there will always be foreclosures. People go into foreclosure because of loss of income. PERIOD. It doesn’t matter how much they put down. The only client of mine who has ever been on the brink of default put 30% down to buy a home. The main wage earner lost his ability to earn a living. None of my 100% deals have ever gone into foreclosure because nearly all had stellar credit, very good jobs, low DTI, and most importantly RESERVES. They chose to keep their cash instead of putting it in the house which is illiquid in case of an emergency. The value of the home is irrelevant unless you are trying to sell or refinance as it is paper wealth/loss until you actually act on it.
Down payments are in place to protect the lender. The twenty percent down mantra comes from the fact that it is at that point that lenders usually can recover in case of a default. Nothing more, hence the need for PMI above 80%. In fact, a lender is more likely to foreclose if you have equity, not the other way aroand. Who would you rather foreclose on? The home with 50% equity and the borrower loses their job or the house that is under water and financed to the hilt? The home with equity the lender knows they can recoup their losses in all likelihood because the home is worth more than the mortgage. With the underwater home, the lender is going to take a bath if they foreclose. They are more likely to try to work out a loan modification or some other resolution with the underwater property.
People walk from homes when they have no other choice. Their down payment has nothing to do with their decision to walk. Most people view their home as their castle and have a strong emotional attachment to it and will usually do anything to keep it, regardless how much or how little they have invested in the property. If this weren’t the case, I wouldn’t see RENTERS sitting on their ass on the sidewalk crying about being evicted.
OK, I’ll chime in.
Is 100% financing better?
It comes down to: better for who, and under what conditions?
Better for borrowers and sellers? Yes, most of the time.
Better for workers in the housing industry? Nearly all of the time.
Better for the banks? Not in the current conditions.
Better for investors in mortgage backed securities? No.
Better for our government? Not if they are invested in the banks.
Better for society? Difficult to say, probably yes, but only on a very limited basis. There is still the difficulty of the “moral hazard” to overcome.
I am in total agreement with Russ that BORROWERS are better served by having adequate liquid reserves, even at the risk of high debt servicing costs.
However, by the very nature of the reserves being liquid (that is they can disappear with a signature), banks are NOT more secure. Perhaps some kind of escrow/trust account could be worked out where the money sits in an account that the borrower manages, but cannot withdraw until some future date, or under a particular set of conditions, somewhat analogous to a 401K/IRA account?
I disagree with Russ that the ONLY cause of foreclosures is a loss of income. I agree, that up until recently, it is by far the largest cause of foreclosures. However, going forward, we may see a substantial shift in rational borrower behavior.
How about this for a partial solution.
Authorize (or even subsidize) lenders to make 100% financing available for purchaes and rate and term refinances. That MAY slow the rate of foreclosures from borrowers that cannot clear up adjustable 80/20’s. Allow GREATER than 100% financing if backed by reserves partially under the bank’s control.
Just a thought…
cautious buyer: “For someone with less down and more savings, can the bank (or government) go after those savings if the person does become underwater and walk away?”
Answer: yes, the bank can decide to pursue the homeowner.
Yes, and escrow firms (I can’t even believe I’m saying this because it is so &!!%% #!! absurd) are even being threatened with litigation by a seller in financial trouble and in a short sale who was not told BY THE ESCROW FIRM that the lender would go after the short difference. Escrow firms are not lenders and don’t have a duty to disclose what someone or another third party may or may not enforce. Escrow firms are not borrowers on the note that the seller signed to buy the house.
Some lenders will forgive the debt others will try to collect. In this case, obviously the lender is going after the seller.
One thing that is being left out of this discussion about what’s better no down payment or 3% down payment is that we are in this problem because lenders were willing to lend to people who had poor credit histories. If someone is allowed to buy a home with a low credit score the lender is responsible for that loan. There is a REASON that person has a low credit score, and it is probably because they are not responsible for paying back their debt. Many home buyers were buying homes with NO down payment and increasing their payment well above what they could afford. We don’t need to have stricter guidelines. We need make sense underwriting. Who do you think is going to be more responsible in making their house payment, someone with a 720 credit score and a 50% DTI or someone with a 620 credit score and a 50% DTI? FHA has the right idea at this time, minimum 3%/3.5% down payment and case-by-case review of DTI’s. I think they should apply a minimum 2 to 3 month reserve policy (for those that want stricter guidelines-Jillayne). Is that so complicated?
That factor is conspicuously missing from the NWMLS forms. All kinds of buyer can cancel if they sneeze, but no seller can cancel if lender agrees to short payoff, but does not agree to forgive the seller.
It shouldn’t be escrow’s problem UNLESS the contract has the provision, which it currently does not. Sellers are then forced to close regardless of the lenders position on the shortfall, and I don’t think anyone is bothering to find out, because the contract makes no mention of it.
HUGE oversight in the contract. SCADS of new forms, yet not one that addresses a sellers right to know what happens to him after closing.
Ardell, come to think of it, it brings up the issue of whether or not it is in the best interest of the seller to enter into a short sale or let it go to foreclosure. Being a lay person and not an attorney, obviously I’m not in a position to give advice, but there is a lot of chatter out there regarding that issue.
For example: seller is delinquent and credit is impaired. Seller enters a short sale, but lender does not let them off the hook for the debt or, at minimum ,IRS treats the short fall as income (that would suck).
Example #2: seller is delinquent and credit is impaired. Seller lets the home go to foreclosure, but debt May be wiped clean and lender takes the loss.
In both examples, credit record is impaired, but in example #2, the debt is gone. So, the question of what is better long term comes into question.
So, sellers in this position, as Jillayne suggests all the time, should consult with an Attorney to see what is in their best interests. For some, at this point, it becomes a business decision.
But no one knows if the lender is going to forgive the difference until they are asked to approve the payoff. They should be asked to approve the payoff AND forgive the debt, not just approve the payoff. Then that final agreement should be reviewed by an attorney before the seller signs it.
Seeing an attorney only at the beginning is not enough.
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Great post, Rhonda! I’ve recommended it to my readers!
Thanks, FHA Book! You have to dance quickly to keep up with today’s changes. 🙂 My goal is to have the Mortgage Pages at RCG reflecting current guidelines…which I’m working on in my spare time.
Dear Rhonda, I have allot to say as I am a mortgage broker for 17 years and I have a very good reputation in my town (65,000) & (150,000 in the county) I have approx. 3-4 repeat clients and/or referral’s come in my door every week. People have faith in me and if you would like to take a look at how I price my loans. . . please . . most my files are at par!! I pay for my lock extensions for my client’s if I run over time. . I have never done an option pay arm !!!! The loans I did were good people with full time jobs w-2 full doc!!! and currently have demonstrated paying their bills on time. . maybe “may
Hi Rhonda, I am still looking for some insight to this question I have about the new administration coming in and Shaun Donovan in paticular. I understand that the Repulican lawmakers were the ones that made it difficult for small mortgage broker offices to originate FHA with the license and networth requirements. I know allot of you you out there feel that we small brokers should just go away. We are the ones that truly care and can help the people who sit accross our desk as they can see us and do not need to be marketed by FHA lead companies and net branches to modify their loan. Does anyone understand the impact this has had on small business and our industry. How about the bureaus that sell my clients info to a lead company? Now you are talking about preditory lending!! I know there are more inteligent people out there that understand this! Please I would really appreciate your comment on this. I have alot of respect for your knowledge in our industry. . . please advise. . Angela@themortgagehouseinc.net
p.s. I sent a post to you on Nov. 3rd with no reply . . . .
Angela, I’m sorry for not responding to your last comment–it’s a very important one. I don’t have answers to your questions and most of your comment seemed to be a well deserved rant/venting.
I don’t know if Fannie/Freddie are going to change their lending requirements to meet those of FHA. The only way that I know of a mortgage broker who is not HUD approved to originate FHA loans is to be sponsored (as you mentioned) and yes, there is a huge expense/bar of entry to originate FHA loans. $63,000 is just for starters…you’ll have to do annual audits after that (that are also very expensive). This has been a HUD rule forever.
I don’t want to see mortgage brokers go away–we’re a correspondent lender/mortgage broker. If mortgage brokers go away, we (correspondents) could be next. No one is really safe…neither are the mortgage bankers (we’ve seen more than a few banks go away, haven’t we).
I agree that it really seems like banks are making a power play. I’ve ranted a bit about that here and have written post about it at Mortgage Porter when the former CEO of WaMU said they were going to review all loans originated by brokers can contact our clients to make sure they understood what they were doing…I flipped out! Banks are the ones who created many of the products (WaMU is one of the grand-daddies of the option arm) and then they used mortgage brokers to push their products, the banks underwrote the loans and then, in this market, point their blaming gnarly fingers down at the mortgage broker.
Many mortgage brokerages consists of small businesses…many family run. My family has been in the mortgage industry well over 30 years and our company is family run.
I hope we all survive through this.
Rhonda:
Your comment about WAMU rang a bell. Did you see this article from the NY Times on Sunday about WAMU? Basically talks about them being the Option ARM king and their ridiculous underwriting. My favorite… mariachi singer. Taking photos to show he is a truly a singer to verify income on a stated deal.
http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1&scp=2&sq=wamu&st=cse
Russ, thanks for sharing that…I don’t know why I find any of this surprising except to see it in print. This is digusting…there’s just so much wrong about this.
Mortgage originators who work for banks do not go through the same steps as mortgage brokers, yet, this WaMU supervisor…: