Bush offered America some presidential words this morning to let us know he’s on top of this whole subprime meltdown, credit crunch, liquidity crisis. On his agenda: An FHA bailout in the form of a new feel good loan program: FHA Secure. Let’s pause for a moment and reflect back on how well HUD is currently doing. First of all, in order to originate an FHA loan, the stack of paperwork, hoops to jump through, policies and procedures, exceptions to the policies and procedures, and updates to the policies and procedures, are, shall we say, astronomical, and I’m just talking about qualifying the applicant, let alone underwriting and the appraisal process.
One reason (of many) why brokers pushed subprime loans was because the borrower who qualified for an FHA loan couldn’t get that loan with a broker. Why? Because it also takes an enormous amount of effort for a mortgage broker to become an FHA-approved lender. It’s the small details that really count to HUD, such as annual HUD audits, net worth requirements, submitting audited financial statements, presenting a quality control and compliance plan, and paying your loan originators as W-2 employees. Many brokers pay LOs as 1099 workers. For some small to medium sized broker firms, it was a business decision: make more money selling subprime and leave the hassle of originating FHA loans to the banks. “See ya, wouldn’t want to be ya