FHA Secure: A Political Power Move Disguised as a Helping Hand to Those in Need

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

142 thoughts on “FHA Secure: A Political Power Move Disguised as a Helping Hand to Those in Need

  1. Jillayne, I wish you’d quit sugar coating! (HA!!!) 😉 How do you really feel?

    With regards to FHA loans. We are direct FHA/VA lenders. They are terrific loans and they really don’t have that much more (if any) paperwork than some subprime loans.

    There were times over the past couple of years, I would show clients an FHA scenaro and what would be classified as a subprime loan. Many would opt for the subprime. Why?

    -instead of having to invest 3% into the transaction, they could go zero down and add the 3% to reserves/savings account.
    -no mortgage insurance (monthly or upfront–which is no longer refundable to the borrower)
    -lower monthly payments

    Bush surprised me when he said he thinks FHA should REDUCE the amount required for down payment with FHA. Isn’t 3% low enough these days? If FHA goes “zero down”, they should require more months in reserves to protect the buyer.

    I’m all for FHA raising their loan limits to be more appropriate for areas such like the Seattle/Bellevue region.

    I would also like to see FHA have the upfront mortgage insurance (1.5% of the loan amount) return to being refundable to the home owners once the mortgage is paid off. I’m not counting on that!

    I have been using FHA mortgages to help home owners out of subprime mortgages. It’s not credit score sensitive–it is credit history sensitive. FHA has been a life saver to those who’s loan amounts qualify.

  2. Hi Rhonda,

    How would their payment be lower with a subprime?

    If they’re not putting any of their own money (3%) into the transaction, how do they avoid paying private mortgage insurance? The favored 80/20?

    With price appreciation here in Seattle slowing, are you now advocating folks put down that 3%?

  3. As a Realtor I only used FHA/VA apporoved lenders.
    Because of those requirements
    “such as annual HUD audits, net worth requirements, submitting audited financial statements, presenting a quality control and compliance plan”

    Them ba$tard$ imagine expecting a lender to have some money, or expected to have a quality control plan.

  4. “Bush surprised me when he said he thinks FHA should REDUCE the amount required for down payment with FHA. Isn’t 3% low enough these days?”

    That’s because Bush is turning you and me and everyone we know who pays taxes into the new subprime lender.

    Pray tell what will happen when 6% of those loans go into default.

    Maybe we should just skip all these steps and give homes away to everyone for free. Oh wait a sec. That sounds downright Marxist.

  5. Hi rob,

    The Nat’l Assoc of Mortgage Brokers (NAMB) is working hard to decrease the barriers to entry so that more mortgage brokers can originate FHA loans.


    “NAMB particularly supports an amendment, introduced by Congressman Gary Miller (R-CA) and co-sponsored by Chairman Barney Frank (D-MA), Congressmen Randy Neugebauer (R-TX) and David Scott (D-GA) that will increase the number of originators who can offer FHA loans by removing the cumbersome and costly requirement for an annual audit of participating mortgage brokers. Committee members today voted to replace it instead with the option to supply proof of a $75,000 surety bond.”

    This law has not yet passed. President Bush asked this morning for the Senate to get moving and pass it so he can sign it. It’s called “Expanding American Homeownership Act of 2007.”

  6. I am just totally disgusted that people who paid their taxes, their paymnets ontime, 20% down should bear ANY portoin of this damn mess.

  7. Add the renters who have been saving and keeping away from this ridiculous market to the list of people who should not have to pay for the mistakes of the REI and idiot borrowers who bought the “buy now or get priced out” line and stetched themselves beyond their means.

  8. I saw the report this morning, something tells me he is doing this for political reasons but hopefully it actually helps the current situation instead of making it worse.

    But one part of me thinks the government should stay out of the financial markets and on the other I can see how this may be a good time for governmental action.

  9. My comment was eaten! Gah!

    What I said was that although I am concerned about the taxation issue, I don’t think many of us would like the alternatives a whole lot better. When people are in jeopardy of losing their homes they tend not to put their money back into the economy. And when they don’t put their money back into the economy, people will lose their jobs.

    At that point, a normal market cycle turns into economic disaster. Think Hooverville. All of us who grew up in the Seattle area should remember from our Northwest History classes that Hooverville’s happened all over the country, but one of the biggest was right here in Seattle.

    We aren’t close to that yet, but there are a few economic lessons we’ve learned over the last 100 years that still hit pretty close to home, especially for those in government. I’m thinking that’s one. Bush is already the worst president of all time since Herbert Hoover, I’m thinking he wants to continue in 2nd place, and not take the big prize.

    (Discussion might be required on whether it’s too late for that, but that’s another matter).

  10. that’s a double edge sword for the gov.
    if they do nothing and the economy foils (which I am a big fan of free market playing itself out) then more money could be lost for everyone.

    if the gov helps, and the economy moves along then everyone has opportunity to make more money. I don’t think the gov is trying to bail out a particular sector as much as they are trying to keep an environment for commerce. although that sector will benefit from that effort.

    the more commerce the more taxes collected everyone wins.
    there is such an interdependency that sometimes it has to be done.

  11. Pingback: Bush Outlines Homeowner Relief Plan | Phoenix Real Estate and Homes for Sale - Dalton’s Arizona Homes Blog

  12. Rob–yes. It is a double-edged sword. And I think you have a good handle on what the fallout would actually be of a free market solution. Everyone would suffer greatly. As opposed to everyone suffering in a more limited way.

  13. What Bush is proposing is nothing short of a political move to send more business to the banks that originate FHA loans, the same banks that line the pockets of the political warchests. There’s nothing in the proposal that feels solid.

    He’s saying “let’s go get those predatory lenders”
    With no legislation to back that up, those are just constituent fighting words.

    He’s saying “let’s help people with ARM loans that were not in default until their ARM reset.”
    This won’t be too terribly high a number of homeowners.

    He says “the new FHASecure program will pay for itself with the MIP premium.”
    I don’t see too many investors breaking down the doors willing to buy these loans yet. I guess we’ll have to stay tuned. Sounds like a GREAT credit risk for investors: A new loan, that a homebuyer could not have afforded in the first place. This loan would arguably come with a higher interest rate.

    I say the subprime meltdown/credit crunch/liquidity crisis is a far bigger problem than FHA can solve with it’s new program.

  14. One way to keep this from being a money hole for the taxpayer is to require those who refi under the program to rebate some of the home appreciation when they sell. Not so much as to prevent them from investing in their home in the future, but 10-20% so that the taxpayer gets something for their trouble.

  15. Hi Nell,

    Interesting proposal.

    Let’s build on that. How about requiring homeowners who want to buy homes using FHA to fully fund FHA and the residential single family 203b home loan program through the MIP premium.

    How about requiring lenders who make money off of originating FHA loans to pay higher fees to help cover the cost of operating FHA.

    Who is paying the cost of FHA loans that are currently in foreclosure right now?

    Who is going to pay the cost when a certain percentage (probably higher than average) of these new FHASecure loans go into foreclosure?

    Why does Bush support making new bad loans? Does anyone have an answer?

    Somebody call Ron Paul.

  16. I just can’t get too worked-up about this. Maybe Jillayne’s breathing fire makes me realize I just can’t compete. 😉

    It sounds to me like Bush is just targeting the small group of homeowners who are both:
    – behind on their payments
    – could actually be helped and go back to making regular payments by refinancing into a fixed FHA

    That has to be a pretty small group of homeowners.

    Well that, and a bit of a tax-break to mitigate the damage of the changes in the bankruptcy laws, but that’s not going to let folks keep their homes.

    Blah blah blah. Just talk.

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  18. I’m surprised at the out rage over today’s federal spin. The Tim over at the Seattle Bubble is saying hell no. This post seems to have a similar flavor. The Fed is responsible for the mess today, if you really want to call it a mess. Do you remeber the mandate to cut the discount rate for funds to a ridiculous level? Then, when millions of loans were generated, the Fed raised rates one meeting after another on inflation fears. Inflation fears based on an expanding economy driven by high Real Estate prices, construction spending, and orders for durable goods.
    Let’s look at durable goods for a minute; things like cars, washers, dryers, an refrigerators. We’re not objecting to those things, are we? How about airplanes, tanks, and fire arms to protect our freedom, are we objecting to those?
    After all we have had both the robust consumer spending and war economies going on at the same time. Now let me get this straight; spending billions of dollars a month killing Iraqis is Ok. Billions of dollars spent on Haliburton projects to rebuild an infrastructure we bombed the hell out of is OK.
    Today the president and Fed chairman make a couple of frivolous comments and that’s not OK. Our tax dollars are going to be wasted. Come on, do you have any idea how many Bell Helicopters there are in Columbia today? Anybody?

  19. Hi david,

    Without going into a long drawn out dialogue about the state of world affairs and our current administrations role in the mess, let’s just say our president (well, vice president) has a history of rewarding those that contribute to his political party. Today’s announcement, in my opinion is more of the same.

    A federal bailout of lenders, he said, “would only encourage a recurrence of the problem. It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”

    So then why is he creating a new FHA program to do just that?

  20. If this bailout gets underway, I can just imagine all the FHA underwriting going on with all the borrowers actually having to show incomes. How many will be denied because income does not support the monthly payment with PITI factored.

    And I can also imagine the underwriters thinking, “how in the world did these folks get this existing loan in the first place.” I wouldn’t be suprised if FHA has to come out with their own version of some kind of program that mimics I/O products or similar to get the payment within a manageable range. Who knows?

  21. FHA Secure is for homeowners who were paying their ARM loan payment as agreed/on time, until the rate adjusted and the payment went up.

    Okay, so now we have a set of borrowers who cannot manage to pay at the adjusted rate.

    How are they going to qualify at the new FHA Secure interest rate? If these are marginal borrowers to begin with, then we’re just making new subprime loans and calling them FHA Secure loans, and the FHA-approved banks earn another loan fee for originating the loans, and the defaulting loans are removed from the tranches.

  22. The idea of the fix is not to bailout those that have bad loans. It is to prevent the “WHOLE ECONOMY” from going into a tail spin. It may not be the perfect fix, but I don’t hear any realistic solutions just a bunch of whining.

    I am not defending the idiots that got themselves into a bad situation. But like it or not it could have an impact on the whole economy. From the post I have read it is apparent that most have no clue how important housing is to the US economy.

    Housing is a major economic fuel. When people buy and sell houses. A lot of money changes hands. It causes people to buyer appliances, do minor fix ups to major renovations. That in turn creates work in the construction sector, which causes the material supply houses to pump out supplies. It keeps the engine moving.

    It seems like the focus is on the wrong part of the equation. First thing is first. How to stabilize the economy? Second, what mechanisms need to put in place to prevent it from happening again? I have seen some very intelligent dialogue here, keep it towards solutions, problem solving is more fun that bit*hing.


  23. The economy is cyclical. The FED the last 20-30 years has sought to disrupt the cyclical nature of the economy by cutting rates every time the economy starts slowing. The FED should just let the ebb and flow of the economy precede without nearly as much interference, and we wouldn’t be in this situation in the first place.

    Cutting rates is what got us in this predicament in the first place, and now people are screaming for cuts to bail it out. When will people learn? Cutting rates and bailing out people is not going to fix the situation. What it will do is cause massive inflation and only prolong the inevitable. The inevitable is a massive repricing of all the assets in this country.

    We don’t need a bailout, we need to let this thing work itself out. Throwing more money at the problem and at people who took loans they couldn’t afford, is not going to solve anything.

  24. BTW, I love how the big bulls on Wall Street talk about how we need “no government interference” and a “strong, free market” when everything is going great, but yet the minute something turns south, they want Main Street to bail out Wall Street. Screw that, people took risk, they made risky investments and thought about the impact of the short term without thinking about the impact of the long term. They should be held accountable for their own actions. Our society has turned into one in which everyone is concerned about instant gratification and not about long term implications. What message does this teach people? Be foolish with your money, gamble on endless appreciation and on a risky loan, and if it all goes bad, Uncle Sam will have a check waiting for you to help you out.

    Sorry, I’m not buying it.

  25. Hi rob,

    The FHA Secure program is not going to fix the subprime meltdown/credit crunch/liquidity crisis.

    I’m more of the preventative type of blogger. I have lots of suggestions for how to keep this from happening again. However, that doesn’t help the right now question you’re bringing up for us to ponder. I’ll give it a try.

    The mortgage market swung too far in one direction. the pendulum is swinging back. There never is a perfect middle; the pendulum is always swinging back and forth. I think to find out how far housing took the economy forward, we’re going to have to swing back that far. Only then can we start implementing solutions. To do so right now is to offer a bandaid to a person having a heart attack. Only after the heart attack will the person stop smoking, eat right, exercise, and lose weight.

    An LO friend of mine just called tonight. In conversation he said the Colorado recording offices cannot keep up with the notice of default filings in the courthouse (that’s the first public records document that puts the world on notice that a foreclosure will occur in the next 120 days.)

    I’m afraid lil Bush’s FHA Secure will help his buddies who own the FHA-approved banks more than the foreclosing homeowners.

    It will probably take FHA at least 120 days to form a committee to begin formulating the underwriting guidelines for this new program.

  26. Hi LHR,

    Thank you. To me, the bubble bloggers represent a philosophical, critical thinking side of the conversation. They’re always asking why and probing deep for the underlying power relations between language and the political reality. I have learned alot from reading the bubble blogs. We all have much to learn from each other in this world.

  27. Jillayne,

    That was a thing of beauty. Great take on the whole mess…

    My beef with the POTUS was over the past few years, he and his right-wing talk show hosts were all ethered up on the “Ownership Society” and the “highest home ownership in history” crap.

    Now, that the bottom has fallen out, he wants to go after the very people that made his ‘great’ economy possible.

    He, like all politicians, wants it both ways, which is why he thoroughly disgusts me.

    BTW, I think your journey to the “dark side” is now complete. Welcome, Darth Jillayne.

    Darth Eleua

  28. I’ve passed my LO test and even my broker’s test, so I’d like to say something about bailouts.

    Government bailouts are a very poor use of your hard-earned tax money. It is basically corporate welfare. There’s no incentive here for these corporations to fund good loans. They know, that if they make a mistake, big brother will help them out. Is this our brave new world?

    On a deeper note, we live in a day and age where nobody takes responsibility for anything at all. We hire lawyers, and sign forms, just so that we are ‘held harmless’ for everything.

    Ultimately, he who takes the responsibility for not only his actions but all other actions as well will be our nation’s next leader, next inspirer, the one who will give you, as a person, reason to believe that tomorrow can be better.

    What would Booker T Washington say about handouts? What would Teddy Roosevelt say about handouts? Are you going to live off the sweat of another, or are you going to work for your community, your family, yourself?

    We must take responsibility as a people.

  29. Oh great, Eleua. Next you’ll be saying “No, I am your father.”

    Touting homeownership as the American dream has been on the lips of every president for quite some time; B-Clinton, GHWBush, Regan, and so forth. I remember being the chairman of the FHA Partners in Homeownership program and that was when my youngest daughter was a baby so, 10 years ago. Promoting homeownership as a political platform has been going on for a long time.

  30. Hi David,

    How was your evening? Mine was great; went out for a long walk to clear my head.

    Now about this idea of responsibility.

    We can approach the problem from many different angles. For example, rob holds a view that offering the FHA program was the morally responsible thing to do in light of possible severe consequences, hoping that the FHA program and other Bush ideas would help the economy, therefore maximizing the chances for good consequences for the most number of people (a utilitarian idea brought to us by JS Mill). Government does owe a duty of responsibility to the general public to look after its best interests, do you agree?

    Another way of looking at this value many of us hold, “responsibility” is from a personal angle. Each one of us is personally responsible for his or her own financial well being, and that includes not trusting a salesperson who is selling you something that your gut tells you might be too good to be true. Relying on others to take care of us when we screw up creates individuals co-dependent on bailouts. Our readers might identify someone they know in their life like this. The leech that comes crawling back home to borrow another $100 bucks from mom. (For a great movie example of this, rent the DVD Alpha Dog. Very violent, surprisingly well acted, and based on a true story.) How do we balance the need for individuals to morally grow into responsible adults with our own need to take care of ourselves and our families?

    To make the assumption that every individual is so well situated as the stellar upbringing we may have had would be inaccurate. Not every person was raised to:

    Not believe what salespeople tell you
    Read the fine print
    Don’t over extend yourself credit wise
    Save money

    Some people have to learn hard financial lessons in life in order to grow. Some of us learned these lessons at an early age, some later in life. Some people grew up with two mortgage bankers for parents like I did. But eventually I would hope that it is the responsibility of all of us to help each other learn from life’s lessons.

    I don’t want to teach the american public that if you believe mortgage salespeople, don’t bother reading what you’re signing, live beyond your means and don’t save, the government will magically create a mortgage program to let you keep the house you couldn’t have afforded to begin with.

    Now we’re giving the green light to financial irresponsibility. This is something I do not value.

    But worse, it treats the adults like children, which is highly disrespectful to those individuals.

    I truly feel compassion for the folks who knew nothing or very little about mortgage lending, and were deceived or lied to by their retail mortgage salesperson or were placed into a toxic ARM as a bait and switch last minute trick. Solutions for future prevention of these tactics is a must. I’ve already blogged about solutions here,


    so I won’t go further down that path tonight. I like talking about this idea of responsibility.

  31. I’m sorry but I don’t get this so-called bailout. According to the FHA’s website, the purpose of FHAsecure is helping to “break today’s cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.”

    I don’t get the depreciation part.

    I mean for the past 7+ years housing prices in California, Hawaii, and other states have doubled and tripled in value. This absurd run up in prices seemed to be partly fueled by a constant stream of buyers (aka subprime borrowers) that kept the demand high and therefore, the supply low. Everyone seemed to be winning in this game except for people who simply got priced out of the market. Now that prices are correcting as they should, the gov’t is trying to stop or control this correction. Why?

    No one likes to see a recession or people losing their homes or jobs, but when you can’t even buy a decent house for $500,000, something was bound to give. I recently read that a house usually cost 4x your annual income until this most recent run up, and to me, that seems about right. You should be able to buy a decent home for a quarter of million dollars, but this absurd run up has made even small homes in questionable neighborhoods cost in the 400-500 k range. It’s absolutely nuts. So now the market is correcting and this bloated mess finally letting out some air and gov’t wants to stop it.

    What’s the problem with letting market correct itself? Why do we need the federal gov’t involved in this? What has the federal gov’t been doing for the past 7 years while housing prices were running amok? Now that the hedge funds are suffering, gov’t takes an interest?

    If the FHAsecure is just like any other gov’t program it will have the opposite of its proposed effect. Housing will continue to flatten and crash as it should, more people will foreclose, and the super rich will continue to find a way to make money, even in the worst of times. I’m sorry but if your house is worth less..good!! It was overpriced to begin with.

  32. It’s too late for me to read all of the comments, but here is my two cents:

    1. FHA is not hard to originate, people were just lazy and did subprime because amazingly it was easier. If anyone took the time to learn FHA they would realize it’s not tough. We’re FHA lenders and I love the deals – easy peazy.

    2. Anyone serious about being in this industry for the long haul should invest in their business, obtain the necessary net worth, audited financials and go through the approval process with HUD. We did – it is well worth the expense and effort. HUD shouldn’t just be another conduit for fly-by-nights to rip people off.

    3. The argument against government assistance is too often made in a vacuum. We’re all appalled that we’d help out US citizens, but more than 50% of us refuse to vote while BILLIONS are spent on farm subsidies, foriegn aid to dictators, and government bail outs (since I’ve been born) of no less than the banks, the automotive industry and the airlines (plus several countries). I mean if we’re going to say no hand outs let’s mean it and vote that way. It’s too convenient to say no bail out for US homeowners, but if the welfare line is that long – I hope some beleaguered American citizens can get in it with everyone else.

    If we say hands off here, we should demand hands off in future crises. But we know that will not be the case. So what is right? Let capitalism “work” for the little guy who gets their lunch eaten for them by the system, but when an industry fails (like the airlines) we should bail them out as a form of socialism for the rich owners? We can’t have two sets of rules – one for the rich and one for the average citizen.

  33. Why our economy may be far better off without any bailouts even if lots of people lose their homes and their jobs and we end up in a major recession…

    I’m sure that got your attention. I for one wish this whole mess never happened and I also don’t want to see anyone lose their home or their job. That doesn’t mean that if it happens it wouldn’t be for the best for the majority of citizens and for our children.

    Lets face it. Houses are too expensive compared to incomes. There are too many people employed in real estate related industries. Too much of our capital and resources has been directed towards “non-productive” uses. Ultimately, economies grow and standards of living increase when capital (human and financial) are directed, using intelligent risk taking, towards enhancing productivity and innovation which increase standards of living. Directing too much human and financial capital into housing (which is really just a depreciating asset) steals from our longer term potential. In the short run, it can appear the economy is strengthened by a housing bubble when in fact just the opposite has happened.

    If things unwind, without a bailout, what happens? Some people who previously rented will lose their homes and rent again. Instead of being “housing serfs” living paycheck to paycheck unhappy because they are always financially strapped, these people will once again have disposeable income when they pay less for rent and have more disposeable income to consume. That spending will help support our economy. Yes, in a recession some will lose their jobs but most won’t. Many people who worked to support the housing bubble (scores of new real estate agents, loan officers, etc, etc) will certainly lose their jobs. Most will go back to doing what they were doing before they changed their line of work to real estate to make the easy money. The market (now operating under a more sane capital allocation model) will force these people to get jobs more likely to support enhanced productivity and innovation which will create real and sustainable economic growth.

    In the process of all this, housing prices will revert to their fundamentals (meaning prices will decline back to trendline). That means that houses will once again be affordable for most people. I suspect that there are far more people hurt by not being able to afford buying a home than there will be people hurt who lose their home. Lets face it – there’s always going to be SOMEONE who loses in these kind of situations. It makes far more sense for the ones who took a risk (to buy a home which was more expensive than they could afford) to lose than for those who were more prudent by not taking that risk to lose.

    In the long run, and for the benefit of our children, we’re far better off letting capitalism work. Bailouts corrupt our system. Why on earth would we want to do that?

  34. Nice rant Jillayne,
    This will help an estimated 80 thousand out of estimated 2 million defaults projected in next 2 yrs.Foreign owned banks will repo vast amounts of property in the U.S.All part of new world order plan.
    This is just more of the sale of America.We are giving the Chinese over 12 billion a month in trade imbalance.Does everyone think selling each other $6 cups of coffee and grossly inflated homes will keep American economy going?Sorry Seattle,things are going to get verrry rough,watch the market slide in Sept. as the magnitude of the problem rears its head.
    As with any ship hitting an iceberg,theres a lot of noise,and ice hitting the deck chairs.But as bad as that looks,what you have been seeing,is nothing,most of damage is below the water line.

  35. Even though I can’t stand the guy and I believe he is responsible for running the country into the groud he still should be addressed as President Bush.

  36. Morgan–I agree with you about FHA. All the ones I’ve been involved with have seemed very easy and seamless at least from the agent/client side. Not sure what’s involved as the broker, but none of the folks I work with on them seem to find them all that difficult either.

  37. Maybe some of these people in danger of foreclosure were neither foolish nor greedy, but their economic situation has changed?

    That is, in addition to the ARM jumping, they’ve experienced a death, a divorce, an illness, medical bills they can’t fully pay, a job loss, new kiddo, etc.? Maybe they could have even managed the monthly payment increase if their situation had remained stable. I don’t think it’s wrong to “bail out” or help those people, no matter how loudly you argue what they *should* have known and *should* have planned for.

    I know someone who is facing foreclosure. He came from a family that did not teach him about ARMs or how to save money or how to keep your credit clean. He just wanted a house, like pretty much everybody else in America. Now he’s in one he can’t really afford, partly through his own choices and partly through circumstance.

    Regardless, I doubt a lecture on “personal responsibility” and the “real-estate-industrial complex” will help him now. And when I help him move into a dingy rental in a couple months, shall I tell him that it’s for the good of the country, that it’s GOOD that no one is “enabling” him, that he’ll learn all kinds of afterschool-special-y lessons from this experience?

  38. China buying America, losing homes will be good for lower house prices, and talk about responsibility.
    The American People are highly responsible. We make money. We make a lot of money. Some times I look at my bank account and can not believe how much money passes through my hands. I can think of a couple of dozen ways to make more moeny if I had more time, or people, or ambition.
    It’s all about the money. You see, the money is the basis of life in America. It’s not just any money though, we are talking about the easy money here.
    The Fed discount rate was the lowest in forty years. I did not see big warning signs here on this blog of caution. People were actually saying buy now or be priced out forever.
    Even today, Real Estate agents are selling ticky tacky town houses for a half a million dollars. That’s a two hundred and fifty thousand dollar product that has become a half a million dollar product because of granite and stainless steel.
    Let me hear the location, location, loaction argument again. We’re talking about Ballard, for God sakes.
    Being responsible is to take personal responsibility and also take responsibility for the people around us. Not just our clients but for those people who come across our path who may be misguided. So I don’t mind my hard earned tax dollars going into an FHA program that will refi ARMs.
    I also advocate people questioning the loans and sales practices that put them into housing units of questionable quality or value. That’s responsibility.

  39. Kayleigh–nicely said. I work foreclosures from time to time, and what I’ve noticed is that it’s usually a few things piling up that leads to it. Yes, there are often some questionable decisions that might have been made along the way but usually there are problems beyond the mortgage and often, unforeseen circumstances.

  40. Kayleigh,

    None of those situations are new. If that was all that is going on we would not be having this discussion. Too bad about your friend but it’s not the taxpayers job to babysit him.

  41. Jillayne,

    Sorry I haven’t had time to follow all this, so apologies if this has been answered already. But why can’t the exotic loan holders who qualify simply convert to FHA or VA without Bush needing to change anything? Do they both do refi loans?

  42. Hi Ardell,

    Good question. The reasons folks aren’t fleeing to FHA in droves right now are:

    FHA requires a 3% downpayment. In some of the hard hit areas of the U.S. home values have dropped below the existing loan balance.

    FHA requires that the borrower qualify to repay the loan. Recall that with subprime products including option arm or interest only products, the borrower was qualified at the start rate, not the adjusted rate. With interest only products, the borrower was qualified at the interest-only payment.

    FHA requires verification of the little things in life that matter when applying for a loan such as….employment, income, job stability, assets, cash reserves, and the borrowers credit history.

    FHA has not been credit score driven, although there is movement afoot to change this, as of today, FHA looks at the whole borrower, the big picture and not just a person’s score.

    Many subprime homeowners went with stated income, no income verif, no doc loans. Whether they were a wage earner and over-stated their income or whether they were self employed, wrote off tons of personal expenses as business expenses and “had to” go stated-income, these folks likely won’t qualify for an FHA loan if they had to actually prove their income.

    From the responses we’ve seen from Rhonda and Morgan, FHA is a breeze on the origination side. I suppose they meant “for a person who has assets, verifiable income, job stability, cash reserves, and equity.” I would venture to guess that people in default have very few of these going on in their lives.

    I for one do NOT advocate FHA turn themselves into a subprime lender and relaxing these standards. People currently in default are a HUGE credit risk.

  43. Many sellers and agents have been opposed to FHA. There are costs that are not allowed to by paid by the borrower (around $475-$550 approx) and it has the stigma of being a tougher transaction.

    As I mentioned in comment 1, borrowers would sometimes opt for what would be classified as subprime (I’m not talking 2/28s) over FHA for various reasons. It is the buyers choice and hopefully they received enough correct information from their LO to make the right decision. In my case, it had nothing to do with being easier for the LO as Morgan suggests in 39.

  44. Kayleigh,

    So you think its better to keep him in a house using taxpayer money that you admit “he cant really afford”? So he’s moving from a wonderful mansion “he could not afford” to a dingy rental. I love the phrasing. And this is everybody else’s problem? Ignorance is *no* excuse. Can I get out of contracts now because my parents did not tell me to read the fine print? Maybe the problem is everybody in America expecting to buy a house without saving up for one?

  45. Rhonda,

    Knowing very little about the circumstances surrounding Kayleigh’s friend, would FHA products allow a homeowner to refinance into a new FHA loan if the homeowner is currently in default?

    Assuming all other things are true: The homeowner has verifiable income, can qualify to repay the new payment, the home appraises, and so forth.

    Just looking at the “in default” part. Will FHA do this?

    I know that there are subprime and hard money lenders who will refinance someone that’s in default, at least my current issue of the Scotsman Guide that just arrived at my house yesterday still has advertisements in there for lenders willing to refi to a defaulting homeowner. Rates, fees and Loan-to-Value must be set pretty high on those products.

  46. I own a small mortgage brokerage. Prior to my opening my company, I orginated 100’s of FHA loans. I agree it is not difficult to originate these loans and I wish I had the funds available to get my mini eagle. I think the cost of trying to obtain FHA is unfair. I am a legit broker who wants to do the best for my clients, but I am being held back by these guidelines. Maybe a test would be more acceptable?

  47. Jillayne,
    FHA is common sense underwriting and I would be they would not refinance someone who is “in default” on their mortgage. I’ll double check on Tuesday (I’m happy to be proved wrong).

    I would also be careful of anything about mortgages that is “in print”. These days, by the time it’s printed, it could no longer be an available product or guideline.

  48. Hi Susan,

    Because of the smackdown brokers are experiencing in the market, lowering the barrier to entry for brokers who wish to originate FHA loans would not likely become a high priority political topic for debate in D.C. over the coming years. The banking lobbyists have more money than the lobbyists for the brokers. I wouldn’t count on “a test” as a realistic starting point.

    So let’s talk about what an honorable, responsible broker COULD do, today, to do the best for his or her clients (to quote you from comment 53.)

    If a homeowner with a defaulting ARM is talking with a mortgage broker (or loan originator who works for a broker) about options for refinancing, given that this person would qualify to repay and would meet FHASecure underwriting guidelines, what is the duty, or, as David Young put it, the “responsibility” of the mortgage broker to refer this homeowner to an FHA-approved lender?

    Being in default, I imagine the client would have to go subprime where rates, fees, and payments are higher.

  49. Uh, folks. Yes, I do think it would be OK to use taxpayer money to help keep people in their homes in certain circumstances. He may end up in a dingy rental OR he may end up homeless for a while. He could afford the mortgage until 1. Circumstances beyond his control changed (death) 2. He made some bad choices and 3. His ARM jumped. He’s working with his lender now and hopefully he has a chance. But I don’t know.

    This *is* something new for a lot of first-time home buyers,and it appears to be something new for our economy, doesn’t it? At least, that’s what the bubble-believers keep telling us–it’s a fresh new horror every day, right?

    It’s easy to take the punititive angry not-with-my-tax-dollars approach when it’s not somebody that *you* care about.

    You are entitled to any political-social-economic view you choose; however, there are real people behind the abstractions. I see those people every day in my work and that’s why I believe strongly in a safety net.

    Is this the right thing for Bush to do? I doubt it; I agree with the others on his political motives. But making people homeless or renters for years until their credit is clean again doesn’t sound like such a fabulous idea either.

  50. Hi Kayleigh,

    It sounds like your friend has undergone some tough times. A safety net for those on the edge of homelessness is already in place in the form of many taxpayer funded, religious funded, and privately funded non profit housing agencies.

    Yes, this is something new for a generation of homebuyers, as well as scores of mortgage lending workers and real estate agents who entered the business during the past 7 years and have never lived through an industry down cycle.

    Although I have compassion for your friend, if we take your idea and try to scale it, we would end up with a new rule that says:

    1) when circumstances beyond a person’s control, such as a death (of the other person paying on the mortgage?) prevent a person from paying their monthly mortgage payment, and;

    2) a person intentionally or unintentionally makes some bad choices; and

    3) the adjustable rate mortgage payment resets upward….

    Then we must always provide a safety net for this person. This logic doesn’t work in a capitalist democracy. This rule would result in rewarding poor decision making and teaches a person that the government will always take care of you. Ought government care be left for the most destitute amongst us? If your friend is young and able to work, it doesn’t mean the government owes him a single family residence to live in.

    Your rule would reward people for staying at the lowest level of moral development, egoism, which is about as morally developed as an infant or toddler when all our needs were (supposedly) met by a caring parent and the world revolved around us.

    Folks in your friend’s situation pick themselves up and start over. Have him contact a HUD-approved housing counseling agency. There are many options besides foreclosure. He could take on a renter, he could rent the whole place out to (maybe?) cover the mortgage payment and then live someplace where he can afford the rent. He could try selling the home. He could try to work with his existing lender. Here is how he finds a HUD-approved housing counseling agency:

    Go to HUD.gov
    click on “talk to a housing counselor”
    find your state and county.
    find a housing counseling agency that specializes in DEFAULT counseling. (Some only offer first time homebuyer seminars.)

    There are people just like your friend every day who do just that: Make BETTER choices next time, take responsibility for the hand life has dealt, and start over with life’s lessons in his back pocket.

    The only postscript I will add here, is if your friend is suffering from depression or some other serious mental health issue, “picking yourself up and starting over” is nearly impossible. If this is the case, mental health counseling is the first step. Anyone in true financial distress can receive free mental health counseling. There are free or very low cost walk-in mental health clinics in all major cities.

    It sounds like your friend is lucky to have you in his life. I wish you both well.

  51. Kayleigh,

    I happen to live in one of those “dingy” rentals you talk about, but am stuck here because I can’t afford to buy a home that is even as “dingy” as my rental in Bellevue without going up over my eye-balls in debt. I admit it, I HATE my rental, and am just hoping against hope that prices will fall enough so that I can actually buy a decent home in Bellevue without selling my first-born.

    Should the government do something to help me? It would seem terribly unfair to have the government help someone who got in over their heads buying a nice home when someone like myself who decided not to jump off the cliff is just stuck in a “dingy” rental. What should the government do to ensure that I can afford a NICE house in Bellevue without having to borrow more than 3 times my annual income?

    Or should the government only stoop to help those who are in danger of default? Maybe I am really the idiot here, and the joke is on me. I should have jumped on the most ridiculous 2/28 loan I could find last year and bought a Bellevue home I really loved. Then good ol’ Uncle Sam would come and bail me out when my loan reset and I started missing payments. Maybe that is the way we want to subsidize home-buying?

  52. Sniglet,

    You have such a way with words.

    Many homes in Bellevue are probably valued over current FHA lending limits for the FHASecure bailout loan.

    Maybe lil’ Bush will come up with an FHA plan next week for Bellevue first time homebuyers. Don’t rule it out.

  53. Kayleigh,

    “But making people homeless or renters for years until their credit is clean again doesn’t sound like such a fabulous idea either.”

    Homeless = Renters? This is bizarre. What is wrong with renting? You make it sound like its a crime against humanity if people have to rent.

    Also, renting and saving up until your credit is clean again is exactly the right thing to do. This is a way to get back on track. Why are you so keen to look for shortcuts considering that the situation right now is the result of people taking the shortcuts offered to them by the REI? In the end, *they* took the shortcut. In the case of your friend, he made bad choices and did not know how his ARM loan worked. I do have sympathy for people who have to deal with circumstances beyond their control, I don’t see how your proposed solution of a bailout is fair or the right thing to do. I guess I was an idiot to try to save and be financially prudent. Should’ve jumped in and bought one of those $600,000 condos….

  54. I finally had some time to read through all the comments, and one of the interesting points that came up was #18: Nells’ comment:

    “One way to keep this from being a money hole for the taxpayer is to require those who refi under the program to rebate some of the home appreciation when they sell. Not so much as to prevent them from investing in their home in the future, but 10-20% so that the taxpayer gets something for their trouble.”

    I do think that is an idea that deserves looking into. That could help homeowners in financial distress to get over the “hump” with a helping hand AND be financially responsible to other taxpayers (remember those that are facing foreclosure are also taxpayers) in the future by paying a percentage of their future appreciation money back.

    I believe that most people who wanted to buy a home, took action to buy, and bought a home WANT to be responsible and are not looking for a hand-out, but want a helping hand to get beyond this situation.

    These people work, buy goods and services contributing to the economy, and they pay taxes.

    We are not talking about people who expect the government (and their fellow taxpayers) to support them forever, they need a helping hand. Perhaps something like this could minimze both the personal and societal economic damages. I am suprised by how many seem to want to see financial ruin for others and economic havoc in our society.

  55. Deborah–I’m with you on being surprised that so many want to see how the market, in its wisdom, will deal with this. Clearly, a wish that is wished for by people who’ve neither seen nor experienced an actual economic crisis. (I would submit that if you are under 80, you never have–and government intervention is the reason why).

  56. Hi Sandy,

    I think you meant a U.S. economic crisis, right? Because I submit that many people under age 80 have experienced a personal economic crisis and were able to weather the storm.

    My dad is in his 70s and still tells stories to us, and now the grandkids, about growing up during the depression and cutting out cardboard to put in the bottom of his shoes because there was no money for new shoes, eating corn on the cob for dinner and that’s it, nothing else. Spaghetti consisted of watered down tomato soup poured over noodles.

    Now I don’t think our commenters want us to eat only corn on the cob for dinner (and I know they’ll correct me if I’m wrong.)

    I do believe homeownership is NOT a right we grant to all citizens.

    We give our politicians a LIMITED amount of resources. It is their job to carve up these resources in the most justifiably fair way as possible.

    I am all for housing counseling for those in true financial distress. I am all for housing education for homebuyers to help them understand if they’re ready to become a homeowner. I am all for FHA loan programs for those who can qualify to repay the loan.

    I am against our tax dollars being spent to insure new bad loans.

    Do I wish ill will on anyone in default? Absolutely not. I spend my days in the classroom helping people learn about all kinds of topics including short sales, foreclosures, predatory lending, mortgage fraud, and so forth.

    There are options to just walking away from a defaulting loan.
    There are options besides government intervention.

    I say let the invisible hand of the market jump up to create business solutions where there is empty space. This is a business problem and it requires a business solution.

  57. Deborah,

    You write: I am suprised by how many seem to want to see financial ruin for others and economic havoc in our society.

    All I’d like to see is that the helping hand be powered by those that caused the mess in the first place. Why should those that were responsible, warned about impending doom while being called “Chicken Littles” be stuck with the cost of bailing out irresponsible home borrowers and the REI? Here’s a thought: How about Real Estate Agents waive/rebate their fees for homeowners who have to sell under pressure? And mortgage brokers do the same for the buyers of those homes…. I’d like to see the REI which raked it in when the going was good, give something back now. Fine and liquidate companies that caused the mess (didn’t Obama propose something like this?) and use that money to help out distressed home owners.

    Since you and Sandy seem so concerned about this, I guess its time to get cracking. I’d love to hear your ideas about how the industry can help out now.

  58. Thanks Sandy, because my opinion is economic havoc will effect EVERYONE.

    Some will actually benefit from the havoc, but most will see it effecting them negatively to some degree.

    Even if someone has been perfectly financially responsible, bought a house 4 years ago with a 30 year fixed, and now experiences a major life changing event (divorce, death, job loss, transfer, disabillity etc.) that now causes them to have to sell in a market flooded with sellers faced with loosing their homes, wouldn’t that tax paying, prudent homeowner suffer if they were unable to sell or had to sell at a large loss? Or should they be OK with the loss?

    How would severe economic havoc effect all taxpayers? Their investments, their jobs, their communities?

    We are a self-reliant people, but we also tend to offer a helping hand to a neighbor in need, we don’t usually turn our backs even if only, “but for the grace of God go I”.

  59. Hi SS,

    You’re right we should be looking at all sorts of ways to help out, and I thought that Nell’s was an interesting one. Some real estate agents may choose to do exactly what you propose, and I very probably will do exactly that to help some sellers.

    I am in real estate to help people, and will make changes to help people as I am able to do. I still have to earn enough to pay my expenses and wages, but I will do what I can for someone in financial distress.

    Whoever said what you included in your comment:
    “Fine and liquidate companies that caused the mess (didn’t Obama propose something like this?) and use that money to help out distressed home owners.”
    Also sounds like an interesting idea.

    I think there are many solutions that can help, no one solution will (or can afford to) but what’s important is that we do something, that is what I mean by a helping hand. Just abandoning people, turning our backs is not the right thing to do. Jillayne is right about pointing people to good places to help guide them as a way to help, and there are I am sure many, many other ways both personally, institutionally etc. to help minimize the damage.

    This is a great forum to generate ideas that hopefully people will find and help us each to think more on what we can do, be it little or much.

  60. SS–as far as waiving/rebating fees for people in economic hardship, you’d be surprised how often that happens. Happens a LOT.

    Each agent out there is an individual, and does business how they see fit within the context of the law and their own sense of right and wrong. If a client needs me to help them and can’t afford to pay the fee, I can usually work something out and am usually happy to help them.

    There’s a difference between that and giving money back to someone who just doesn’t value my services. Those people can take a hike. But if you treat us like human beings, you’d be surprised how downright human real estate agents can be.

    As an aside, usually when working on a short sale, the lienholders limit commission to agents. So in a way, commission rebates are sort of built in to the short sale process.

    It mostly sounds to me, SS, like you’re looking for a bloodletting in the real estate industry. If that is the case, you’re probably going to get your wish. So, stay tuned.

    Jillayne–yes, I’m talking about national/global economic crisis. Most of us have never experienced one, for the simple reason that we’ve given our government the power to intervene. I like the idea of letting the market work to a point. The problem, however, is that markets are only as wise and rational as their most unwise and irrational players. If the unwise and irrational are in a position to affect the national/global economy, that’s when intervention is necessary. I’d argue that the cost to you–to all of us– would be higher than what you may pay additional in taxes, if things are allowed to just run their course.

  61. I haven’t had any personal experience with my clients needing to sell due to loan issues. But I just noticed a short sell in homes point just purchased for over $700,000 and on market for $599,900 selling short. It wasn’t just the loan issues. It was overpaying for the property as well.

    That’s the bigger danger. Paying the right price in the first place can help a lot, regardless of which type of loan.

  62. Hi Sandy,

    What you wrote in your final sentence:

    “I’d argue that the cost to you–to all of us– would be higher than what you may pay additional in taxes, if things are allowed to just run their course.”

    Terrific point, I agree, and is why I think we can’t afford to abandon people to “their fates” when it affects our fates as well.

  63. Maybe if the average US citizen wasn’t flooded on a daily basis by how Britney Spears spent 40k on a one of a kind Louis Vitton handbag and how Master P has a swimming pool made of marble and lined with 18k gold they would be less likely to be rooting for a US economic fallout.

    Americans are in debt up to their eye balls, they spend everything they touch, and you expect me to have any sort of sympathy for their impending peril? An economic wake up call is what this country needs. Maybe if people were worrying more about where they were going to find their next meal, and a little less about being photographed wearing the same outfit, their perspectives on what is important in life would change a bit.

  64. Great, lets just raise taxes and flood the US with additional debt that will be passed onto future generations!! Great solution. The US is already at 8+ trillion in debt, whats a few more trillion to bail out some homeowners! Guess what, a bailout doesn’t fix anything, it MERELY DELAYS THE INEVITABLE! You are going to have to pay for this sooner or later, my vote is for sooner. Passing on additional debt to future generations is just so blatantly irresponsible IMHO.

    BTW, who is going to continue to buy US debt now that all of our mortgage backed securities are worthless? We send the Treas Sec. over to China to attempt to get them to buy more of our debt, to which they reply with a nice FU and then talk about nuking the dollar by selling our debt to the lowest bidder! Guess what people, spending what you don’t have will come back to haunt you!

  65. Hi, Jillayne:

    Been doing FHA for over 30 years and love the program. I wish every state vetted mortgage lenders with the same careful method as HUD.

    It’s not a hard program at all. There are standards and I guess some might call them hoops. They are time tested hoops and those that can jump them will have a good chance of being responsible homeowners.

    The really nice thing about the FHA program is that it does catch crooks and the FBI takes the prosecution seriously. Investors buyig this paper can have confidence. It is one safe haven for due diligence standards.

    I reserve comment on the FHA Secure proposal. I’ll wait and see how it works.

  66. Hi Diane and all,

    Okay, here’s a link to the press release outlining which borrowers qualify for the new FHASecure program.


    To qualify for FHASecure, eligible homeowners must meet the following five criteria:

    1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;

    2. Interest rates must have or will reset between June 2005 and December 2009;

    3. Three percent cash or equity in the home;

    4. A sustained history of employment; and

    5. Sufficient income to make the mortgage payment.

    To look up FHA conforming loan limits for your county, here’s the link:

    For the Seattle/Bellevue/Everett area, it’s $362,790.

    Tip of the hat to housingwire.com for the links.

    If defaulting subprime borrowers were qualified for their ARM by using the initial teaser rate only, and not the fully adjusted rate, that might disqualify a large percentage under number 5.

    If defaulting subprime borrowers purchased with zero down and are now living in a market with declining housing prices, that might disqualify another group of people under number 3. Unless they can come to the closing room with cash, which I highly doubt.

    So FHA is attempting, as best they can, to make loans that have the best chance possible of being repaid, given the estimated 2.4 mil subprime loans out there.

    What should be obvious to our readers, is that this program will likely help only a small minority of defaulting ARM borrowers when compared with the number of homes in default, or projected to default during the next several years.

    This program is not going to “save” the economy.

  67. The problem as I see it is in the secondary market place. The asset backed securities market is froze up due to poor packaging and over rating of these securities. (No Buyers) 1) The packaging of an Alt-A loan no-doc $173,000, 30 year fixed at 6.75%, 35% down in an appreciating area 13% this year (Washington State), 2) along with an 80% adjustable $400,000, 20% $100,000 adjustable 2nd no down transaction that will not sell at $325,000 today. (California) The 2nd TD is not in the package. Both of these transactions took place 14 to 16 months ago. The investors buy yield based on risk. OK the first loan looks good and will sell, the second is up side down and will sell but at what price? Repacking of these pools of securities is needs to be done in a way both loans are not in the same package. Alt-A loans are very important part of our economy a source of capital for small business. The guy that owns a small machine shop can no longer tap his home equity to buy stock to fill an order in California. Lay offs coming? Over 10% of the US population live in S.C., 80% work for small business. The solution will come when the repacking accrues or the yield for investors is worth the risk. If the fed fund rates are lowered by 100 to 150 bases points could help the risk factor by increasing the yield to investors. I would not expect rates to come down for the home purchaser due to the fact that the lenders are going to need to make more money to cover losses due to loans like #2 or to loss of value to the portfolio held in house. I have $325,000 in a saving account at a credit union that I use to buy property at TD sale insured to $100,000. If the trading in the asset backed securities market does not start trading soon I will buy $250,000 worth of T-Bill’s for safeties sake and wait. There are others thinking like myself. So another part of the solution could be an increase FDIC insurance to say $1,000,000, like wise max FHA loan amount. The max FHA loan in this county $200,160. We need portfolio lenders to pick up where FHA leaves off. (Alt-A)

  68. Hi Bob,

    “We need portfolio lenders to pick up where FHA leaves off. (Alt-A)”

    If the asset backed securities market is frozen due to no buyers, and if the folks who can’t get into the FHASecure program (due to inability to qualify at the adjusted rate or due to house depreciation) then I don’t see how investors are going to jump up to purchase these loans.

    The interest rate would have to be set pretty high for a zero equity borrower with a high debt to income ratio who is currently in default. With high rates comes unaffordable payments.

    Even if the fed cuts the rate this month, that still won’t have any measurable effect on the monthly payment for these risky borrowers, and that’s only if the secondary market decides to buy these high risk loans.

    Bob R says:
    “I would not expect rates to come down for the home purchaser due to the fact that the lenders are going to need to make more money to cover [existing loan] losses.”

    I agree.

  69. “Alt-A loans are very important part of our economy a source of capital for small business.” – Bob R.

    I agree, but there was a lot of subprime that was simply masquerading as Alt-A through fraud (liar loans) that should never have been originated. Some pools of Alt-A are performing WORSE than subprime.

    Alt-A was only 5% of originations less than 5 years ago.

    It was 20% of originations in 2006. I submit that the extra 15% was really subprime and/or fraudulently originated loans.

    I think it should and will go back to 4-5%.

  70. It would be very interesting to trace the local foreclosures and short sales to the source. The lending source and the agent source. Not that each and every one would be “bad guys”. Shit happens. But clearly a high percentage to one ethnic group or a few lenders or many tracing back to one lender or agent or brokerage, would be worth knowing. Maybe not so we can whack them upside the head, but so we can retrain them for the benefit of the public at large. Maybe they just didn’t know any better. Let’s do something to make sure they do know better…next time.

    I can do some of the tracking, but I’ll need some help. Let’s do it with the pure objective of helping them understand what they did, and get better at what they do.

    Any volunteers? Can we get a Task Force on this? Let’s have a “meetup” and brainstorm on how we can move this effort forward in the right direction.

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  72. Biliruben,
    I will buy loan #2 first for $125,000. I think I can get $200,000 at TD sale or $235,000 open market. I did not mean to imply FHA do anything to refinance or make any riskier loans than they all ready do, just raise loan limits allot. Investors will buy these bonds because the first 20% is covered by PMI and carry a higher yield. Risk=yield and you got a market. I actually made an offer to buy loan #1 at 85 cents on the face amount of note or 30% yield. Reply; Can not do that, locked up in pool they actually gave some thought. In the late 80s I bought a third, a second yielding better then 30% and foreclosed on the property myself and had a 45% equity position.
    Repackaging will take some time but needs to be done. We need stated income loans quick and easy for the business owner. Lowering fed funds rate will help keep new loans at or under credit card rates. I have one at 7.99% $20,000 something limit no yearly fee I use to buy gas with and pay off each month. Prime rate was 8% last time I checked. So a line of credit should be at 9%? So an Alt-A loan should carry a rate of 8.5% or better.

    lot of subprime that was simply masquerading as Alt-A through fraud (liar loans) that should never have been originated. Some pools of Alt-A are performing WORSE than subprime.

    Repackaging will take some time but needs to be done. We need stated income loans quick and easy for the business owner. Lowering fed funds rate will help keep new loans at or under credit card rates. I have one at 7.99% $20,000 something limit no yearly fee I use to buy gas with and pay off each month. Prime rate was 8% last time I checked. So a line of credit should be at 9%? So an Alt-A loan should carry a rate of 8.5% or better.

    (liar loans) used to be called drug dealer loans

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  74. Thanks, Jillayne.

    “To qualify for FHASecure, eligible homeowners must meet the following five criteria:

    1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;

    2. Interest rates must have or will reset between June 2005 and December 2009;

    3. Three percent cash or equity in the home;

    4. A sustained history of employment; and

    5. Sufficient income to make the mortgage payment.”

    These qualifications demonstrate the sanity in FHA underwriting. There’s really no point in throwing money at borrowers with no hope of repayment. Though you can look at the program as a political bone, those that DO meet this criteria shouldn’t cause major disruption in the FHA mortgage insurance structure.

    I agree that raising loan limits a little higher would be a good idea but I’d like to see them maintain their rigid appraisal standards.

    I’d like to see “stated income” loans die a slow death.

  75. “FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.”

    This is the core of the FHA program. Qualified lenders working with qualified borrowers = responsible homeownership.

    Rhonda: Like all your comments, but I was surprised about the MIP refund. I hadn’t heard that the FHA discontinued refunds so I jumped on HUD’s site and found this link:


    Thanks for the tip. I’m not on the lending front lines anymore nor personally performing closings so I miss some of the minutia of program details.

    On the stated income issue, I really think business owners fall into three categories:
    1. cash based businesses with hard to verify earnings
    2. seasoned businesses with verifiable track records using tax returns and financial statements
    3. business owners who think their gross earnings equate to personal income for mortgage qualification purposes

    Business owners in the first category have made a lifestyle choice by hiding income. Traditionally they used finance companies or alternative sources and I see no reason why the tradtional saleable mortgage market should accomodate the practice.

    Business owners with an established believable income stream can easily provide documentation in traditional underwriting. I’ve reviewed countless self-employed mortgage packages in my time and can tell the difference between a real income stream and business owners in the third category…..

    Those who imagine that business expenses don’t really exist and want a life style based on gross earnings. It’s ludicrous. Yes, I can pretend that I should qualify using a million plus as my personal annual income but that’s not reality.

    Traditional mortgage underwriting of self-employed takes into account those business expenses that are real and those that are just tax write-offs like depreciation.

    There is no place for stated income, in my opinion, in traditional mortgage pools.

  76. Hi Diane,

    The third category of folks will still be able to find mortgage money IF they have a great credit score AND lots of equity for a refi or cash to put down for a purchase.

    If neither of those conditions exist, then category three borrowers will end up finding a mortgage loan from a hard money lender, like they use to do before mortgage brokers came onto the scene.

  77. Good comments everyone. Good point on Mill’s utilitarianism Jillayne. Kayleigh, I empathize with your friend’s situation. There are several HUD approved agencies (Urban League, ACORN, etc…), and I’m meeting with one agency this week to volunteer some time for them. We’ll see if they accept me!

    Regarding FHASecure, look for the following. It will be kinda like FNMA’s Home Stay Initiative that happened with their My Community Mortgages in 5/22/2007. However, this will largely be a manual underwrite, meaning it will be based upon the rhetoric of your mortgage broker (how good can he argue in your favor, etc).

    FHA right now rides at 6.25% with about 1 point in rebate given to the mortgage broker. Look for this to lower when the Fed drops rates next month (expect them to ride low rates through the FHASecure initiative so that the president has the rhetoric to say that he gave borrowers the opportunity to refi into a 30 year fixed at historically low rates during his 2nd term).

    Note: If you have mortgage lates as a result of your ARM adjusting, you should be FHA potential. Typically, a mortgage late will kick an FHA loan to ‘Refer’, which means that an Underwriter has to review it. I think a GOOD CASE CAN BE MADE that the resetting ARM resulted in an overstretched financial situation (i.e. all the more reason to get a 30 year fixed through FHASecure, eh?!?).

    I’ve got an FHA loan right now for a guy that was formerly being sold a Pay Option ARM with a 3 year prepayment penalty. He was going to sign his loan documents until I spoke with him. Now he’s got the 30 year fixed he wanted with no prepay. And he was getting taken to the bank just because he’s Libyan, and can’t understand the legalese of American documents.

    So, to all you mortgage brokers out there. Let’s tighten our belts, serve our clients, and knock these option ARM/ subprime lenders on the head with the baseball bat of educating every borrower!


  78. Ardell asks in comment number 79 “It would be very interesting to trace the local foreclosures and short sales to the source. The lending source and the agent source…. so we can retrain them for the benefit of the public at large. Maybe they just didn’t know any better. Let’s do it with the pure objective of helping them understand what they did.”

    This would not be too terribly difficult to do, as long as the zip code chosen was not overly large. Trying to gather this data on, say, all of King County would be a major task. You could start with one zip code.

    Ask a title company’s customer service department to run the following report on their Metroscan computer system:

    zip code
    notice of defaults (NOD)
    and then you’d want a copy of the first page only of the deed of trust that went along with each NOD.

    So you see how if you start with a HUGE geographic area, the time and money spent running this would be…..to big for one person to handle, but you could try a smaller zip code for fun and see what you come up with.

    I will make a prediction, a hypothesis if you will.

    I predict that short sales and foreclosures happen to all kinds of people for all kinds of life events that toss a person into financial distress. If any lender’s names show up higher on the list, it might not be because of business practices but perhaps that lender has a higher market share of mortgage business in that zip code, so their foreclosure rate will naturally be higher. I don’t think you would see any particular lender’s name jump out. Even if it did, we wouldn’t know the name of the loan originator.

    If we’re looking for something more specific, such as a certain company that always sold pay option, interest only, negative amortization ARM loans, it might be possible to show a higher default rate with that particular loan product at a particular lender. Realize though, that the mortgage broker who originated the loans did so by (hopefully) following all state and federal laws and by following the lenders underwriting guidelines. In their mind, there was nothing “wrong” about the loan.

    So…..what do we do? Do we educate them? “You shouldn’t have sold these loans.” Do you know what they say to me in their (now required) ethics class? “If I don’t do this loan, then my competitor will do it and I will lose out on a commission. If the borrower doesn’t read the disclosures I mail out, tough shit. I’m not their babysitter. They’re adults and they can make their own decisions.”

    I can tell you from experience that many LOs knew EXACTLY what they were doing and why. They were maximizing their ability to earn as much money as possible off the consumer with no intention of ever seeing that consumer again, with the exception of LOs who engaged in the practice of enabling borrowers to become serial refinancers, only to the self-interest of the LO to have another chance to skim more equity out of them. These folks have no intention of changing the way they do business unless forced by state or federal law.

    If I’m not mistaken, if the loan was brokered to that lender, the name of the broker appears nowhere on the deed of trust. The real estate agent’s name would be found by running the property address in the MLS.

    In cases like real estate fraud and mortgage fraud, the county prosecutor’s office does all this, which is how they end up discovering and prosecuting groups of people acting in tandem to commit fraud for profit.

    I did a four-part series on lending institutions a couple of months ago. In part three, we talked about consumer finance companies.


    The two biggest predatory lending settlements nationwide were out of Household Finance and Ameriquest, both licensed as consumer finance companies, NOT mortgage brokers.

  79. Jillayne,

    When sources quote foreclosure statistics, do any delineate between purchase money mortgages and cash out refis? Seems if the original purchase mortgage didn’t default, then the real estate industry as a whole, inclusive of agents, would not necessarily be complicit. If the loan at time of purchase was affordable, but the buyer subsequently changed the mortgage by refi, it would be unfair to trace that foreclosure back to the agent who sold the house.

    Answered my own question there. MLS does not reveal the agent for the buyer. Only the agent for the seller. So it could not be traced back using information available.

  80. Dear Ms. Jill,

    There are thousands if not millions of Americans who now face foreclosure, that work hard and deserve to have some help, bail out, from unsrupculous lenders who refused to respond to a work out loan payment arrangement.

    The FHA Secure program will hopefully accomadate some of them. As for the lending industry they need more oversight to avoid the national predicament that we face that could send our nation into a recession.

    Seattle has been in a bubble that will not last forever and needs to look at the rest of the nation and historical real estate trends. Because when the investors dry up and rents won’t support mortgage payments you will have dire straights in the real estate market and depreciating prices like other parts of the country. History does repeat itself.


  81. Hi R Duke,

    I read that article yesterday. Thanks for the link. The ethical issues described toward the end of the article are very interesting. In times of personal financial crisis, some people tend to be able to justify behavior that they would not normally choose, out of self-survival. Would you agree?

  82. Hi Michaline,

    You raise a good point.

    Predatory or abusive loan servicing tactics have been a problem for many years now.


    Fairbanks Capital settled a HUD investigation into abusive loan servicing tactics for $40 mil,


    yet other loan servicers continue on.

    With a limited amount of government resources to go around, maybe lil’ Bush could have earmarked some money for more HUD oversight of loan servicing companies. I wonder if we could stop more foreclosures this way than with the money set aside for FHASecure.

  83. Had dinner with a Mortgage Broker last evening and asked if the office was FHA approved. Deer in headlights. “oh no, too much of a hassle. Besides since I also am a real estate salesperson, FHA does not allow any licensee to also originate loans.”

    Is this the case?

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  85. Sandy, you wrote: “There’s a difference between that and giving money back to someone who just doesn’t value my services.”

    Sandy, I agree with you. I think the the demand for services that most agents offer will reduce. As options increase, I don’t think that you will have to give money back because they simply wont come to you.

    “SS–as far as waiving/rebating fees for people in economic hardship, you’d be surprised how often that happens. Happens a LOT.”

    Individual initiatives such as yours and Deborah’s are fine and appreciable but where is an industry wide response? Of all the realtors associations, where are the initiatives from the industry?

    “It mostly sounds to me, SS, like you’re looking for a bloodletting in the real estate industry. If that is the case, you’re probably going to get your wish. So, stay tuned.”

    All I want to see is those who caused and promoted the mess to pay for the clean up and suffer any consequences of THEIR actions. When the going was good and the money was rolling in, there was nary a word of caution to be spoken. Now that the ARMs and bad business practices are coming home to roost, I want to see real change. If the streamlining and regulation means a bloodletting, the industry should point the finger at itself rather than wondering why people on the sidelines “wish ill of others. Ugh.”

  86. Tim, you are correct. FHA does not allow for Loan Originators to also be Realtors due to the arm’s length nature of the transaction. Many lenders don’t like it either, but oftentimes realtors will get around it by putting their broker’s name on the Purchase & Sales for $500 or so. I don’t know if that last bit is against RESPA, but I’d imagine it quite could be.

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  88. Hey R Duke,

    What do you know about the movie, “”Come on Down: Searching for the American Dream”? It says Hunter S Thompson is in part of this movie. Does the movie have anything to do with the American dream of homeownership?

  89. Hi David,

    Regarding comment number 97, did you mean the agent puts the real estate broker’s name on the purchase and sales agreement or the real estate agent who sold the home and is also acting as the loan originator, puts their mortgage broker’s name on the purchase and sales agreement?

    Thanks for the clarification.

  90. Hi SS,

    From comment 96:

    “All I want to see is those who caused and promoted the mess to pay for the clean up and suffer any consequences of THEIR actions. When the going was good and the money was rolling in, there was nary a word of caution to be spoken. Now that the ARMs and bad business practices are coming home to roost, I want to see real change. If the streamlining and regulation means a bloodletting, the industry should point the finger at itself rather than wondering why people on the sidelines “wish ill of others. Ugh.

  91. I am a libertarian so it makes me leery every time I hear about the government getting involved in our private lives. Government should secure our boarders, protect our citizens, and manage national emergencies and that is all. Now that we have an emergency, it is time for the national government to help out a little and then get out. The mortgage crisis we are in is a direct result of greed on Wall Street and has nothing to do with our current administration.

    This being said I, like many, have gotten into a mortgage with an attractive rate and an adjustable feature. The Bush administration did not make me sign the papers. I did this on my own. Now that a refinance is eminent, I am glad that there are options out there. I found a good site to get information on whats up over the weekend. Go to http://www.fhasecurehomeloans.com. It has the president’s message and information about who qualifies for the new guidelines. It looks like I qualify and I am considering taking out a 30 YR fixed rate. I will advise on how it goes.

  92. EVERYONE READING COMMENT 103 ought to know that the person who posted that comment works at the mortgage company being promoted. They are only licensed in Georgia, the state leading the nation in mortgage fraud. 

    Nice going; very clever to have purchased that domain name. I will be sure to mark all your comments as spam from here on out.

    It’s so nice to be able to expose a piece of shit like you. Thank you for that opportunity.

  93. Lenderama did a post about how quickly the FHASecure website names and variations of, were bought by lenders who obviously are not part of the government.

    Ahh…and I wonder why people think LOs are so slick.

    I just love my industry.

  94. Jillayne,

    Good for the NAR that they had these classes. I started researching for real estate information when I was considering buying a house and the NAR had nothing in their press releases or in their website where I took a a look at their information for buyers and sellers. Maybe I didn’t look in the right place but it did seem like other than talking up the boom, there was little in the way of caution for the first-time home buyers. Most of the information I found was on the housing bubble blogs and in this blog where Rhonda and you (?) had posts about what to look for in terms of loans. Will look forward to your thread.

  95. Hi SS,

    The classes were promoted through the Seattle King County Assoc of Realtors and the courses are designed for real estate agents who must take 30 hours of continuing ed every two years. If you were a consumer hunting for these topics, it would not be easy to find them because the courses are not promoted to the general public.

    The general public is welcome to attend, provided they pay the student registration fee like anyone else. In fact, many Realtors bring their clients with them. Here is an example of an upcoming CE class on the topic of foreclosures, taught by my consulting firm:


    We still teach consumer-direct classes to the general public through a local university. Many, many lenders and Realtors taught (and probably still teach) free first time homebuyer classes. Often, though, these classes don’t get into the scary stuff like predatory lending.

    Housing counseling agencies often have predatory lending classes for free or for a very nominal fee. This is another place where folks can turn for unbiased education.

  96. Whoo hoo! Yay for Mortgage Masters. Question: I have not yet seen the FHA underwriting guidelines for FHASecure. I’ve heard that right at the beginning, FHA says “this loan program is not intended to be used as a sales tool….” something like that, to persuade mortgage salespeople to not start pounding homeowners with junk mail, email spam, and the like, using FHA Secure as a way to get people to apply for a refi….only to switch them to another product.

    I guess it came out in a mortgagee letter over the past couple of days.

  97. I just received the letter today. It’s dated Sept. 5. And it does have that statement. Do you think that will stop those “bad guys” Bush is after from using this as a sales tool? I did a post on the guidelines at http://www.mortgageporter.com and I’m planning on doing one here, too. It’s interesting…I’m hoping to help “OPP” (remember that song?)… if I’ve done my job correctly as a Mortgage Professional, my clients should not need “bailing out” unless they have mismanaged or have had a life circumstance happen to them.

  98. Pingback: FHASecure: A Helping Hand for Those Who Did Not Refinance in Time | Rain City Guide | A Seattle Real Estate Blog...

  99. Jillayne, how on earth did I miss:

    “How would their payment be lower with a subprime?

    If they’re not putting any of their own money (3%) into the transaction, how do they avoid paying private mortgage insurance? The favored 80/20?

    With price appreciation here in Seattle slowing, are you now advocating folks put down that 3%?”

    FHA has upfront (1.5% of the loan amount) and monthly mortgage insurance (actually a good deal compared to pmi…it’s 0.5% of the loan amount). This greatly factors into the borrowers monthly payment. The subprime programs (more ALT A really) would often have much better rates than FHA.

    Yes…we’re talking either 80/20 or LPMI 100%.

    What is 3% into a home? I still think it’s better if the choice is to have a consumer use 3% into a home or have the same funds in savings, I think savings is better. Part of this mess is that people do not have reserves (savings) for when the “going gets rough”. And really, what is 3% equity? It’s squat. 3% savings (in the bank/somewhere earning interest) is worth more IMHO (assuming the new homeowners didn’t splurge on a new big screen once they moved into their shiney new home).

    Equity does not earn interest. Never has. It’s stagnet. 3% equity is really worthless.

    I’m so sorry I missed your comment. My bad. I’m subscribed to this post now.

  100. This FHA secure program wont help too many because the loan limits are way to low. For those that have a loan that meets the requirements they can potentially be saved from there subprime mortgage adjusting. I have seen mortgage notes that have a start rate of 6% for 2 years and a margin of 5.75% when their note adjust they will be hit with a new rate of 11.75% of course the rate can only raise 2% every 6 months.

  101. Hi Rhonda,

    Thanks for the update. This makes me wonder what the rates and fees will be like on a second lien position mortgage where the homeowner was in default. Then, when the new first and second are added up, I wonder what the new total payment will be like when compared to the borrower’s income.

  102. Jillayne, the second mortgage may be tough to find, too these days. Especially if someone is delinquent on their first mortgage because it has adjusted. The borrower would still have to qualify based on the FHA standards (43 DTI) and the LTV (98% TLTV).

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  104. This article is straight garbage… You can always spot the people who can’t do FHA Loans or who don’t know how. I use to buy into the hype until, I ACTUALLY DID AN FHA LOAN. Guess what, I found it easier to get one of these loans through than jumping throught the pails of the “Sub-Prime” garbage bin… 80/20, 2/28, 3/27, 75/25… Yeah I use to sell that illusory garbage… I had to step back though and take about a year off from the business. When I came back, I ended up with a Mortgage Company that was approved with FHA… I had a difficult loan that Sub-Prime lenders were throwing 9 – 14% quotes on. My Boss suggested, “try it as an FHA”… I thought that FHA was too complicated (listening to people such as the author of this article). I tricked myself for all these years… In theory, I had personally felt that, if you can afford to pay Rent than you should be able to pay roughly the same, on a House Note… Guess what??? That is true. Oh, yeah, the State that I live in Michigan, requires ALL Mortgage Brokers to be W-2 Emp’s… It makes for greater accountablity… You can’t be scumbag and write all of these bad loans, over charge, (Sub-Prime & these crazy ARMs), get in trouble an then move down the street to a new Boiler Room… I don’t have to charge my customers any points on the front (oh, yeah, I have lenders that offer 5%+ YSP and giving a 7.25% rate fixed)… To quote that great american poet Chuck D “DON’T BELIEVE THE HYPE”… FHA is great and now I can actually sleep at night, knowing that I got a family off of a TICKING TIME BOMB… ahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh!!!!

  105. Hi Danny,

    I am a former FHA underwriter. I’m not saying that FHA loans are difficult to do, they’re not if you know what you’re doing. I’m saying that there are a lot of hoops to jump through. Usually the person jumping through all these hoops is the loan processor and the underwriters.

    Nice to hear that you’re able to sleep at night while enjoying making a 5% YSP off your FHA clients and giving them the higher interest rate.

    Readers: Do you see now why we need to elevate the standards of professionalism of the loan originator?

    Until we do this, people such as Danny are going to continue to use the system to make as much money as they can off of consumers, no matter if it’s subprime or FHA.

  106. Jillayne:

    In fairness, Danny was referring to “other” lender taking 5% plus YSP.

    I’m a former FHA underwriter, too, and I have always been amazed that folks think there are too many hoops in the program. I think it doesn’t have anymore hoops than prime agency paper.

    Danny – I’m glad you are a convert and it sounds like your customers will be in safe hands. Best wishes to you.

  107. Thanks, Diane. I almost responded…and I’m glad I didn’t. I had a LO write to me about being a “former bad actor”. I had real mixed feelings about it. It was if he was a “born again LO” who had seen the light. So releaved to know there was goodness on “the other side” and that you really can help people. It will be interesting to see what happens to those LOs who did the loans we’re hearing so much about because that’s all they knew or all they had available.

    I’ve been doing FHA loans since I began my mortgage career over seven years ago and do not find any more hoops with them what so ever. Maybe that was the “old FHA”…it does seem to have a bad rap with some agents and sellers.

  108. Hello Ms. Jillayne Schlicke ,

    I have heard this arguement B4, on many Broker Websites (Broker Universe, Broker Outpost)… I can understand ur point of view. I use to feel as U do until “I actually did FHA Loans”… I feel that FHA has taken the underhanded cut-throats and the bougy elitisist out of home finance…

    On the one hand:

    I use to work for those scumbags at Ameri**est (guess that makes me a past-scumbag, by default) and all I sold were those garbage ARMs… I only call them garbage because of how they are sold and to whom they are sold. Those loans were sold to working-class folks who had limited knowledge of Home Financing (if they did, they would have shopped around for at least an FHA or some respectable fixed rate), Minorities (some of whose last concerns were the intricacies of Home Finance), People who’ve had any number of credit related problems (that may not of had anything to do with them being a deadbeat) and folks who just plain lacked the safistication to desire the subtle knowledge of the Adjustable Rate Mortgage (We won’t even mention those people whose, personal greed and give me the most for the least mentality, who were willing to risk getting that bigger home for these crazy, “exotic” teaser rates)… My compensation was based on revenue and revenues were higher on the worst of the worst programs (I went 2 years and didn’t sell 1 FIXED rate loan)… Oh, yeah, I had a very GOOD income. I bought a ton of new stuff, paid for my truck (in cash) and paid for my overly educated sons private school (in cash and didn’t even miss it)… Something was wrong with me morally. I think that I figured it out when I had sold some of those loans to people that, I knew, didn’t qualify (no fraud was envolved, my old saying was, “I don’t have 2 cheat U 2 Beat U” but you and me, both know that, just because people can “qualify” by the guidelines, doesn’t mean that they can actually afford it… THE MORTGAGE INDUSTRY AS A WHOLE IS GUILTY OF KNOWING THIS…)

    On the other hand:

    I worked for years with a BIG TIME MORTGAGE BANKING SINDICATE with the initials ABN… It’s really hard 2 determine N hind-site, which company was the sleeziest… These guys only gave money 2 the best of the best (the 720’s and better). We use 2 joke and say that, they were the Euro-Ku Klux or Mortgage Nazi’s of the Banking Industry (U just had 2 have good credit 4 them 2 even consider bending U over)… They still sold garbage ARMs to their customers but at least they gave great parting gifts… We won’t even mention that they were using their Government loans to help particularly affluent folks and to fleece America (quite a few of their divisions lost the ability to even do FHA/VA loans because they were the ones doing the Underwriting)…

    So, here I am… I took time off (a little over a year) to think as well as to do research. I know FHA pretty well (learn more everyday). I work for a reputable Banker/Broker (and we aren’t closing the doors no time soon plus, we don’t have all of the lawsuits and bad feelings aimed at our company)… HERE’S THE KICKER… IT WILL PROBABLY BURN U UP… I, NOW, ON MY OWN FREE WILL, GIVE FULL DISCLOSURE TO ALL OF MY CUSTOMER, NOT JUST IN WRITING BUT ALSO BY MY MOUTH…

    Last night, I broke Mortgage Rule 4,080… I ACTUALLY EXPLAINED TO A CUSTOMER HOW I WAS COMPENSATED… I even showed him a good faith estimate that I was prepping for another customer (I didn’t share that customers info…) that indicated my YIELDSPREAD PREMIUM… Then I did the unthinkable and guess what… ARE U READY 4 THIS??? I showed him my RATESHEET ALONG WITH THE YSP (thank you FHA and President BUSH, I never thought that I’d say that)… EVEN @ THE MAXIMUM INTEREST RATE ON THE SHEET… THE CUSTOMER WAS STILL, STILL, STILL GETTING A FAR BETTER PRODUCT THAN The 80/20 that his Big Named Mortgage Company, snookered him into… Funny thing is, that so-called, reputable company had the audacity to call their product a, “STRONG-ARM” (I kid U not)… It most certainly was a Strong ARM (strong arm robbery, all they were missing was the gun)… Let’s see, they sold him a 1st that was presented as a Fixed rate loan (FIVE Years, it was fixed alright kinda like an NBA Game or a WWE Wrestlemania)… Luckily he brought his paper work in and we, together, flushed the DEVIL out of the Details… The even crazier part was that the customer had a 745 FICO (mid score) and his DTI was

  109. I had got cut off… The customers DTI was “<27%" total (at the time that the mortgage was initiated in 2004)... I explained in detail how I am compensated (by using actual doc from a current deal)... The Customer didn't care how I would be compensated because he realized that IT DIDN'T EFFECT HIM NEARLY AS SIGNIFICANTLY AS THE "Zero Point Loan that The ROCK offered"... We have access to Lenders that pay very high yieldspread (they offer this to encourage folks to send them business)... I don't have to charge any points on the front (ZERO)... Unlike his current Mortgage, he will not have to bring $4,000 to the closing table (his 80/20 didn't even roll in closing cost)...
    Nutshell: I am saving him thousands of dollars (not over the life of the loan, more like of the next year and one half)... So, I am a bad guy for being compensated for the superior program??? For saving him money (and a lot of it, we won't even talk life of loan, that ones too obvious)??? Am I a bad guy 4 getting good compensation (How much did some of U pay Divorce/Family Lawyers or Doctors, I am a Professional )??? I EDUCATE MY CUSTOMERS MORE THAN ANY OTHER MORTGAGE BANKER THAT I KNOW (or even heard of)... IF YOU FIND A BETTER SHORT/LONG TERM DEAL, I WANT YOU TO TAKE IT... GUESS WHAT? YOU WON'T FIND A BETTER DEAL.... BECAUSE I AM SO FORWARD AND UPFRONT WITH CUSTOMERS, I DON'T EVEN GET INTO HAGGLING OR LOW-BALL WARS (Competition is NONE... lol)... I WALK AWAY FROM THOSE BECAUSE IT INSULTS MY INTEGRITY AND WASTE MY TIME BY DEALING WITH PEOPLE WHO CAN'T SEE TRUTH OR WHO ARE TRYING TO TAKE ADVANTAGE OF A SITUATION (that part also applies to my relationships, I'm a ok guy and I don't have to convince you of it, you see it in my works, by how I treat you and not by manipulation)
    The whole "High" YSP argument is usually waged by those who can't find a competetive FHA Lender(The same folks who charge 1% Origination and 1-3%Discount, broker their loan and still get 2-4% YSP,)... If your boss offered you a raise that seemed too high, you're basically telling me that you would turn it down??? I think that we both know the answer to that one...
    Have a Good day...

  110. Howdy All,

    I like 2 thank everyone that submitted those stimulating retorts… Keeps me on my tose… I hope that all of U R havin’ a gr8 day… If I ruffled any feathers I do apologize (I have been know 2 B sarcastic at times, please forgive)… I do hope that all, will enjoy a safe and Happy Holiday Season…

    Best wishes 2 U and Yours…

    Have a good afternoon… 8D



  111. FHA Secure

    By allowing the chips to fall were they may, as suggested in the article, seems to be a little incompassionate.Everyone agrees that maybe, these people shouldn’t be in these homes, because they didn’t or don’t qualify for the loans made by the lenders,brokers & loan originators.

    However, it has been said, that these loans were made largely for the BENEFIT of loan originators,brokers & lenders. Now, that there has been an out cry for Ethics in the industry, it is time to repent,turn from our wicked ways and renew ourselves.

    The standards in which the HR 3915 commands is a great start!
    FHA,HUD seems to be the new subprime loan program. However,
    becoming an approved lender for HUD,FHA has proven to be a difficult process. It will be imperrative to own the FHA,HUD statis to continue to thrieve in this business going forward.

    Lenders and brokers without the FHA,HUD statis will LOOSE, personel & business. I’ seek out the agencies that assit in the application process to limit the grief, but, enhance the potential for business in the future. This is a good time to position ourselves for the what’s to come.

  112. I agree with everything you said. I’d like to add that I am happy it’s a bit hard to get the FHA lender approval. We need a standard that assures quality of lending. I’ve been through the process of obtaining a mini-eagle. It’s not as hard as you may think, but you DO need that minimum capital and you must pay for an audit every year. I don’t see anything wrong with that.

  113. Hey Ms. Diane,

    Check with HUD/FHA because I believe that there is a new Bond offering that would allow you to by-pass those costly audits. You basically purchase the Bond (in advance) and that would actually cover any audits… I’m told that it actually saves thousands of dollars…

    Have a great day…

  114. a. FHA is independent of tax dollars, MIP fees (both the 1.5% and the .5 annual fee) support it.

    b. borrowers shopped for these loans, they wanted them, in 2005 my company did not originate subprime loans, and borrowers ask for them all the time, when we began to originate them the fish jumped into the boats. THEY just wanted to be approved, in america there is a huge push for homeownership the borrowers just wanted to join the club.

    c. they had bad paying habits then and have the same habits now, that’s why they can’t get better loans. So the question to pose is who’s fault is that? Should we blame the banks? or the folks who made their payments late (before the adjustments even began, 75% of subprime loans have late payments before the first adjustment)

    d. SUB prime pays bankers/brokers about the same as FHA. they have about the same pull through rate from application to close. Most subprime borrowers could not do the credit standards for FHA, or did not have the 3%.


    e. this is a natural correction of the market, it got to loosey goosey out here in loan land. Weather you bought mortgage paper, or took out the loan it was a gamble with certain profits to be gained, no one promised that you would profit by an increased value of your home, a lower rate later, or an investment free of risk.

    I guess i am just tired of hearing about all of those folks who didn’t pay their bills on time, or bit off more then they could chew. When you have bad credit it is more expensive to borrow money, why shouldn’t it be???

    When you lend to people who don’t pay on time sometimes you loose your investment, why shouldn’t you???

    When someone pays on time who had bad credit the banks (who bought the loans) make exorbident intrest fees why shouldn’t they, they are the ones who took on the risk.

    Moral of the story?


    if you have good credit, and funds in the bank, buy investment properties, the next few years promise many more RENTERS!

  115. FHA Secure update: Now our tax dollars are PAYING for people to use FHA Secure.

    From housingwire:

    “The U.S. Department of Housing and Urban Development said late Friday that it will begin mailing letters this week to hundreds of thousands of at-risk homeowners, as part of a campaign to drum up refinancing activity for FHA-backed mortgages.

    In particular, the effort appears to target FHASecure applicants. The recently-announced program — intended to target delinquent and defaulting subprime borrowers — has been less effective than originally hoped.”

    read more:



  117. Hi MISHELL,

    Actually, I agree with you. The purpose of this blog article is to point out that FHA Secure will likely not help as many people that need help, and will likely not help as many people as the administration believes it will help.

    In fact, I believe nothing that our government can do at this point will help the majority of homeowners facing foreclosure.

  118. I’m afraid that the more the gov. intervenes, the more of a mess this is making. Consumers are like deer in the headlights: do they wait for a freeze? Will the bank forgive the amount they’re under-water? Can they modify? Will they get an extra 30 days before they’re forclosed on?

  119. You go to McD’s to get a burger. You pick your poison from the menu and a clerk (burger broker) fills your order. You and thousands of others who at burgers that day from a bad batch of meat get food poisoning. It’s the clerk’s fault.

    The vast majority of all who tried to be brokers in 2003-2006 are out of business. I’ve never seen a business where so many workers made so little, usually less than minimum wage and had to quit. Turnover was incredible. Competition was fierce. If you could qualify a client for a conforming loan you would, before the next guy took your prospect.

    But the vast majority of subprime borrowers didn’t qualify for conforming or FHA due to bankruptcies, foreclosure history, collections and judgements, or debt ratios. The people who claim that many subprime borrowers could have gotten conforming or FHA loans are totally in fantasyland. Give me the data to prove that. Most brokers first tried to get clients qualified for conforming, Alt A or FHA loans so they wouldn’t lose the prospect. Most explained to the borrower why they only qualified for subprime and explained that they better fix credit and refinance within two years or they would face big payment increases. Nobody predicted such a huge increase in interest rates or a collapse of housing values that prevented them from refinancing even if they had fixed credit.

    Don’t blame the brokers. They sold what was on the menu and what clients wanted. Underwriters determined who would get those loans. Even subprime loans weren’t that easy to get qualified. Brokers spent their lives trying to find a lender to accept a loan. Blame the geniuses who designed the subprime loans which are obviously guaranteed to blow up if a borrower can’t refinance. Blame the Fed for keeping interest rates too low too long, trapping millins of subprime borrowers, and then increasing them to much too fast and holding them there even as they told Congress what a disaster was going to happen.

    Guess what? The subprime disaster is a minor shot across the bow in what will become a debt Pearl harbor. Starting in late 2008 through 2010, four times as many prime and Alt-A ARMs will reset for the first time as there were subprime ARMs. That happens before the market can clear the subprime foreclosure inventory. Very few of the prime credit ARMs can be refinanced either, since many will be upside down, and lending guidelines have stiffened to where many no longer quality for the loan they originally got. So what will happen? If interest rates stay where they are for a few years, it won’t be too horrible, but, if they go up at all in the next two years, it will be an economic disaster, since increased interest payments will drain all discretionary consumer spending. Many prime ARM borrowers will try to sell or get foreclosed while the economy is mired in a recession. Many banks and investment banks are already teetering on the brink, and can’t even recognize many current loan defaults or they’d lose their charters. As the prime ARM crisis unfolds they will fail in droves.

    In the next few months as nothing improves in housing or the economy we’ll begin to hear the Fed will explain to Congress what a prime ARM disaster is about to happen. Lawmakers and polititicians will rail against mortgage brokers (who will barely exist at all at that point), and propose more laws to regulate brokers and advertising, require more disclosures, restrict profits, and unprecedented enshrinement of restrictive lending guidelines into statutes. They’ll authorize hundreds of billions of dollars to save investment banks and commercial banks in the name of economic stability. They’ll propose and pass tax breaks for businesses, new tax credits for future buyers of homes and for those who can manage to hang on to theirs. But there will be absolutely nothing whatsoever done to stop foreclosures for the citizens who are losing their homes, their equity and what’s left of their credit rating. Oh, and did I forget to mention, absolutlely nothing will be done to regulate the terms of ARMs, most importantly the margins and rate adjustment limits, which everybody on earth agrees was the actual cause of the problem. How can I predict that? Because that’s what ‘s already happened in response to the subprime crisis.

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