Since the original House of Representatives version of the FHA Modernization Act passed way back in September 2007, one element of that bill has caused me more than a little bit of concern. The House of Representatives’ version of the FHA Modernization bill makes it possible for a mortgage broker who is not presently able to meet the requirements for FHA lender approval to use a bond to qualify instead of meeting the traditional audited net worth requirements.
The purpose of this change is to make the FHA loan program available to more borrowers. I am all in favor of that.
I was waiting for the Senate version to pass before I gave the issue much more thought. The Senate version fails to address this provision at all. However, according to insider reports there is no opposition to that provision in the Senate and it will likely be included in the final reconciliation of the bill.
I sincerely want the FHA opportunity to reach as many borrowers as possible. However, I am just as sincerely worried about the risk involved in letting the same group of money hungry animals that lead us into the subprime mortgage abyss get their paws into the FHA cookie jar. Some of the subprime mortgage programs in trouble now started out as real benefits to borrowers who needed help and deserved to own a home, but couldn't yet qualify for FHA. However, subprime lending rapidly degenerated into a free for all of fraud and constantly easier guidelines devoid of common sense. Many among the group of mortgage brokers so hungry to get into FHA lending now were leading that charge.
On the other side, I know many fine, upstanding, honest and professional mortgage brokers who don't yet have the required net worth and can't afford to pay astronomical fees for CPA audited financial statements needed to meet FHA lender approval requirements. The reasons for that run from lack of business caused by excessive honesty to ordinary prudence in not wanting to tie up substantial personal assets in a risky business like originating mortgages. Nonetheless, many of this group would make excellent additions to the FHA lending ranks.
All I can do at this point is wait to see how the final reconciled bill will turn out and in the meantime encourage everyone who is serious about FHA lending to make sure they get all the education on the subject they can find.
Mortgage brokers: Save your business by learning the most effective ways to originate, process and close FHA loans.
Carl Pruitt is a 21 year veteran of the mortgage/real estate industries committed to helping mortgage brokers educate themselves to be more competitive in the changing financial atmosphere.