FHA Underwriting Guidelines, Does Your Loan Officer Know Them?
Linda and her husband are from Texas and had been approved for an FHA loan on a single family residence. Their lender had told them that they needed two months reserves in the bank at closing or the loan would not close. They were confused by this requirement and came to me for clarification.
Unlike conventional loans, an FHA mortgage does not have a requirement for reserves on a single family home. If however, a buyer is purchasing a 3-4 family unit the reserves required would be three months.
The answer here was very simple and is actually available on the HUD website. There is however, a really big issue here. Bear with me, here is another example.
A young couple was approved for an FHA mortgage in early March of 08 and the company they were working with said they had to pay their 2007 taxes before the lender would close the loan. Hello, ... 2007 taxes aren't due until April 15, 2008. The wife asked if there was a law stating this. Well, NO! I don't think so! There is not even an underwriting guideline that calls for it.
What is going on here? Can you see the big issue yet?
I answer mortgage questions from home buyers, sellers, real estate agents, loan officers, and yes, even underwriters. The underwriters and loan officers are from some well know companies. I get this type of question every day from all over our country, India, and other countries in the middle east.
I see at least four major issues with this information so far but I'm only going to cover two.
Why don't Loan Officers and Underwriters know basic FHA underwriting guidelines? Because they have little or no experience/training on FHA guidelines! FHA mortgages are and always have been a great option for people that don't quite fit into conventional guidelines. The FHA interest rate is considerably lower compared to a sub-prime loan. As I write this the FHA interest rates are equal to par on a Fannie Mae. It doesn't get any better than that!
Well, FHA loans are fairly complicated to put together and they used to have stringent appraisal and inspection requirements. So, if a borrower didn't fit into Fannie or Freddie it was easier and quicker to slap them into a sub-prime. It was a slam dunk and so what if the rates were higher on a sub-prime, few consumers understood their options anyway. (that mentality is why I built my site in 2002)
Another reason companies didn't like doing FHA mortgages was because the broker had to be HUD approved. That meant they had to have a minimum net worth and they had to pass a costly Audit every year. Why bother with all that when sub-prime was so easy and available.
The sub-prime days are almost a thing of the past or at least not as available as they use to be. The savior? ... FHA Loans of course. The problem is that very few mortgage professionals, including underwriters have much experience with FHA or understand the differences between FHA and Fannie. In the two examples above, underwriters and LOs are just making stuff up or worse case, running scared because of all the flack in the industry right now.
In defense of the underwriter (as in example two), they do have the authority to require what ever they deem necessary to improve a portfolio. However, many of the questions I have received in the past from underwriters seem to reveal that it is really a case of inexperience and over caution.
The mortgage industry professionals are struggling to catch up/learn FHA guidelines. If you are a consumer you must be very careful to find someone that has been HUD approved for at least two years. And Do Check, seriously. Some companies are doing FHA loans and they are not HUD approved. They are under the disillusionment that HUD will allow a non-HUD approved broker, to broker, to another HUD approved broker! Sounds a little flaky, no?
How did we ever get in this mortgage mess? We can give some of the blame to the politicians and presidential candidates that are hyping it up for their own agenda. It is not as bad as they say but they are speaking so loudly that the rest of the world is now listening. Did you read what is going on in the UK's market today? Good grief.
I'm not sure we should be bailing out our large lending companies and here is why. Back in this article I mentioned getting questions from India and other countries in the middle east. I have to ask myself, why would a mortgage underwriter in India, who I can hardly understand due to "no speaking good English", be calling me on the telephone at 3:00am about a loan in Texas?
Go Figure!
Article Source: http://www.search-raven.com
About the Author
Connie Sanders ownes several sites that help inform the homebuyer about FHA underwriting guidelines. This is information everyone needs before they apply for a loan anywhere. Find out what you qualify for at: http://www.mortgageunderwriters.com
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by: ConnieSanders
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