We Should All Quit Doing FHA Loans

04/19/2016
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What’s the point of doing FHA loans?  You do what you’re asked to the best of your ability and then they come back to you and sue you for hundreds of millions of dollars.  How does this make any sense?

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32 thoughts on “We Should All Quit Doing FHA Loans”

  1. With respect to your show and the updates that you provide on a daily basis. I'm not understanding what you are classifying a high-risk borrower. I do not write loans to borrowers with less than a 640 FICO score. Also, the borrower has to have or have the means of receiving considerable assets in the bank in order to qualify to purchase a home.

    Why doesn't HUD/FHA go out and find the LO's/Lenders who are just order takers in the industry and don't care to setup a "financial strategy" with a borrower and provide them with the right mindset in purchasing a home.

    If you are a lender/lo that is writing an FHA deal predicating on AUS findings, you better be careful because the SCRUTINY is coming down on you FAST and rightfully so!

    Make Sense…

  2. I have explained so many times that there were people that went into foreclosure back in 2008-2010, not because they were not able to make their payments but because they were underwater and decide to screw their bank. It made financial sense (in their minds) to let the house go into foreclosure because they owed so much on a house that wasn't worth it. So the question begs to ask, did the banks allow the market to crash by lending out too much money or was the gov't to blame because they didn't sell off their MBA positions and raise mortgage rates to slow the market down?

  3. Matt says:

    Guys, it makes perfect sense. For FHA! Two streams of revenue, albeit, I don’t think “they” have considered the short term nature of the game they are playing. Once all the lenders are gone and those remaining stop doing FHA, well, their goes their revenue. Like most government agencies/plans/programs…great business model! What a joke. I can’t wait for the podium “talking points” from the liberals. How will they spin it? You know they want take the blame and acknowledge it was ultimately their fault.

  4. Terry Kori says:

    I have discouraged engaging in FHA loans for years, for two primary reasons: one, they have never made financial sense, and two, like almost all government-generated programs, they are inherently discriminatory. The regulators are re-active (not pro-active) and out of control. Watch your back.

  5. I knew the disparate lending was going to come into that video somewhere. Fubarrowing…Rocks On, Rocks Off Grasshopper!

  6. Andy Burton says:

    I am a loan officer and purchased my first home with an fha loan. it made complete financial sense, I owner occupied a duplex. I purchased it for 125k as a bank REO. I fixed it up and it is now worth $180-200k 6 years later. A year after I bought it I flipped it to a 15 year fha mortgage and I now owe only $88k on it. it makes $450 a month cash flow too. I think FHA loans are a good loan if you properly set up the client for success.

  7. Carl says:

    These settlements exist for one reason and one reason only – because the companies that settle are cowards. Think about it – they are admitting to FRAUD. If they really committed FRAUD – then why are they still allowed to originate FHA loans? Why aren’t their CEO’s in prison? I mean – they ADMITTED to FRAUD. And, if they don’t believe they committed fraud – then why did they admit to it? Because they are spineless, soulless punks who have absolutely no integrity whatsoever.

  8. Good show today. It is very irritating. Govt talking out of both sides of their mouths. And then……. let's put a DPA program on top of FHA……. just brilliant. Let's put people into a home that don’t have two nickels to rub together and do it with an FHA DPA……. awesome stuff. So what is the answer? Someone in the Whitehouse that changes the over correction of regulation and understands business and Real Estate? Ummmmm, that sure isn't the Socialist nor Billary. We have the potential to change this atmosphere in the Nov election. Let's see if the citizens understand this. Or maybe Bernie will give everyone free homes! No need for FHA when you can just get a free home……. Sorry, being facetious today.

  9. Pray Hard says:

    Redistribution of wealth.

  10. The government should not be in the housing or lending businesses any more than it should be in the automotive, communicaitons, education, insurance, or agricultural businesses.

    Regarding HUD, "Screw FHA" barely begins to sum up the lessons of history. The complete lesson is more like "Close the doors on HUD."

  11. The government should not be in the housing or lending businesses any more than it should be in the automotive, communicaitons, education, insurance, or agricultural businesses.

    Regarding HUD, "Screw FHA" barely begins to sum up the lessons of history. The complete lesson is more like "Close the doors on HUD."

  12. Fannie/Freddie is no panacea either thanks to Bank of America. Freedom has had the most agressive and optimistic underwriting I have ever heard of.

  13. Fannie/Freddie is no panacea either thanks to Bank of America. Freedom has had the most agressive and optimistic underwriting I have ever heard of.

  14. I have been doing FHA loans for about 8 years now and most of my clients have been able to refinance out of the FHA and in to a conventional in as short amount of time as 2 years. Most people don’t keep FHA loans for more than 5 years from what I have experienced in my area of southern CA. If i stopped doing FHA loans today I would lose about 50% of my business and maybe 90% of my agents.

  15. ladyT says:

    There are many appraisers who have stopped doing FHA appraisals due to the “appraiser must” language added to the new FHA Handbook 4000.1. It previously said “the appraiser should”. Appraisers took the change to mean that they could be held to a higher level of liability if the loan goes south. With the changes (lowering) of the credit score qualification for FHA loans and the increase in most counties of the FHA loan limits, we all know what’s coming. Looks like appraisers opting out are doing the smart thing.

  16. Mark Gotz says:

    Does Freedom Mortgage really have $113,000,000 of mistakes? Seems like they would have to do a lot of bad deals to amass this much of a penalty. "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." (Amendment VIII to the Constitution of the United States).

  17. Since the crash, the average credit score on an FHA loan is well above the 640 credit score minimum most companies have. So the borrower itself is not so much the issue (F&B were just illustrating the borrower the administration wants lenders to pursue), the issue is HUD using an archaic fraud law to knit pick performing loans to extort from lenders.

  18. Roy Sperr says:

    Stop, take a moment and think about who you Vote for in the next election….I like PRAYHARDS comment…its the re-distribution of wealth…could not be more accurate. #nozerodownloans

  19. It's called a massive government slush fund. The government, FHA, FNMA, Freddie have all figured out that the millions and billions of penalties and actual fees they make are all untrackable and go right into a nice slush fund for the politicians. We have to remember these are no longer private companies they are government run. Socialism at its best!

  20. Jack Shull says:

    Just lost a loan officer to Freedom Mortgage since he tells me that “Freedom will do traditional underwriting for FHA loans down to 580.” They will not require an AUS approval down to 580 Seems to me like Freedom will be getting used to paying fines to HUD.

  21. Nice word that FUBARrowers FUBARowing FUBARclosure

  22. It is the new CRA… mandate

  23. Bobbie West says:

    I’ve been steering borrowers to FHA loans for almost 47 ys ..started as a Realtor and ended up as a mortgage person and many of them had very LOW credit scores.However…most of them were NOT simply “put” into anything.We discussed it..we ran numbers several different ways..tried to figure out ANY possible scenario that could trip them up and by then they were willing to start with a reasonably priced property that they could either sell once they needed more room or they could rent..or they could handle on a land contract.What caused this industry SO much trouble was allowing every danged fool from every used car lot to “become” a mortgage person when most of them couldn’t count to 8 without taking their shoes off.THEY were the people who were simply looking for a BIG loan and for BIG prices they could put on the loan and THEY are the ones who SHOULD have been prosecuted..along with the companies that HIRED them!The FHA loan would STILL be the best loan …if they would go back to ignoring credit scores and simply teach their LO’s how to look at the “story” and take the time to help people aim for the right house…NOT the BIGGEST house and certainly not the highest mortgage.Staying in touch with your people helps too…so they don’t stumble over something that CAN be managed. In my case..I am now selling homes to THEIR kids and to some of their GRAND kids.Relationships STILL matter..especially in this business.

  24. A lot of that was also because NO ONE had ever bothered to let them know that they COULD lower their interest rates without doing a whole new loan….or…they COULD rent the house to cover the payment..or sell it on land contract.Our biggest problem during those days were the inexperienced and untrained Lo's who had no interest in doing the job so that people were safe..all they wanted was the paycheck.

  25. None of what you're griping about IS the problem.What is needed are more Lo's who take the time to really discuss all the options with the borrowers and encourage them to buy LESS not MORE when it's their first property.FHA with dnpmt assistance is no different to me than USDA's program of 100% loans.In both cases..they work if the lo does THEIR job correctly AND if they maintain a relationship so that IF a past client hits a rough spot they HAVE someone to talk to..right away..not 5 mins before they get thrown out!Lo's are the ones who need to be better..not to EARN more but to help people stay in their homes and learn how to problem solve..not to run at the first snag.But then I was trained back in the day when we didn't HAVE every loose car salesman finding their way into mortgages..because in those days..our job WAS too hard.It still IS hard…if you're doing it right and making the effort to protect your BORROWERS and NOT the realtor who is sending you their leads.

  26. Wrong..close the door on LOs who have NO interest in educating themselves properly and protecting their clients.LO's have lost sight of the fact that your CLIENT is the person buying the house NOT the Realtor who sent you the lead.I don't CARE if the realtor wants to sell someone a house with a BIG price if what is best for them is a house with a SMALL price.Just because I CAN do it..doesn't mean I WILL.

  27. Apparently you did see my last comment about my post being facetious. Additionally, if you want to throw USDA loans or VA loans under the bus, perhaps you should study default statistics of said loans versus the garbage DPA FHA Loans. You preach how you are old school, all the while seemingly have a distant memory of the issues that help create the bubble and the bust. It wasn't just the concept of Stated Income Loans, it was also the concept of putting people into homes that couldn't afford it. They had no discretionary income or savings, and literally couldn't afford the minimal deferred maintenance on the home. So, exactly how does history repeating itself, but only under a different guise, help us. For it will be us, the Loan Officers, who get blamed for placing people into homes who don’t have two nickels to rub together. Hmmmmm, think we have been here before.

    What is needed is for LO's to sell Mortgage products, and not allow a Mortgage Product to sell them, like some LO's solicit DPA's to get the phone to ring, which is predatory and shameful. If the LO does their job and explains to them the real cost of financing a home at a higher than Market Rate, and explain to them that a simple Refi later costs for than just 4K, seeing they restart a 30 year Mortgage, is simply ludicrous. Plus, if we did do our job in a more fiscal responsible manner, like a financial adviser would do, there would be less homeownership, seeing the 30 Year Mortgage is the biggest Sham around. It is referred to as the Banking Industries biggest secret. If you break down the 30 year Mortgage and look at those stats, it an absolute shame that homeowners get ripped off that bad. I entered into the biz in "99, while that is only 17 years, I will agree that there are way too many car salesmen in our industry, but there are just as many who are not that educated either. Who don't know guidelines, or how the capital markets side of it works, or how hedging works, and just because they have been around a long time, doesn't mean they have kept up on the changes.

    Yes, LO's do need to better. However, we as a whole in this country have to understand that it's not always another person fault. When we sign an agreement to pay, and when we don't adhere to that agreement, there could be consequences. Home Buyers need to understand, buying a home is much different than taking a puppy home from the pet shop. But is a day of age where no one is responsible for anything, tax payers will keep bailing everyone out.

    And if you think that an over correction in regulation, such as the disgusting CFPB, is NOT the problem or at least part of the problem, you are just in denial.

  28. Eric Kinneman DPA money has nothing to do with the government… It is still private money from bond market investors.

    It's still up to an LO not anyone else to qualify a borrower into a Home. Just because you receive an approve/eligible in aus, doesn't mean the borrower is right to buy a home. At the end of the day if you have to turn business away that you have a gut instinct will turn into a default situation in the future, then you should turn the loan down and tell the borrower. Otherwise accept the consequences on the loan you are writing and move on.

  29. Obviously freedom is not as above board as people think they are…

  30. Daniel Magnano I know how DPA IDA Bonds work. While they may not be money that comes from the govt, I will argue that they have nothing to do with the govt. IDA Bonds are supposed to cover a wide array products, not just DPA, however statistically the majority of most IDA Bonds are spent on DPA, thus deceiving to the Bond investor, ….hmmmm,…. doesn't this sound much like the CDO debacle of the Margin Call where they were all rated AAA? I, for one, would not invest in an IDA Bond if I knew exactly where the funds were going, and were told of the alarming default rates that FHA has with DPA.

    Additionally, do you remember the Ameri-Dream, Seller funded DPA, that became illegal? One of the reasons was because of the high default ratios. Well, Seller Funded DPA and IDA DPA have many similarities. I know that our AZ DPA's are worthless unless you have Seller concessions. So, as I stated before, history repeats itself. But giving the example or remarks about the DPA, perhaps this is where something got lost. So the vid is about Banks/Lenders exiting FHA and the reasons why. With FHA being the "subprime" of the Current Market, not my words but can't disagree with the analogy, I merely added the fact that as soon as you place DPA on top of anything, statistically the default ratios go up considerably. And we all know the reasons why, but some LO's don't want to talk about that. Some LO's think they are helping their community with placing people in homes that have no money. Look, I get it, it can be a very controversial topic that has two different viewpoints. But coming from a risk assessment and wanting your company to remain open and not be fined or deal with buy back issues, it is not hard to believe that Lending Entities have the attitude displayed in this video. I implore any Loan Officer to pick the brain of any CEO or VP or Compliance Manager at any Lending Institution and ask them how they truly feel about such programs. The GOVERNMENT can't have it both ways: Pressure the Lenders to lend such programs, and then when they do fine the crap out of them. So, yes, this does have to deal with the GOVT.

  31. Well I would have a hard time with a Fico score at 640 and Dti limit at 45% with the bond forgivable after 5 years risky. I guess the better response would be to let the housing industry collapse and force consumers to be renters and pay more each year. Sound pretty darn communist/socialist.

  32. Barbara Anne West I must have missed the part where Fedzilla's domination of the market (directly via Fannie, Freddie, & HUD, and indirectly via an ever-shifting mountain of regulation) magicaly ended up with all the LOs being "educated" and protecting their clients.

    I suggest that lenders with their own capital at risk might be more motivated to put the dampers on the LO's animal spirits a bit more than the bureaucrats of various government-dominated entities.

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