Origination News Feature Story

FHA’s OK "Essential"

By Brad Finkelstein

LAS VEGAS-No matter what some claim, those mortgage brokers who do not have Federal Housing Administration approval cannot originate these loans, a representative of the agency told attendees at NAMB/West here.

Nancy West, a marketing and outreach specialist at HUD’s Santa Ana, Calif.-based office, said there are companies making solicitations with the claim that non-approved originators can do FHA loans and get paid for them. "I'm here to tell you [that] you cannot," she said, adding it creates unfair competition with originators who do things properly.

Among the features of the FHA program is that no credit score is required and that manual underwriting is permissible. However, Ms. West said, there are FHA lenders who are imposing stricter guidelines. FHA cannot control that, she said. There are those that do not have stricter requirements. If a correspondent only works with a lender who only uses automated underwriting, they need to be aware there are loans that the system will never approve. Ms. West suggested having an alternative sponsor who manually underwrites.

While the qualifying ratios are normally 31% and 43%, Ms. West said there have been loans approved with a backend ratio as high as 68%. It is important that the originator know what program is best for the customer, not only among the FHA offering but the programs at other federal agencies as well, she said.

Among the erroneous information being given out by lenders is that the borrower must take the property out of Inter-Vivos (a living) Trust. That is not true, Ms. West said, noting that taking the property out of trust could trigger legal issues.

FHA loans can also be used on manufactured housing as long as it meets agency requirements. "We are the game in town for manufactured housing," she said. HUD needs mortgage brokers help to get the word out about changes in the program to Realtors, who are not aware of items no longer required to be fixed, such as missing handrails, cracked window glass, minor plumbing leaks, poor workmanship and defective floor coverings.

The temporary loan limit increase expires on Dec. 31. Ms. West suggested that originators keep on top of sponsors to ensure their loans are approved by the deadline.

As for the Hope For Homeowners program, while Ms. West said the parameters make certain that only a small number of borrowers are eligible for, there are some benefits. "It is a tool and we will be able to help some folks with it, but it is not a cure all." The borrower gets to keep a home he or she can no longer keep. They are not paying to make FHA money, only what they owe (regarding the equity sharing features).Most of the originators of these loans are servicers. The originator is allowed to charge one point only; no administrative or add-on fees allowed. "I'm not saying don't do it, but don't make it your meal ticket," said Ms. West.

Regarding downpayment assistance, she noted some claim it no longer exists. But there are programs funded by state housing agencies still available.