In a government decision that looks to be planned at increasing the number of available outlets for consumers of FHA mortgages the Federal Housing Administration has announced that so-called ‘third party’ mortgage brokers no longer will need to register or meet the agency’s net worth requirements. The FHA also announced a a lot more stringent appraisal ordering method that mirrors much of the Property Valuation Code of Conduct (HVCC) that currently applies to Agency (Fannie Mae and/or Freddie Mac) mortgage items. Both of these moves will bring the FHA mortgage loan products/policies closer to those of Fannie and Freddie.
Therefore, mortgage brokers that wanted to originate FHA mortgage loans were required to submit audited financials showing a net worth of at least $250,000 for review to the FHA to be able to originate FHA mortgage loans. Fannie and Freddie don’t have such a requirement. This move could be seen in both positive and negative lights in my view. The thought that the removal of this requirement will lead to extra outlets for potential FHA borrowers (inside the form of much more participating brokers) makes some sense to me BUT bear in mind that the vast majority of the brokers who are now eligible to originate FHA mortgage loans have by no means performed so before. FHA mortgage loans have normally been a diverse animal from the Fannie/Freddie loans and they come having a whole different set of guidelines and nuances which will be a foreign language to several of these mortgage newly eligible brokers. I have often been in favor of the net worth requirements for FHA also as stronger licensing requirements across the board for mortgage brokers and bankers for the reason that for a long time this business was akin to the “Wild West” when it came to regulation. I see this move as a step in the wrong direction in that regard as it will give several ‘marginal’ broker operations a new lease on life.
And the second story regarding who can order an FHA mortgage loan may be seen as a positive step inside the right direction. The Home Valuation Code of Conduct (HVCC) was enacted to head off feasible collusion between underhanded Loan Officers and crooked appraisers. 1 of the prime tenets of HVCC was the elimination of direct contact between Loan Officers (or anybody involved in loan productions) and real estate appraisers within the hope of averting inflated appraisal values based on want as opposed to actual marketplace data. Although far from best as it really is presently written (a topic for another discussion), the HVCC is absolutely the best idea and will lead to fewer instances of ‘pushed’ values inside the future. To this point FHA loans have not followed any of the HVCC requirements ie. Loan Officers still had the best to order appraisals directly from an appraiser and to have unlimited contact with that appraiser by way of the method. This is a poor concept. While the VAST majority of Loan Officers that sell mortgage services inside the current marketplace are trustworthy professionals, you’ll find still those ‘rogues’ that try to exploit any wrinkle for their own gain. Having the FHA mortgage originator conform to probably the most basic component of the HVCC (no direct contact with appraisers) will benefit all parties (consumers, brokers, lenders, etc) inside the future.
These two moves along with what appears to be a top down reassessment of credit policy within the FHA leads me to wonder what other changes loom on the horizon. As FHA loans inch closer in credit policy to the Agency loans, the next logical step would be credit score based pricing. Both Fannie and Freddie have moved over the last 2 years to an aggressive tiered pricing schedule based on credit score. The better ones credit, the superior the rate 1 can anticipate to obta
in when obtaining a Fannie or Freddie backed mortgage. As strange as it sounds in this “post meltdown” era, for a lengthy time a borrower would qualify for the identical rate (regardless of credit score) if their loan was approved by either Fannie or Freddie’s automated underwriting engine. FHA loans (to a large degree) still work in a similar fashion. While there’s a theoretical ‘floor’ to credit score at a 620 FICO, and several lenders have add-ons for sub 660 scores, there’s still incredibly small distinction for a borrower having a 640 FICO and a 740 FICO. In the Agency ‘world’ a swing from 640 to 740 is frequently a minimum of a 0.75% distinction in rate, sometimes far more.
What do this past week’s changes mean for the potential FHA Mortgage borrower?
First and foremost the consumer should ask any Loan Officer what kind of FHA expertise they have. Based on the dropping of the Broker approval procedure and net worth requirement, there will probably be a slew of inexperienced and ill trained Loan Officers jumping into the FHA arena within the coming days and weeks. This trend, along with the fact that the typical FHA borrower is less experienced with the mortgage method as a whole than other borrowers, is a recipe for real disaster. If you are in the marketplace for an FHA loan be certain you ask how long the Loan Officer has been doing this sort of loan. Total Mortgage has been doing FHA loans for more than 10 years and has some of the lowest FHA rates in the marketplace nowadays. Be sure that you contact 1 of our Loan Specialists right now to satisfy your FHA mortgage loan needs.