The FHA revivalJohn P. Finnessystreamline refinance, purchase money, HUD, bankruptcy, judgments, collections
If you do not have the Federal
Housing Administration (FHA) as a program to offer your
clients, you need to get it. In the 1990s, this powerful tool
enabled homeownership opportunities for many who would have
otherwise been shut out of the market. For a period of 15 months in
the late 1990s, I received 1,046 calls for purchase money.
One-hundred percent of them were FHA loans. For a period of five
years, that is all I did--no Fannie Mae products and no
refinances. I was an FHA purchase lender.
I have personally looked forward to this day for many years. The
focus of this column is going to be the opportunities that lie in
the loopholes of FHA--the little unknown secrets that most
originators are not even aware exist. First, though, you need to go
to www.google.com and type in
"4155.1" (just those numbers, which will open up the Pandora's Box
of government lending for you). This is the underwriting manual of
FHA. It is something you must know. Don't be intimidated. It is
very easy to read and understand. Let's cover a few areas that you
can benefit from immediately.
FHA streamline refinance
I have known many lenders who made their living refinancing
borrowers who had higher-rate FHA loans. If, based on today's
market, your borrower has a higher-than-normal FHA rate, did you
know you could refinance him without checking his credit? How about
this--no credit check, no appraisal, no pay stubs, nothing. All you
need to do is verify he paid his mortgage on time for the previous
12 months and you can improve his current situation by $20 per
month. This is an awesome program. Here is the best part. Unlike
other FHA programs, if you are approved to do FHA in one state, you
can originate FHA streamline refinances in any state in the
country. There are other forms of refinances, but the streamline is
my favorite. It is quick and simple, and when you figure out how to
price them properly, you can not only benefit the borrower, but
also make a nice profit for the limited work that is needed.
Recently, there was a huge battle to eliminate the non-profit
downpayment assistance program (DPA). The U.S. Department of Housing and Urban
Development (HUD) has temporarily been defeated in this effort.
However, as an industry, we only have a few months to resolve this
issue, before HUD, in all its wisdom (or lack thereof), will
attempt once again to eliminate this powerful tool. Let me explain
further. FHA requires that a borrower have three percent of the
purchase price in the game (2.25 percent for the downpayment and
the rest toward closing). Here is where the problem lies. In most
high-cost areas, many borrowers who would use FHA do not have three
percent of $300,000. Currently, the maximum loan amount allowed by
FHA is $362,790. Check your area for its current limits. The DPAs
allowed the borrower to receive a grant to be used for the purpose
of downpayment or closing costs. If you have never used one before,
this is a seller-assisted program. You can learn more by searching
non-profit downpayment programs, or visit my favorite non-profit
Web site, www.preferredprogram.org.
They are quick and do a wonderful job facilitating the grant.
Let's finish up and chat a little bit about what to do with
someone who has experienced past credit issues. FHA is wonderful in
allowing borrowers who deserve a second chance the opportunity at
homeownership. The key word is "deserve." This is not a deadbeat
dumping ground, but many lenders are open to working with your
borrower and his past issues. If you take time to read the 4155.1,
you will see there is an entire section on credit. Let me highlight
a few things for you.
If your borrower had an extenuating circumstance he could not
control and had to file a Chapter 7 bankruptcy, did you know he is
eligible for a fixed-rate home loan as early as 12 months after the
discharge? Wait until you read about Chapter 13!
It says in Section 1, 2:3c, all court-ordered judgments must be
paid off. Underwriters love to hang you on that. What many ignore
is the very next sentence. "An exception may be made if the
borrower has agreed with the creditor to make regular and timely
payments on the judgment and documentation is provided that the
payments have been made in accordance with the agreement." Ask you
lender its policy regarding judgments.
FHA does not require collections to be paid off. However, many
lenders will want them paid. Again, ask your lender its position.
In the world of FHA, you will find lenders and underwriters fall
all over the spectrum. You need to know who your "go-to" lenders
Can I make a suggestion? When you do find a lender who will
manually underwrite your loan--one who will make deals happen
because they make sense--reward that lender with your "A-paper"
FHA. Give the lender your streamlines that have proven track
records. Heck, they are stepping up for you when you need them. Ask
them about pricing improvement for excellent credit. Believe me,
they will work with you. They want those loans.
FHA is an incredible tool, if used correctly. So, many of your
borrowers who had to be put in sub-prime loans now have a true
opportunity through this proven product. The FHA movement is upon
us. The train is moving. Are you on it?
John P. Finnessy is a regional vice president of Great Oak Lending
Partners in Baltimore, Md. He may be reached at (443)