FHA: Here To Stay – Part Two

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Update

When ‘FHA: Here to stay’ was being written back in August of 2008, very few people could have foreseen the severity of the disaster that would hit the real estate market and overall economy, or the extent of the damage that it would cause. I certainly could not! But I do remember a passage from that article relative to the ’safeguards that were built into the FHA mortgage program’; and now in the aftermath of what is aptly referred to as the ?Sub-Prime Mess? which brought on this present economic crises – or disaster if you will – I can’t help but reflect back in disbelief at all that has happened to change the country and, indeed, the world as a result. I think we can safely state now that the ‘Sub-Prime’ era is effectively over with. Gone! Done! Kaput!

Looking back

Although events leading up to the crash of financial markets – led by the risky sub-prime loans – were widely discussed, written about and aired on all the TV networks worldwide, I have to believe that the hard-working, every day, nine-to-fivers who went about doing their jobs and supported their households could probably have a lot more to say about what exactly caused the sub-prime mess and who is to blame for the meltdown; because it has become quite clear that that the finger of blame which pointed to some members of this group were certainly misdirected, if not crooked.

Oh yeah. The school teachers; bus drivers; train engineers and conductors; the police officers and firemen; the correction officers and the nurses, as well as all those who bought their homes the traditional way: By making the required down payment, providing required pay stubs, bank statements, W2 forms and tax returns – when required – as proof of their qualification to purchase the home of their choice or dream as the case may have been. Yeah, the group some said were the ones who didn’t have enough down payment money, good enough income or satisfactory enough credit to buy a home.

Members of this middle-class group throughout the country must have felt a sense of vindication when the entire weight of the economic crises was lifted off their shoulders with the collapse of some of the real culprits, AIGs being the biggest, best known and most magnified. Chances are that most members of this middle class group of people are probably still in the homes they purchased in 2006 and 2007,unless they fell victim to circumstances and were laid off from their jobs because of the crises, which they had no more of a large part in bringing about than any other responsible homeowner, despite what others have asserted. Others who insisted on looking for scapegoats in the wrong places and ended up blaming the wrong group of people. We now know that “others” can be dead wrong.

Solid citizens

The true professionals are those home buyers – now home owners – who purchased their homes by utilizing FHA financing and were qualified for the homes they bought based upon documentation and verification of income, assets and credit. Here’s a bit of information if you’re unfamiliar with FHA financing: There is no such thing as a ‘No-Income/No-Asset’ program description to be found in any FHA mortgage guidelines manual! There never was such a thing under FHA financing; there is no such program description as an ‘Investor Loan’ either (that became extinct along with the ‘pink-onion-paper-fax machine’); and there was certainly no such thing as a ‘Piggy-Back’ mortgage description in any FHA guidelines manual until the problems started.

In an early effort to combat the impending crisis, the FHA provided as an option in a section of FHASecure program in 2007, language that “…either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits”. The FHASecure why it was a solid program in the prior-to-Sub-prime-disaster era, and the it will continue to be a reliable source of financing for respectable, hard working, ‘qualified’ middle class folks for years to come.

This next statement may be a little tricky so please take your time and look just a little closer. Most people who were designated as sub-prime mortgage borrowers and those who purchased homes using “Sub-Prime” money probably could not qualify for financing under the FHA mortgage guidelines anyway; even though there was enough flexibility in the FHA program to accommodate less-than-perfect “28/41 ratio-3% down payment-credit history” borrowers.

The required FHA down payment in 2006 and 2007 was a minimum of 3% (it was recently increased to 3.5%), the earnings qualification was 41% of gross monthly income for payment of total monthly debt and until early ‘09 the minimum credit score was 580. There is now a 620 minimum score requirement which could vary based on the other loan factors. So here’s the question: On what basis was a “sub-prime” buyer qualified?

Let’s face it!

If a borrower couldn’t qualify for FHA-Insured financing based on the requirements above, there was definite reason for a lender to have concerns about approving any other kind of mortgage for that person. Here’s the point. Those who didn’t qualify for financing under the HUD-FHA mortgage program probably shouldn’t have purchased homes. If this group of people was responsible for the sub-prime meltdown, then it’s more understandable that they should bear some of blame for buying homes they couldn’t prove, in documented form, that they could have afforded.

Of course they didn’t create the programs, so the real creative genius(es) behind the “Sub-Prime” mortgage program probably reaped rewards of untold millions and disappeared a long time ago. Or may be they stuck around for more multimillion dollar bonuses. As for the those people who suffered financially, I’m sure they will have many unanswered questions for a very long time. One such question that I’m sure has already been repeated by many people, as if in one voice, over and over again: How could this have happened to me? What went wrong? Who screwed up? What do I do now? I’m sorry, I said one such question. I should have said many.

These and any number of other questions could provide a more in-depth look into how that dastardly “sub-prime” crises really started. That’s a story for another time and one that will certainly be worth discussing; but for now, the FHA mortgage applicant can breathe a big sigh of relief, because FHA is here to stay and there is no better authority on that fact than HUD secretary Shaun Donovan, whose recent statement that “…FHA is unlikely to face the catastrophic losses borne in the sub-Prime sector” reinforces the durability and reliability of the FHA program.

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Hi I’m Tony TPJ Phillips, a recently converted article writer and hopefully one that will be able to provide useful and qualitative content. More about mortgages available at Prime Mortgages and First Time Home Buyers, two mortgage related sites. I must acknowledge Wealthy Affiliate for the assistance provided in preparation for this effort.