Written By: Bonnie Wilt-Hild
Very recently, while teaching an FHA Underwriting class for FHA Online University, the history segment of the training made me stop and think. It was unusual really, because I have taught this particular class at least once a month for the past four years and honestly, other than an occasional joke as to how students need to take notes because the historic information pertaining to the agency was on the “big” test, I never really thought much about it.
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This week was different thought, because as I was sharing the basic information I was also thinking wow, 77 years of doing business and although the method to the madness has changed, the mission has stayed the same. I have to tell you, when you think about it, the FHA is one diligent agency.
FHA was created by congress in 1934 to improve the housing market during an economic era that was without a doubt the worst in American history. You think lending these days is difficult, try originating and underwriting during the Great Depression. The housing market was essentially flat, unemployment rates were at the highest levels our nation had ever seen or has seen since and lending as a rule was basically unregulated so lending standards and underwriting guidelines were at the very least, stringent.
In many cases banks offering mortgages to homebuyers required significant down payments, sometimes as much as 50% of the purchase and loan terms were often very short and contained demand features. When you also consider that most of the nation was unemployed, homeownership during this time was more a fantasy than reality with only 4 in 10 families owning the homes they occupied. Basically, we were a nation of renters.
With the start of WWII, the economy began to improve and as veterans began to return home from the wars in both Europe and the Pacific, the Federal Housing administration, by providing mortgage insurance on mortgages processed and underwritten to FHA guidelines and by insuring lenders against default, provided a loan program which assisted in providing housing for veterans and their families as well as an American public which, with improving economic conditions, were becoming financially stable.
Many of these Americans including those considered to be low to moderate income borrowers as well as other underserved segments of the population, still however, did not fit the criteria of the well qualified borrower that many banks still underwrote to. The mortgage insurance program as administered by HUD as well as other housing initiatives allowed these underserved segments’ of the population to obtain financing with relatively low down payments and flexible underwriting guidelines which allowed many of these low to moderate income borrowers to achieve homeowners, which by the year 2000, had reached 67.70% of all American families or 71.6 million Americans, with millions of these mortgages having been insured by HUD.
Fast forward a couple of more years and you find yourself in 2007 and of course, in the midst of the great mortgage meltdown. This was a period in time which, up until the collapse of the subprime market, seen very little activity where the FHA mortgage insurance program was concerned. Many lenders and homebuyers had viewed the program as cumbersome and as a result, begun to utilize mortgages granted by subprime or Alt A lenders. The word of the day was Libor Arm which start rate was usually assessed at a higher percentage because the program being utilized by the borrower was a stated income stated asset program.
The entire nation was caught up in the ease of it all, Automated underwriting granted loan approvals to borrowers with back end DTI’s as high as 65% and Wall Street was making a killing. While all this was going on, FHA was busy modernizing the program, including moving to simply down payment calculations, embracing FNMA standards where property valuation was concerned and much to the pleasure of many lenders (we are still grateful to this day) retiring the old MCAW.
All of this and not a moment too soon, because in 2007 FHA quickly went from about 3% of the market share to about 50% of the market share where total originations were concerned as the rest of the mortgage market feel apart.
Just as in 1934, HUD quickly moved to stabilize the housing market, rolling out such programs as FHA Secure, Hope for Homeownership and increasing maximum mortgages limits to a limit that would support the refinance of several of the subprime mortgages into more affordable, federally insured mortgage types and as lenders and banks moved to tighten lending standards, further disqualifying many homebuyers the ability refinance, FHA continued to introduce programs that supported the refinance of these mortgages as well implement improvements to the existing programs that encouraged homeownership and ultimately working towards the stabilization of the mortgage market, just as had happened in the past.
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In closing I would like to say that it appears to me the way we do business where the FHA mortgage insurance program is concerned has changed dramatically over the past several years but the overall mission of the agency has not. Still dedicated to creating strong, sustainable inclusive communities as well as affordable homeownership opportunities for all Americans it’s clear to me that this agency (by the way, the only one that is not funded using tax payer dollars) has come a long way in the past 77 years but has continued to remain focused on the housing mission. As always, happy underwriting.
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.