Reducing Risk and Opportunity

Written By: Bonnie Wilt-Hild, Op-Ed Writer

In press release 12-010 dated Friday, January 20, 2012 FHA announced their intention to take additional steps to limit risk and strengthen the finances of the agency. These changes, it was stated, would help FHA better manage risk while maintaining support for the housing market and access for qualified borrowers. Included in these changes would be new regulations which strengthen the process by which FHA requires certain lenders to indemnify the U.S. Department of Housing and Urban development for insurance claims pain on mortgages that are found to be deficient where meeting the departments guidelines or contain misrepresentation and fraudulent documentation. Additionally, the new measure will reduce the amount a seller may be allowed to contribute to a borrowers closings (seller concessions) to bring it more in line with industry standards, I am assuming halving it to 3% from its current allowance of 6%. These things among various other measures it is said will not only strengthen the mortgage insurance fund but also allow for the gradually shrinking of the government’s role in the housing market without disrupting economic recovery. What it won’t do in my opinion however, is salvage any hope that the program may once again return to which it was originally intended for and that being a mortgage insurance program designed to benefit the low to moderate income borrower.

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Don’t misconstrue my statement, I realize that new rules need to be implemented in order to provide a more balanced national housing policy however it is unfortunate that FHA policy and mission has now become less a mortgage insurance program designed to serve those segments of the population that where considered underserved by existing programs and more an industry mainstream lending program with a basic initiative of providing a range of affordable housing options to both renters and potential homeowners alike. Additionally, it’s mission statement takes the stance that some Americans should simply not own homes. I agree that any borrower applying for a mortgage should be financially prepare for such an endeavor and should be able to credit qualify criteria including demonstrating an acceptable credit history as well has have sufficient income to support the obligation and assets available for closing however I also want to point out that borrowers falling into the low to moderate income criteria typically profile differently to moderate to income borrowers, in short limited income results in unavailable residual income, which is generally needed to acquire funds for down payment and payment of closing costs. Therefore it is my belief that by reducing allowable seller contribution to borrower closing costs, we are farther excluding those low to moderate income borrowers who otherwise qualify for what would have been a traditional FHA insured mortgage from achieving homeownership.

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As it stands to reason, limited or low income in and of itself should not be reason for a segment of the population to be excluded from available loan programs. Additionally, many of the borrowers have demonstrated all other aspects of credit worthiness including satisfactory rental and credit history and in many instances wish to purchase very affordable properties that based on today’s current market rates would result in a reduction in their housing expense this due to an increased demand for adequate rental properties causing rising rents. Instead, they are being denied this opportunity due to changing mortgage credit guidelines involving all loan program types and the end result is the upper income borrower who was already adequately served by conventional lending programs being afforded the
ability to bid on available housing stock at significantly reduced prices because there is no longer any competition in the market from potential homebuyers that might have purchase in these areas, occupying these properties as primary residences. Instead, investors absorb the properties at reduced costs as servicers struggle to liquidate their REO and these investors in turn rent the properties to borrowers who in the past would have been considered suitable candidates for homeownership. Agreed, this method may at some point result in a stabilization of housing prices and promote recovery of the housing market but you have to wonder at what long term cost. When considering that greater risk is associated with investment lending from an underwriting standpoint and there is less of a commitment to community by individuals in rental situations then there is by individuals who own their homes, at what point do we begin full recovery which includes not only the economic recovery we seek but also the restoration of faith in the American housing market and the revitalization of the neighborhoods and communities that have also fallen victim to the housing crisis. This won’t be accomplished by becoming a nation of renters.

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In closing I will say simply that if the FHA wants to strengthen the program then reduce the maximum mortgage limits capping them at values that provide for affordable sustainable homeownership options which is what the program was intended and allow the private sector to provide funding for programs designed to serve the segment of the population which may easily afford those options. Further, continue to strengthen underwriting criteria placing a greater burden on the lender where indemnification is concerned and create more stringent sanctions for those lenders that do not comply. Do not however make affordable homeownership an unattainable goal for many Americans by creating a program that is simply out of reach for many low to moderate income borrowers. You know very recently I was thinking to myself that it had been forever since I had underwritten a loan for a plumber or receptionist purchasing a home in the $100,000 range. Everything I see these days is $400,000 purchase prices for borrowers with 750 credit scores $50,000 in reserves who are bringing in $150,000 annually. Unfortunately it is something we all might want to get used to.

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds 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".


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