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FHA: Here to Stay part two

Update

When the original article was being written back in 2008 no one could have foreseen the severity of the disaster that would hit the real estate market and overall economy or the extent of damage that would be done. I certainly couldn't; but I remember a passage from that article relative to the 'safeguards that were built into the FHA mortgage program' and now, in the aftermath of the “Sub-Prime Mess” and having to deal with the present economic crises (disaster), I can't help but reflect back in disbelief at all that has happened to change the entire country and , indeed, the world as a result of recklessness and greed. I think we can safely state now that 'Sub-Prime' is over with. Gone! Done! Over and done with, we hope.

Although the events leading up to the crash of the 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 supporting their households probably have a lot more to say about what exactly caused the sub-prime mess and who is to blame, because it wasn't this group as some would have had you believe.

Oh yeah. The school teachers; bus drivers; train operators and conductors; the police officers and firemen; the correction officers and all those who bought their homes by making the required down payment, providing the required pay stubs, bank statements, W2 forms and tax returns as proof of their qualification to purchase the home of their choice.

This group and many like them throughout the country must have felt a sense of vindication when the entire weight of the economic collapse was lifted off their shoulders with the collapse of the AIGs of the world. Most of this middle class group of people are probably still in those 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 larger of a role in bringing about than any other responsible homeowner, despite many who asserted differently and insisted on looking for scapegoats in the wrong places and ended up blaming the wrong group of people. They were said to have a less-than-desired down payment, not enough income and less-than-desired credit, which we now know were not the reasons for the melt down.

Solid citizens

They are the true professionals. Those home buyers, now home owners, who purchased their homes by utilizing FHA financing 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' mortgage program and there never was under FHA financing; there is no such thing as an 'investor' loan either; (that went the way of the 'pink-onion-paper-fax machine') and there was certainly no such thing as a 'piggy-back' mortgage description in any FHA underwriting guideline manual until 2007 when, in an early effort to combat the impending crisis, the agency provided as an option in the 'FHA Secure' program 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'. That's why it was a solid program pre-Sub-prime-disaster and the it will continue to be a reliable source of financing for respectable, hard working, 'qualified' middle class folks.

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 could not qualify for FHA mortgage financing, despite the flexibility in the FHA program. The required down payment under FHA guidelines 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 in '09 the minimum credit score was 580. There is now a 620 minimum score which could vary based on the other loan factors. So here's the mortgage factoid.

Let's face it!

If a borrower couldn't qualify for FHA-Insured financing, there was definite reason for the lender to have a concern about approving another kind of mortgage for him/her. 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 the brunt of blame; But...

This raises some other questions: Who are they? What percentage of the buying marketing did they make up? Where did they buy? For what purpose did they buy? To occupy as Owners or to flip as an investment? These and many other questions could provide more in-depth look into how that crises started. That's a story for another time and one that will certainly be worth discussing, but for now. The FHA mortgage applicant, you know - that respectable middle-class I mentioned earlier - can breathe a big sigh of relief, because FHA is here to stay and they are solid citizens who deserve our respect and gratitude for the services they provide everyday.

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