Of course, FHA never offered a “stated income” loan, and that was a big part of the problem. At the peak of the market, people couldn’t qualify to buy without “enhancing” their income.

Now that all that is settling back down and FHA has brought their guidelines into parity with conventional loans, we will hopefully return to doing lots of FHA again!

I really appreciate the sentiment and agree with you wholeheartedly. I recently heard a phrase that’s really motivated me to go out and see more Realtors, call past clients, and reach out to anyone needing the expertise of a long time mortgage veteran. The phrase (actually a question) is this, “who really needs to hear from me today”?

On Friday afternoon my quest brought me to the office of a company whose agents do both real estate and loans. I figured anyone who treats mortgage lending as a “sideline” is probably suffering in this market and could use some fresh ideas. There I introduced myself to a very attractive young agent who explained that I couldn’t leave any information in the office (I had a newsletter I’d written) but then she asked me “who do you use for sub-prime loans?”

I responded, “well that’s a dicey proposition these days, but let me ask you: why are they sub-prime”? She explained that her buyer was a young woman with a 702 mid Fico score but less than 2 years credit history. She was buying a $250k home and had 5% for a down payment. The loan had been approved at Chase B/C on a 2/28 with a start rate of 8.25%.

The problem was, just a few days before COE, Chase came back saying they could no longer offer the 8.25% and instead offered 9.75%. My response to her was “what about FHA?”? That would fit the credit situation and give the borrower a much lower rate and payment.

Well, the objections began to fly, “my borrower can’t afford the mortgage insurance” (I met that one), “the seller won’t pay for a pest inspection” (what??), the seller won’t pay all the fees they have to pay” (no problem), and the clincher was “we’re not approved to do FHA loans so we need to find a sub-prime lender who can just get the deal done quickly for us”. I told her I could get the deal closed for that buyer in far less time than it would take to find a new buyer, and I could do it in a way that would make the buyer so pleased that she’d be singing the praises of this Realtor for years to come.

As I drove to the next office I realized something else about this market; the mindset that got us here is still very much alive. The ease with which loans were being approved in the past few years has shifted the focus to what’s easy for the loan officer and away from what’s best for the client.

How many sub-prime 2/28’s with 3 year prepays were funded for borrowers who could have qualified for “A paper” or FHA in the past few years simply because it was easier for the loan officer? How many of them are in dire straights today? How is it that anyone in this business is still barking up that tree?

So many people who need us and so little time!