In the Business Section of the Washington Post dated Thursday August 23, 2007; there were two very important headlines which give us a little insight into what’s coming regarding the Mortgage Industry. The primary headline read “US Ponders a New Deal for FHA”. The Second article just beneath this one read, “Proposals from the Stump”. Both these headlines are interesting because they indicate the politics of this issue. In the article about FHA (Federal Housing Administration) it spoke about President Bush and the current administration seeking ways the government can play a role in helping borrowers avoid foreclosure.
In the 5th paragraph of the article it reads, “The aim would be to help otherwise credit-worthy borrowers get out of subprime mortgages that have escalating interest rates”. The key words from this statement are; “otherwise credit worthy borrowers”.
The FHA is a very lenient lender when it comes to credit and income. FHA will allow borrowers who may have had credit issues in the past, qualify, if a reasonable explanation and documented proof shows the borrower has learned to handle their credit situation. However, FHA has never been and I don’t see them becoming a “subprime” lender. Does this mean that the borrower can have late payments on their mortgage, but have good history on their car loan and credit cards and he/she will be considered credit worthy? I don’t think that would make sense from an underwriters’ point of view.
The Democrat response to the mortgage issue is to take more tax dollars. What they want to do is create a super agency that will need millions of dollars to run, and create layers of bureaucracy. Hillary Clinton, Barack Obama, and John Edwards have all talked about creating a “Relief Fund”. Hillary and John haven’t said where they believe the money for this fund should come from, but Barack is saying he thinks part of the money should come from lenders who “acted irresponsibly and committed fraud”. Well Mr. Obama, if you take a look, a lot of those lenders who acted irresponsibly are already gone. The market has taken care of them! So where will you get the money? Of course we all know where they will look for this money. Can you say, TAXES!? Tax the rich not the middle class right?
Since the FHA is already set up to deal with mortgages, I think the best answer is to take some of the restrictions off of FHA. FHA is a middle to lower middle income program, and there no need to create a new bureaucratic system. I see the FHA response to a borrower in a mortgage such as a 2/28 ARM, or some other form of ARM loan program,
Refinancing into an FHA loan. I see FHA possibly extending their allowable loan amount to $417,000.00 instead of the current $362,700, for high income areas. Currently the maximum loan amount is set county-by-county. Maybe they will allow a uniform amount and do away with the current system. This would make FHA a more attractive program. One thing you can rest assured of is that FHA will play a significant role in the future of the mortgage industry.
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