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Sen. Voinovich — HUD Too Tough

by Peter G. Miller
February 14th, 2008

The Toledo Blade quotes Sen. George Voinovich (R-OH) as saying that “one of the reasons why so many people went to subprime is because FHA wasn’t doing their job.”

“FHA’s requirements were so stringent,” Voinovich told the paper. People “said they were leaving and these vultures knew that was the problem.”

The senator has reason to be irate because Ohio has taken a huge beating on the mortgage front.

“Ohio’s total foreclosure filings, 153,196, and total properties entering some stage of foreclosure, 89,979, both ranked third highest among the states for 2007,” according to Realtytrac.com, the largest source of foreclosure data and listings.

Voinovich makes a good point, but one which needs a little context.

First, HUD is generally right to have stiff qualification standards because the FHA program is essentially an insurance plan.

Second, many borrowers in recent years did not get FHA loans because the program is somehow difficult, they got toxic mortgages because exploding ARMs and stated-income loan applications produced bigger fees. In turn, toxic loans were available because federal regulators did nothing to control the origination of such loans under the theory that no regulation is good regulation. The Federal Reserve, as one example, had the power to stop toxic loans and did nothing.

Alternatively, if HUD is to make the FHASecure program work — if FHASecure is to be a foreclosure bailout effort — then HUD will have to change underwriting standards to recognize that troubled borrowers not only miss mortgage payments, they also miss other payments as well. In other words, their mortgage history is woeful — and so is their credit in general because they have toxic loans with soaring costs.

For the full story, see: Senator slams lenders over foreclosure crisis

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2 Responses to “Sen. Voinovich — HUD Too Tough”

  1. FHA lender Says:

    they were doing their job…it was a lot of brokers who weren’t FHA approved that were putting these borrowers in 2/28 ARMs

  2. Ron Borg Says:

    Since brokers account for more than half of all loans originated in the country, one needs to just take a look at their situation as regards to FHA vs. subprime lending. If you were a broker, which process would you rather go through?

    To originate FHA loans, there is a fee of $1,000 + $500 per branch. You need to maintain a net worth of at least $63,000 (+ $25k per branch) and that needs to be proven through audited financials each year – an additional expense.

    OR, just place your loans through the multitudes of lenders sending account reps to your office each day. Oh, and don’t worry about fully processing the loan, we’ll handle that for you too!

    And of course the mortgage caps need to be mentioned – in states like NY, NJ, CA, most loans exceeded the caps, so the choice wasn’t even there.

    HUD simply failed to recognize that their market was not necessarily the end user – they should have focused on the needs of mortgage brokers who would have loved to provide FHA mortgages to their clients but there were just too many hoops to jump through.

    Sub Prime lenders recognized this and took advantage. Its called Capitalism.

    Now, HUD has an opportunity to change their ways. They could easily embrace mortgage brokers – let mortgage brokers be the “man on the street”. Mortgage brokers are sales organizations… they do not close loans. If HUD would focus their energy on the lenders and hold them responsible for their loans, they would see lenders raising their standards for what is accepted as a brokered FHA loan.

    Ron Borg

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