FHA guidelines as defined by HUD could have prevented our current mortgage crisis and could have possibly even been a substantial component of rectifying the problem created by Sub prime loans, except for one small problem…. the Banks!

When my office began offering low “fixed” rate FHA mortgages we successfully provided relief to 100’s of homeowners. I know this for a fact because by tracking the loans we have originated, there is less than a 3% default rate for a period of almost 3 years now.

March 15th 2008 almost every lender started requiring Fico scores of a minimum of 580. And now that has minimum score requirement has risen to a 620 Fico score and even this score comes with risk based hits to the yield spread premium thus making the lowest rates unattainable.

I recently spoke at a Foreclosure Education Summit and had the opportunity to speak with a representative from HUD who informed me she wouldn’t be surprised if lenders increased the minimum to a 680 Fico before years end!

Thousand of distressed homeowners who have the household income to meet all the criteria for a new lower fixed rate FHA mortgage are not being given a chance to succeed because lenders have strictly enforced this minimum Fico score requirement, contrary to the underwriting guidelines for FHA loans.

In closing FHA is a tremendous program but the Banks have corrupted its effectiveness.