E-Mail 'FHA Loans Provide Refinancing Solution for People with Bad Credit' To A Friend

by Karen Lawson
September 9th, 2009

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This entry was posted on Wednesday, September 9th, 2009 at 1:19 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

2 Responses to “FHA Loans Provide Refinancing Solution for People with Bad Credit”

  1. Nathan Reynolds Says:

    You previously posted a comment I submitted in regards to Banks implementing Higher Fico Score requirements for FHA loans, and I thank you for that. I have borrower who have never missed a payment on their 8.99% adjustable rate mortgage but are struggling to keep up with a credit card that was defaulted to 29.9% interest because the bank changed the due date, and now because they are struggling to make payments on a credit card with an interest rate that would make the toughest “Loan Shark” blush, their score eliminates them from the very program that could save their home. I have been a mortgage broker for 10 years and have survived the mortgage crisis by successfully adapting to current lending practices and becoming an FHA Approved Lender (still a broker “Lender” is the title given to those authorized to provide FHA loans). I would like to once again state that in March of 2008 Banks unilaterally began implementing FICO score of 580. This Fico requirement has since risen to 620 by the top three Banks and as high as 660 from most 2nd Tier lenders who sell to these Banks. I spoke with a representative from FHA at a Foreclosure Prevention Seminar that I spoke at and flat out asked the FHA representative what gives? The representative informed me it wasn’t FHA it was the Banks and she wouldn’t be surprised if we don’t see 680 minimum Fico scores by years end. FHA has strict underwriting guidelines requiring full documentation and debt ratios that support the affordability of the loan. Defaults have nothing to do with a Fico score, painfully proven through the whole “Sub-Prime” saga. The borrowers ability to afford the loan they are applying for determines the risk of default. FHA could in fact be the very vehicle to solve the housing crisis if FICO scores were eliminated from qualification. FHA in its purist form as you wrote does not require a FICO score. I ask you why are banks implementing a score when it is not required? Please don’t tell me because of the default risk, it has already been established that it is the borrowers DTI that determines the risk not their inability to pay a bank credit card at 29.9%.

  2. Karen Lawson Says:

    I can’t speak for the banks, but I’m guessing they’re tightening requirements in the wake of the sub prime mess. Personally, I believe that if the mortgage industry hadn’t developed ‘exotic” mortgage terms as a means for people to get mortgages they couldn’t afford or understand, the majorit of the “mortgge meltdown” could have been avoided. As for FICO scores, I question the validity of one formula applied to everone. One size fits all doesn’t work for clothing, and it doesn’t work for assessing credit risk, either.

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