FHA Guidelines: Study finds that FHA loan rates, terms vary

by Karen Lawson
November 12th, 2010

A study by Communities United, a community advocacy group based in the Baltimore-Washington DC area suggests that minority and low income borrowers may pay more for FHA loans. FHA guidelines prohibit housing discrimination, and this troubling assertion accentuates the need for prospective buyers and homeowners seeking mortgage loans and refinance mortgage loans to shop and carefully compare mortgage quotes for FHA loans.

Before jumping to conclusions, it’s important to note that the Communities United study findings are based on FHA mortgage loans made in 2008, a year during which several anomalies sent housing markets and mortgage rates south. As a hedge against falling interest rates, it’s believed that some mortgage lenders may have assigned higher mortgage rates due to falling rates for US Treasury notes. The rates for these notes serves as the benchmark for establishing FHA mortgage rates; FHA home loans with mortgage rates higher than three percent above the benchmark are considered high cost mortgages. The irregularities associated with 2008 financial markets doubtless impacted the results of this study by causing artificially high numbers of mortgages meeting HUD criteria for high cost mortgage loans. Prospective borrowers can best protect themselves by understanding anti-discrimination laws and understanding the mortgage application process in general. Contacting HUD approved housing counselors before shopping for FHA loans is useful for learning about FHA loans.

FHA lenders can impose their own underwriting requirements

If you’re looking for a mortgage loan or refinance mortgage, requesting mortgage quotes from multiple FHA lenders can provide an idea of pricing disparities, and can also provide negotiation points during your loan shopping process. Although FHA does not allow mortgage lenders to engage in discriminatory practices, FHA lenders do have some leeway in imposing their own underwriting criteria to FHA loans. Termed investor overlay, this practice makes comparing mortgage quotes essential for finding your best deal on an FHA home loan or refinance mortgage.

FHA guidelines prohibit housing discrimination: Know your rights

The US Department of Housing and Urban Development, the agency overseeing FHA, provides helpful information about recognizing and dealing with housing and lending discrimination. Mortgage lending discrimination can involve tactics including sub-prime and predatory lending; although sub-prime lending can provide home loans for those who cannot otherwise qualify, the cost of such loans can be prohibitive. Predatory lending involves lenders pro-actively seeking out under-served communities and borrowers and offering mortgage loans and home refinancing at exorbitant cost. If you suspect that you’re a victim of mortgage lending discrimination, please contact HUD for more information and/or for filing a complaint.

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