FHA loans and FHA loan processing has become a critical piece of any loan officer or mortgage broker hoping to thrive in today’s market. A lot has changed in the last year or so and the mortgage market has come full circle.
FHA is part of the Housing and Urban Development (HUD), a US government agency. The goal of the organization is to improve housing standards and conditions, provide home financing, and to stabilize the mortgage market. Since 1934 the FHA and HUD have insured more than 34 million home mortgages. The FHA has 4.8 insured single-family mortgages.
Today's mortgage industry is suffering from the international collapse of the subprime markets. The credit freeze has affected most countries. The UK had a 'run on a bank' in Sept 2007. This was the first in three decades and something the financial industry believed they would never see again.
The mortgage community has returned to the more traditional underwriting model of approving loans. With subprime programs scarce and tougher to qualify for, FHA loan processing has become more popular. FHA insures the mortgages making lenders more willing to offer loans to low-qualifying borrowers with less than perfect credit. FHA also has a low 3% down payment with a competitive interest rate. With the new FICO add ons for conventional loans, many times an FHA loan is less expensive even when a higher LTV is not as important. The pending foreclosure assistance programs FHA has been approved for will also drive more volume. This is the only affordable option for many of today's borrowers.
FHA does allow a contract processing company to perform FHA loan processing as an outsourced service. Any mortgage processing company should offer FHA loan processing, but it is important for independent loan officers and mortgage brokers to make sure the company and processors have strong experience. For years FHA loans were not as popular because of the net worth and extra approvals broker needed to do FHA loans. Subprime loans could finance some of the same borrowers without the hassle. As a result FHA loan processing is relatively new to most processors.
FHA loan processing classes are available to mortgage processors who want to offer this service but if you want to get the hard loans funded you need a processor who has processed a lot of FHA loans. Since many FHA loans require a manual underwrite to get approved it takes a lot of skill to know which loans can be approved even if the AUS has referred them. Don’t just ask the number of years FHA experience a processor has, really focus on how many FHA loans they’ve actually done and are doing now. Personally I won’t work or hire a processor who hasn’t processed at least 300+ FHA loans with at least 5 years of FHA loan processing experience.
Mortgage brokers also need to know that there are different disclosures for FHA loans. I’ve been thru several FHA audits and they are no fun if you haven’t done your FHA loan processing correctly.
A lot of things that I’ve written about before still apply when selecting the right contract mortgage processing service but now that FHA is such a big part of today’s market this has become one more thing to really dig into when selecting a processor. Ask detailed questions about the number of loans and length of time your potential processor has done FHA loan processing.
