Why Aren’t More Lenders Following HUD’s “Flipping Waiver?”
Written By: Stacey Sprain, Certified Ambassador Loan Processor (CALP)
One of the hot buttons in our industry these days seems to be the lack of lenders honoring HUD’s recently issued “Flipping Waiver” for FHA lending. I’ve had a number of originators vent their frustrations with not having any outlets to turn to for this and a number have asked for further explanation. As someone who spends a majority of my time working with credit risk, I feel I can offer a pretty darn good explanation for why.
We all know what’s lead us to the state of the industry that we’ve dealing with for the past two plus years. Credit policy standards were far too low for us to eliminate high risk borrowers and far too little attention was paid to high risk trends because everybody was too busy making money. But FHA was a bit ahead of the game in that at last they had the 90-day seller seasoning requirement in place through that entire period. That gave lenders the ability to refuse lending to FHA borrowers who were purchasing properties from flippers and flipping rings that hadn’t been in title for at least 90 days. It offered at least some protection to the lenders. Unfortunately many of the flippers and flipping rings managed to get through the system using sub-prime and conventional lending which eventually contributed to the mass of foreclosures and default trends that eventually lead to the fall of our markets.
When mortgage defaults increased and foreclosures started rising, the lenders all found themselves having to expand their quality control monitoring which in many cases meant expanding the sizes of their QC staff. This lead to more costs while allowing them to meet minimum agency QC standards which the agencies had no choice but to start paying real attention to. Lenders started paying real attention to the details and trends of their defaulted loans and foreclosure portfolios.
With the major change from the world of sub-prime and conventional lending over to a dependence upon FHA lending for the first time in many years, lenders all experienced a significant learning curve. It took over a year for originators, processors, closers, funders, shippers, insurers, auditors, purchasers and servicers to really learn and get comfortable with the ins and outs of FHA lending. Many of them had come into the industry when it was booming and may have had no experience whatsoever with FHA lending. Now, with a major switch in lending trends, lenders had to get their staffs trained, reorganize their divisions, hire in FHA experts, spend money and time getting FHA-approved if they weren’t already and take serious looks at their internal processes and procedures. They all had to ramp up their training and education on high risk and fraud recognition and awareness.
It’s really just within the past few months I feel that the industry as a whole has really come to fully comprehend the differences between the former dependence on mainly conventional lending to now depending upon FHA-insured lending options. Employees of the industry now have gained an understanding of FHA guidelines and requirements and most lenders likely encounter many fewer “screw ups” than in the previous 12-18 month period. But just when we all feel like things have settled a bit BAM! HUD comes out with the flipping waiver that completely contradicts the message we’ve all been learning in the past few years about FHA. We are surrounded by constant crackdowns on credit policies and tougher lending standards and we’ve all read the articles and seen the news coverage about the FHA insurance funds being in trouble. But then instead of tightening standards, as they have in so many other areas, they tell us to ignore the 90-day seller seasoning standard to allow properties to move. Say what?
I remember my initial reaction when I received notice of the waiver. I believe I yelled out something like “have they lost their *(&*^&^ (&) P_&*&*(&(Y mind!” I immediately know that I wasn’t the only person who was thinking what I was thinking. My thoughts were of the contradictory message the waiver sends to the industry in these times where lending is tightening and fraudsters are sought out moreso than ever in the past. I expected that our main lenders might have serious issue with the waiver, just as I did. And I was correct in my thinking.
To date I have heard only of two outlets honoring the waiver. I am not aware of any significantly large and common lenders that are. To be honest, I don’t expect they will. They don’t trust the message that’s being sent out from HUD right now. On one hand, HUD has made it particularly clear they are monitoring lender performance moreso now than ever in the past. They have made their point known by the various news articles and announcements they’ve made subpoenaing lenders for investigations. We’ve seen the penalties and sanctions they’ve been distributing out there.
What it comes down to is this: In the past, lenders jumped on the bandwagon when opportunity presented itself to capitalize on the market because the other lenders were doing it. They were quick to ignore the risks of allowing no doc borrowers to go through the system, were quick to ignore the risks of allowing borrowers with no credit, minimal credit and borrowers who flat out didn’t qualify to go through the system, were quick to offer lending products like interest only when they clearly knew borrowers didn’t come near to qualifying for the full payment on said mortgage. All of those lenders have paid dearly for their bad business decisions.
In today’s world, lenders stop to weigh the options before jumping on the bandwagon of opportunity because they have all learned the hard way that opportunity now can end up costing later. With limited seller seasoning being a clearly identifiable lending risk, lenders simply cannot afford to take a chance on HUD’s waiver.
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)
posted by Editor in Chief at 12:37 PM
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