Rebuilding A Creditable Mortgage Industry

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I recent read an article in Business Week which I found interesting. It was titled FHA: The New Sub Prime. There was a couple of things in the article that I agreed with or found interesting and I will share this first. The author of the article spelled FHA correctly and the graphics were stimulating. The whole growling wolf thing got my attention although as someone with a family tree that includes Native Americans, well I think my grandmother might disagree. Anyway that’s about it.

Now lets talk about the inaccuracies. I read not only the article but several of the comments posted in response to the article and I have to tell you there are a lot of people out there that really have no clue as to what is actually required to get a government insured mortgage closed. The article not only implied that that there is no regulation where FHA inured mortgages are concerned, that the individuals employed by HUD for the purposes of checks and balances were incapable of regulating the program, but also that underwriting practices and procedures are no more then a rubber stamp of approval. Further, it implied that the program, which was designed to help low to moderate income borrowers who were worthy of homeownership, was destined to result in excessive foreclosure simply by serving this segment of the population.

In considering the graphics, I will now begin to howl. First, I would like to state that under the very same standards and principles that exist today, the FHA mortgage insurance program has been in existence since 1934 insuring mortgage for individuals who more or less fell into the low to moderate income category. Given the fact that the agency, who by the way is self supporting, not funded by tax payer dollars as the article implied, is still in existence after 74 years of common sense underwriting says a lot.

That’s right, long before credit scores of 720, long before the designation of A paper vs Sub prime, long before copiers and fax machines, computers and Automated Underwriting Systems, the FHA mortgage insurance program was underwritten by FHA DE underwriters who carefully assessed the financial ability of each and every applicant, not to mention credit worthiness, collateral and the borrowers overall ability to repay the mortgage debt. As one of those underwriters who is very familiar with carbon paper, I have to tell you that a lot of those borrowers did fall into the low to moderate income category and those loans performed just fine. Like I said after 74 years the agency continues to exist.

Next, I want to talk about the controls in place in the HOC’s. First, the staff in the HOC’s which by the way I have regular conversations, know exactly what they are doing. Additionally, there are several controls in place to watch those seedy brokers and lenders so that unacceptable underwriting practices do not continue to occur. First I want to state that every DE underwriter is required to provide personal information in conjunction with having a CHUMS ID number. This information includes your home address, social security number etc.

Let’s put it this way, if a particular underwriter appears to be participating in fraud of any type, the Office of the Inspector General as well as the FBI will know exactly where to find them. Next, there are systems like Neighborhood watch that track overall defaults for every lender and broker out there. If the lenders or brokers appear to excessive default rates, they are put on credit watch and if the loan quality does not improve, there ability to originate FHA insured mortgages is terminated. Additionally, there are little things like post endorsement technical review during which HUD underwriters pick up files underwritten at the Lender level and re underwrite them. If anything is found to be deficient the lender must respond in writing and in some cases indemnify FHA against any future losses should the case go into default. In these instances, the lender pays, not FHA or the taxpayers.

There were several other inaccuracies, but to cover them all would result in a blog that in truth was a short novel so I will leave the rest alone. I know that the true mortgage professionals out there know what they are. The guys that wrote that article really need to do some homework before they put that stuff into print. It was not only misleading to the general public, it was inaccurate and just plain stupid. I would almost bet that neither of the authors of that article would know a mortgage if the tripped over it, let alone underwriting standards and practice and how to interpret them. Ok, this wolf is finished howling except to say enjoy the holidays and happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.