The Politics of Mortgage Lending

Written By: Bonnie Wilt-Hild, Op-Ed Writer

Let me start by saying I hate politics. I have very little patience with all that politics imply. The indecisiveness of the why and the how and who benefits and most importantly how the political machine benefits just frustrates me. With that said, I am trying to figure out exactly when the mortgage business became the political forum from hell.

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I think it started to unfold with FHA Secure, which by the way I applaud. It’s an extremely useful solution to a very critical problem and conducted in the correct way will actually promote the recovery of the mortgage market with dignity. Additionally, it generates new business, which is always a good thing, we just need to make sure it is not abused.

I have to say that I believe in what FHA stands for and think their involvement in this whole mess makes sense. When I consider that they really are the largest insurer of mortgages in the United States it makes sense to have them on the inside helping to create policy and procedure where the mortgage business is concerned.
Now lets talk about the secondary market. It makes sense that they too want to play a role in correcting the deficiencies that have all but brought the mortgage industry to its knees. However, when I look at their current involvement, it seems like they have taken an ultra conservative approach to what loans get approved and ultimately purchased on the secondary market. I am not saying that tighter controls do not make sense but we now have a lot of big players who are just simply refusing to play, which is creating a whole new window for abuses in the system.

When the big boy investors say we will not purchase anything with less then a 580 credit score regardless of guidelines or you must have an Approve/Eligible on the FHA cases to sell them, this give the unscrupulous lenders, which by the way still abound, the opportunity to continue to rape mortgage applicants. So begins the FHA black market.

Where we once had an avenue in which to sell loans on the secondary market that had been underwritten prudently, there now exists the black hole. And into the black hole goes the borrowers that would have otherwise qualified for a reasonably price FHA insured mortgage on a modestly priced home which really did create affordable homeownership opportunities for Middle America. Not only were they given the opportunity to own a home but also they were provided with mortgage financing which allowed them to afford the home. When the secondary market begins to close the door on this type of lending the black hole opens.

Lets talk about the black hole otherwise known as FHA subprime. It’s out there and borrowers not only have access but the lenders providing financing to these borrowers are in it for shear profit. Borrowers are obtaining financing but they are paying 1.5% more then current market rates, possibly shuffling them into a position where they may not be able to afford even an affordable home. Additionally, they pay excessive fees, which strips any reserves they might have creating an even larger financial burden.
I will grant that the larger investors in the secondary market are safe because the immediate increased risk of FHA Subprime will not affect their portfolio’s but in the long run it still creates a pretty grim picture for the mortgage industry as a whole which is at best still troubled.

Now lets talk about the Senate, The House of Representatives and the other political forums in which all these issues have been discussed. I have to tell you that knowing the drivers of this vehicle are individuals, politicians, attorneys and economists that have no real mortgage experience makes me reach for my seat belt. I was watching a Senate subcommittee hearing a few months back and took note that the individuals advising the senator presiding over the hearing were not in anyway employed in the mortgage industry, secondary market or any other key component of the industry. One of the individuals sitting on the advisory counsel failed to define Loan To Value during the conversation. I was thinking to myself “OK, he can’t define LTV but he is advising the Senate as to how to proceed with this mess.” I turned the TV off and went to bed thinking that I would like to meet the genius that put that group together.

Ok, we will leave DC alone, they are really just trying to help and quite frankly have been supportive of HUD in implementing measures that might successfully elevate some of the financial burden being faced by homeowners as well as the secondary market.

We do however need to talk about OTS. They have come out of this as somewhat of a Nemesis to HUD. Yep, it’s the same government, just different agencies. The institution that I am employed recently completed their OTS examination and I have to tell you if you think the investors have lost their minds you should have a conversation with someone from OTS. Take it under advisement that prudent underwriting principles should abound and the DU and LP thing, well forget it, you need to have policies and principals in places that supersede these tools to assess risk. Just because DU says its an acceptable risk doesn’t make it so. Also, be very careful that you don’t practice disparate lending practices and by this I mean turn down a DU approve/eligible on an individual that might present a greater risk particularly if this individual fits into a minority population of sorts. But don’t approve it either because you will then be guilty of unsound lending practices. Yea, I have a monster size headache too.

All right, I will shut up now. I know I am in no position to do this, but I want to give all of you mortgage professionals some advice. Keep behaving as mortgage professionals. Underwriters, keep underwriting using common sense principals and don’t be afraid to approve a loan to a worthy borrower. FHA is still on our side and even though common sense seems to have failed in the rest of the mortgage market, make sure it continues to prevail when you approve the next case.

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About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.