Underwriting Training : Plain Vanilla Home Loans

Written By: Joan Ewing, Op-Ed Writer

Hello Everybody - Hope everyone is keeping busy. These days the mortgage business never ceases to amaze me. When perusing the newspapers and internet this week for a topic - I came across “Vanilla Home Loans” - I thought what next? While I have felt all along that there needed to be some regulations for the unscrupulous - I am not sure about these Vanilla Home Loans.

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Just what is a Plain Vanilla Home Loan? As released by the Associated Press - According to President Barack Obama, if he gets his way - consumers who take out mortgages would automatically get a “plain vanilla” loan. A plain vanilla loan is considered a traditional 30 year fixed rate loan. Now - perhaps if consumers would like sprinkles on the loan that may include an adjustable rate or a loan that was riskier.

President Obama would like to revamp financial regulations to product borrowers from confusing and high-risk mortgages.

Government officials want to make the process of getting a mortgage as simple and abuse-free as signing up for a retirement savings plan. This I absolutely do not understand - the mortgage process is not that simple. If in fact the Vanilla Home Loan is implemented - I could see where less people would qualify for a mortgage. I feel it could actually backfire.

The questions that would arise would be - what loan-to-value; what DTI would lenders require for the Plain Vanilla Mortgage. Approximately 30-40 years ago, I think you could say the Plain Vanilla Mortgage existed; since most mortgages were given by loan Savings and Loans Institutions. You could go in talk to the bank manager - give him a pay stub; run a credit report and Congratulations you have a home mortgage.

If the Obama plan for simplifying the mortgage process is approved - here’s how it might work:

The government would give its seal of approval to a handful of mortgage types - a standard 30 year fixed rate mortgage and perhaps a few varieties of adjustable rate mortgage. For a loan to get the “vanilla” label, the lender would have to verify income and have the borrowers set aside money for property tax and insurance. (I am assuming they mean escrow for taxes and insurance).

To get an “unapproved government loan” the borrowers be warned about the risks - which would be a good thing. I am personally having a hard time wrapping my head around these “vanilla mortgages”.

In reading the documents that have so far been released regarding the “vanilla mortgage” - it is really for the protection of the consumers - who have expressed they did not understand the loans they signed up for during the housing boom. Many expressed concern they were not aware when their rates adjusted their mortgage payment would be much higher.

The Obama plan also calls for fees that brokers and lenders receive tied to inflated mortgage rates.

Brokers have already seen their market share dwindle – brokers currently only account for 20 percent of new loans. If these mortgage fees were eliminated that would be the kiss of death for mortgage brokers.

I will continue to follow this issue of the regulations of the mortgage loan/process and whether the “Vanilla Home Loan” will pass the test of time.

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In closing - let me say - I hope every body is staying busy. More later.

About The Author

Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. 


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.