The New Subprime, How and where can I find one?
FHA Backed Loans – The new subprime, how and where can I find one? Actually, you can find them rather easily. Banks and mortgage lenders are sources for FHA backed loans, same as before. The new FHA backed loans accounted for 26% of new mortgages nationwide by fall of 2008.
FHA loans are a government backed guaranteed lending program designed to help first time home loan borrowers who cannot get conventional mortgages. There are many reasons a person may not qualify for other mortgages. Bad credit, not enough credit, and low income are a few reasons that would make obtaining a regular mortgage loan difficult. These types of loans are called “subprime“. Part of the current credit problems resulted from buyers who default on loans they could not really afford.
These new subprime loans, the FHA backed loans, are about all that is available for many potential borrowers. They offer small (3%) down payments, broad and looser standards for income, and require a small fee. The mortgage and expenses cannot exceed 31% of the borrowers income. These government loans are actually taxpayer backed.
Just this September, the agency guaranteed 140,000 loans, up over double from the number made last January. There is a new program called HOPE for Homeowners, that will guaranteed another $300 billion in funding. Limits for mortgage loans will rise to $625,000 in January, up from $362,790 in 2007. Lenders are being encouraged by the government to participate in these new FHA programs.
The government gives mortgage firms a license to provide FHA backed loans, which are 100% insured. One problem with the giving of these licenses is that the FHA staff is extremely low in numbers, very understaffed, and they cannot follow up as they should in granting licenses. Hence, some unscrupulous lenders receive licenses despite backgrounds that may include state sanctions, civil lawsuits, bankruptcy or even criminal convictions. These unscrupulous lenders are part of the current mortgage crisis because they violated many government rules and guidelines in making loans. They would offer cash back at closing to get deals, which is illegal, among other practices that are less than honorable.
FHA lenders are supposed to verify income of their potential borrowers, and their brokers are to be licensed brokers. They are required to disclose any previous regulatory sanctions. They are not allowed to employ people who have prior criminal records either. But with 36,000 lenders, the FHA staff cannot follow up as needed. Some of the old unscrupulous lenders have reopened with the same people, in the same office, but with a different name, and the same shady practices. So, if you are seeking an FHA mortgage, it is wise to do your own investigating to be sure you are dealing with a bona fide lender.
Still, with today’s credit crunch, borrowers are scrambling to find loans. Some of the old subprime lenders have reinvented themselves and are again lending to credit challenged borrowers. If you are seeking a new FHA back loan, the new subprime mortgage, because you are a new buyer, or have had financial difficulties or low income problems, be sure you find a reputable lender. They can counsel you as to whether or not you can afford a mortgage. It does no one good to get in over their head financially.