South Bend Home Loan

Tuesday, June 11, 2013

FHA, I'm Dumping You

Dear FHA,
As you know from the many clients I’ve sent your way, I have long been enamored with you.  Yes, you are more cumbersome and paperwork-heavy for me and my team, but your flexible loan terms, attractive interest rates and reduced down payment made you a loan choice that I proudly shared - even though it meant everyone had to jump through hoops to make you happy.  I believed you were worth it. 

I’m sorry to say this, FHA, but I no longer feel that way about you. Our love affair is over.  You have broken my heart too many times and I can’t defend you any longer. 
Let me share the ways you have let me down, in the hopes that you can find it in your heart to change your ways:

Higher Mortgage Insurance

Oh FHA, you have really done me wrong here.  Not only have you increased the mortgage insurance to 1.35% per year (WAY higher than the conventional rates), you have made monthly mortgage insurance a permanent part of the loan.  Permanent.  As in – FOREVER. 

Really FHA?  If my buyers have their loan all 30 years, in year 29 you’re still going to be charging them the same overly-high monthly mortgage insurance premium that you charged them in year one?  And it’s not like you decrease the cost each year as the balance decreases.  Oh no, you’re going to charge the same initial monthly amount all 30 years.  And you feel this is the right way to treat loyal, long term customers?

Flip Rules

OK, FHA, I get why you had property flipping rules back in 2003.  Tons of big dreamers watched “Flip This House”, bought a dump, put fresh paint and flooring in it and sold it for more than they should have.  Naive buyers got fooled by the nice staging and neutral colors and overpaid, so you stepped in to protect them.  You were only looking out for their good, so I defended your ‘big brother’ ways.

This isn’t 2003 anymore though, and buyers don’t need this protection today.  If a real estate investor wants to buy a distressed home, improve it and sell it for a profit, making them jump through extra hoops if their buyer uses FHA financing is just wrong
.  Let it go already, FHA. It’s time to move on.

Higher Priced Mortgage Loans

Maybe I could have tolerated your ‘quirks’ with higher mortgage insurance and outdated flipping rules, but this new twist with higher priced mortgage loans is my last straw.  In case you’ve forgotten what you’ve done, let me link you to a letter put out by HUD’s Assistant Secretary for Housing- HUD HPML Letter.  In a nutshell, now that mortgage insurance goes on FOREVER, I have to calculate the APR differently which is making many FHA loans in my reasonably-priced community trigger the HPML limit. 

What this means in ‘regular people’ terms is that I can’t give these buyers their FHA loan, even if they want it, because you got greedy with your monthly mortgage insurance and now my hands are tied.  Way to go, FHA.  That sets a new bar in pushing away those that love you.

All To Say...

So…..I’m out, FHA.  If my buyer really needs to work with you because of credit challenges, needing a non-occupying co-signer, or some other unique little thing that only you accommodate, then I’ll play nice and give you their loan.  For the rest of my buyers who have average or better credit and at least 3% down, though, I’m heading straight to my new sweetie, the conventional loan.