Coming on the heels of a similar Bank of America move earlier this year, Wells Fargo rolled out their Three Percent Down Mortgage. Advertising allowed credit scores as low as 620 combined with the ability of to have a gift payment to cover the three percent. So, the very same Big Three whom got us into the mess are running as quickly as possible back to the mess — Bank of America; JPMorgan Chase; and Wells Fargo.
When we talk of loans, though, let’s get some definitions out there in only the way a trained media professional as myself is capable of doing,
The Federal Housing Administration or FHA mortgage is somewhat of a misnomer. Why? Glad you asked. The FHA doesn’t actually make loans. Rather, the FHA is an insurer of loans.
FHA publishes a series of standards for the loans it will insure. Generally, when financial institutions underwrite and fund the loan which meets the guidelines, FHA will insure that loan against loss.
The problem with this is the nightmare of accepting people whom normally financial institutions would not — FHA accepts a 500 FICO. When those folks go South AND INEVITABLY A 500 FICO WILL GO SOUTH, it is historically a disaster for the bank.
Now, here is the real story. In 2014, on an earnings call, Chairman and Chief Executive Jamie Dimon said,
The real question for me is should we be in the FHA business at all. Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business.
Dimon wasn’t bullshitting. In Q2FY2013, JPMorgan Chase originated 19,111 FHA Loans. In Q2FY2014 they originated 340. And really who can blame them? With settlements to FHA in the billions of dollars, it tends to make one gun shy. There is though, yet another ironic twist to the entire #FraudFest — the National Association of Realtors.
Low and moderate income borrowers will always get screwed due to the pushing of rentals by the National Association of Realtors (NAR). Their peddling of wares to the US Government and a recent realization that Realtors are soon to be an iconoclast memory of the 20th Century has motivated the unholy axis which government loan guarantee agencies and regulators coddle to. Loans are pushed on borrowers to buy McMansions on McDonalds pay. This is accomplished by typically allowing minimal down payments, underpriced mortgage insurance, or monthly payments too high in comparison to the borrower’s income. The fix is in which continually sets the little guy up for failure.
BB&T, Bank of America, Fifth Third Bancorp, Flagstar Bank, M&T Bank, Regions Financial and Wells Fargo are all going to eventually remove FHA from their portfolios. Strangely, though, the set up for failure is even worse as the scale will be #EPIC. At least under FHA there are some evolutionary cul de sacs wherein risk is addressed. With the aforementioned 3/620 the ability to hide the tranches — the term now used to replace sub primes — will be legendary.
Anyone whom is selling the belief that we have emerged from the Financial Meltdown is not conversant in the English Language and has only elementary understanding of mathematics. Today, we merely wind down one Crisis to begin the next. These 36 month cycles are plain to see and at least for the Mortgage Field Services Industry, it means that the volumes will continue to be present as the pricing continues to deteriorate.
If you think things are going to change, I have some Safeguard Grass Cuts for $500 apiece I need done. They pay upon completion, honest! You can go read it on the internet if you don’t believe me! Fact of the matter is that we are simply moving from one shill game to the next. And regardless of which of the two evils are lesser when you go to the voting polls, it doesn’t matter. The business of the beltway is The Business of the Beltway.
Don’t miss this weekend’s Memorial Day Podcast as we discuss Mickey Dale Snow’s real estate sell offs which resemble the path Fannie Mae took with respect to leveraging liquidity. We also sit down and speak with several firms like TruAssets in Scottsdale, AZ, whom adopted Foreclosurepedia’s W2 Model. You are going to be BLOWN AWAY with the results they have obtained!