David Neal's Mortgage Blog

Well, we finally got some good news! The fed stepped in on Friday and cut the overnight lending rate to banks by 50 basis points or .5%. This sparked confidence and most of the financial stocks started to rebound. Good news is important right now, because it's the news that's causing most of the problems with the mortgage industry. The news is driving panic that is causing the investors on Wall Street to pull their money out of the mortgage related investments. This drys up the money that the Mortgage Lenders use to fund loans and if they don't have money to lend.......well, you can pretty much guess the rest!

But......with the Fed's action on Friday it seems to have helped for the time being. Only time will tell if this is just a temporary fix or one that is longer lasting.

Wow! thank god we are an FHA approved lender. FHA seems to be filling the gap that was left from a lot of loan programs that weren't insured. There has been a huge rush to FHA, which is slowing down underwriting turnaround times, but it's still much better than not being able to do the loan at all. I think the biggest problem is going to be, all the loan officers that haven't really been doing FHA are now doing them. This will cause issues because they don't know all the little quarks and guidelines and therefore have a much higher probability of not seeing things that could come back to haunt them. This may in turn cause some realtors to steer their clients away from FHA loans, which would be a tragedy. FHA is a very powerful tool to put people in homes if you know what you're doing. I think the greatest power is in what's called a "manual underwrite". instead of the traditional automated underwriting approval, this is a judgement call from a real person. Why would that be good, you ask? Because FHA has the ability to listen to the story, where all others don't care what the story is, they just want the facts. An FHA underwriter can approve people that have had credit problems through no fault of their own, say due to a tragic illness or the death of a wage earning spouse.

The best part about FHA is that they really have eliminated the drawbacks. There are no more required seller paid closing costs or the infamous "FHA inspection". All that is required now is an FHA appraisal and a pest inspection. If the property is on a well a water test is also needed, but the county board of health can do that for a very modest fee and have it done pretty quickly. FHA allows up to 6% in seller concessions plus an additional 3% for a down payment assistance program if needed, thats 9% folks....wow!