New Mortgage Bill Will Turn FHA Into Subprime Dumping Ground

The Washington Post reported the HUD Secretary, Steve Preston is worried the mortgage bill could sink the FHA mortgage program. The bill as passed by the House allows subprime and other borrowers to convert their exploding mortgages into FHA mortgages.

Let’s hope the Senate comes to their senses and listen to FHA Commissioner Brian Montgomery and the Secretary to kill this bill. FHA needs comprehensive restructuring to put risk-based mortgage insurance in place, establish a larger reserve to pay the increased defaults, and they need to eliminate the stupid Down Payment Assistance programs before even considering such a risky move.

Real Estate Agents Pushing FHA To The Brink

Last year FHA attempted to rid itself of the clearly fraudulent Down Payment Assistance programs which use fake “charities” to launder seller paid down payment money through a broken system called it “gift” funds after the scrubbing.

FHA own number prove the only person who benefits is the real estate agent, the “charity”, and mortgage provider who all take a commission on a closed deal that otherwise never would.

Even after the GOA, the IRS, and HUD completed studies proving the default rates on these loans is as bad as the worst subprime mortgage pool, real estate agents wanted to save DPAs. Of course, since Realtors didn’t have much work last year and they saw the banning of the DPA programs as another intrusion on their profitability, they sicked their lobbyists on every Congressman who’d listen.

DPA programs were “saved”. Big surprise. Nobody with any sense or money was on the side of HUD.

In contrast, there was plenty of idiocy and money on the other side. The National Association of Realtors PAC contributions to Federal legislators is always in the top 10…across both isles…so in cases like these, they get what they want.

Who cares if they kill the goose that laid the golden egg? What will real estate agents do when their selfish desires actually put FHA into default?

Originators Are Exploiting FHA Too

Since the credit crunch mortgage salesmen are using FHA like never before. Crap credit loans are being pushed through FHA just like the old subprime days.

I saw a loan officer training website recently where the author proudly proclaims,

“I’m getting an AVERAGE of 2.50 points per deal - Learn To Market, Originate, Process and Close FHA Loans!”,

which is designed to make a loan starved originator salivate. And it’s working! So now all the old subprime scumbag originators are running to push garbage loans into the FHA system making themselves just as responsible for the future demise of FHA as the NAR.

Don’t we ever learn?

For the first time ever, FHA needs a $1.4 Billion appropriation from Congress since by law it must balance it’s books every year, so they are already on tilt.

Guess who’s money that is?

Yep, it was yours…the taxpayer. But if this new legislation passes, that shortfall will look like pocket change compared to what’s coming.

Good Luck!

Author: Rob K. Blake
Published July 10, 2008