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April 9th, 2009 11:05 AM by David W. Welch
The federal government has pledged hundreds of billions, in fact over a trillion dollars to aid banks. The purpose was to loosen up the credit crunch and facilitate more lending. At the same time, the FHA has continued to make it more and more difficult to get an FHA (government backed) loan. FHA has never in the past had credit score requirements per se. Now, you must have, correct me if I am wrong, a 660 middle score or you may not get approved. They may have stopped short of requiring a particular credit score, but effectively that is what they have done. Additionally, FHA has made it virtually impossible to obtain a spot approval on a condominium. They did not actually say that they would not do it, but they made it cost prohibitive to do so. Condos, which are often the best option for first time home buyers, have to meet more criteria than just HUD approval to obtain FHA financing. If that were not enough, they have also brought back tougher appraisal guidelines as well.
I am all for reasonable decision making when approving loans. The easy money along with just plain fraud a few years ago was out of control. The answer is not in making restriction so tight that nobody qualifies. As an example, I have on customer who has decided to just pay cash, because the loan process and requirements are frustrating him. I recently had a single mom looking make her first home purchase with an FHA loan to take advantage of the tax credit. The property she contracted for is a Freddie Mac foreclosure. She spoke with several lenders that said she was qualified for the loan on this FHA/HUD approved condominium. Her loan was denied twice, because the underwriters apparently had the discretion to do so. How can we pledge to back a trillion dollars in “toxic debt”, but not take a chance on a first time home buyer purchasing a $50,000 condo. Both lenders reference FHA guidelines as their reason for denying the loan.
FHA is still about the easiest way to get a loan these days with only 3.5% down and and no fixed credit score requirement. I just wish everybody would relax. Easy money was wrong, but so is too tight money. Two wrongs don't make a right.
David Welch, Real Estate Optimist, Follow me on Twitter