Obama Claims He Will Protect Homeownership and Crack Down on Mortgage Loan Fraud

Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, and they will give a tax credit to all middle-class homeowners.

• Create a Universal Mortgage Credit: Obama and Biden will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
• Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage lending situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
• Mandate Accurate Loan Disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
• Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage loan payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.  Obama seeks to eliminate predatory mortgage lending.

 

FHA Mortgage Loans Enable Compensating Factors to Overide Automated Underwriting

During the mortgage refinance process, many borrowers fight to get beyond the application stage for several reasons. Especially during this credit crisis that we are experiencing, getting a mortgage approval can be quite tough to say the least.  When an applicant gets rejected by the mortgage lender it may become personal. The common reaction would be to reaccess your mortgage loan application and simply ask “Why wasn’t I approved?”

Fortunately, one of the beauties of FHA mortgages is that the process of manual underwriting and compensating factors. For potential borrowers and those interested in FHA home loans, understanding how compensating factors work will give you the edge you need if your loan is on the borderline of an approval or denial.

Automated and Manual FHA Underwriting Explained
In the mortgage industry, lenders will typically advertise to originators that they use manual underwriting, use “common sense” underwriting, or accept files that “just make sense”. While a number of these are nothing more than just marketing gimmicks, potential borrowers need to understand the advantages of manual underwriting.

Because of technology, when a FHA home loan is submitted electronically, the approval/denial response can be instantaneous. This immediate automated underwriting saves time and reduces processing loads, but it can also be a disadvantage to applicants.  With manual underwriting,  people actually underwrite the loan rather than a computer program. As a result, if a loan isn’t approved under the DU or LP automated underwriting systems, a manual underwriter can make certain exceptions because of certain compensating factors.

Mortgage Lending Guidelines Tightening

Richmond Federal Reserve Bank President Jeffrey Lacker said that slowing economic growth and weakening labor markets in the U.S. may prompt banks to further reduce their lending to consumer and firms, thus leading to further credit tightening.  FHA mortgage lending guidelines may implement further restrictions like lower loan to value minimums and higher credit scores. 

“The deterioration of economic conditions is playing a more prominent role in the tightening of credit terms right now than the direct effects of financial market turbulence,” Lacker said in a speech given in Jerusalem on Monday.  Lacker also said that it was “reasonable” to expect the U.S. economy to begin its recovery by 2009. However, the policy-maker added that it was still necessary to keep inflation expectations under control.

“As a recovery begins, the path of least resistance is often to hold the policy rate at a low level until it is completely clear that recuperation is complete,” he said. “It is crucial that we not allow expectations of future inflation to ratchet higher during this recession.”  On Oct. 29, the Federal Reserve decided to cut its interest rate by 50 basis points to 1%.  FHA mortgage rates actually rose after the Fed made the recent rate cuts. 

The move marks the second time in one month that the Fed had decided to cut rates, Earlier in the month, in a co-ordinated move with the European Central Bank, the Bank of England, the Bank of Canada, the Swiss National Bank and Sweden’s Riksbank, the Fed reduced its interest rate by half a percentage point to help counteract the effects of the intensifying financial crisis on the economy.  In his speech, Lacker said that the Fed’s monetary policy may have been too loose for too long in 2003 and 2004 and could have provided “some positive inducement” for mortgage lenders to take risks.

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