1. Since 2006 some 270 major lending institutions have failed and gone bankrupt. This does not include the other hundreds or thousands of other people who got their mortgage brokers license hoping to make a quick buck only to fail when the housing bubble burst. What is really crazy to think is how many people lost their jobs within those 270 companies. Estimates right now are in the 100,000 range. This includes everybody from the loan processor, the mortgage banker, IT people, and leadership with the company.
2. When the new housing bill came out it came out with a bunch of new standards that the mortgage industry is going to have to follow. All of the major mortgage companies that are left and still surviving have already gotten rid of sub-prime loans such as the negative amortization mortgage. Good luck even finding a a mortgage company to do a home equity line of credit for you. Many have decided to wait it out before writing second mortgages all together. All that they have left to do for people is normal conventional loans like the 30 year fixed rate mortgage.
3. Many lenders saw their investors leaving them because the mortgage market was just way too risky to stay apart of. Many major hedge funds and investment firms like Bear Stearns were bought out or taken over by the government (good job government, save a loser and put us more in debt!).
4. So the FHA decided to change some of its practices to try to help this mortgage crisis out. They increased the loan limits for people trying to refinance their mortgage or buy a home. While many major mortgage companies like Quicken Loans did not do FHA loans during the height of the refi boom, they realized they better start doing them now.
5. Many mortgage companies did not do FHA loans because they were twice as much work as a normal loan to do. The paperwork was ridiculous and getting all of the inspections and certifications on top of the appraisal was just not worth it when the mortgage companies could do the one that was already in their product lineup instead of dealing with the FHA.
6. When the investors started bailing on them the FHA became a great option. Most mortgage companies could only do refinances up to 90% LTV (loan to value) or home purchases up to 95% LTV. The FHA allowed purchases up to 100% LTV and refinances up to 95%. This was short lives also when the FHA lowered it down to 97% purchase because with all of the values dropping around the country they did not want to hold onto mortgage notes that were higher than what the value of the house was in less than 6 months.
7. Now the mortgage company could not do their own loans and had a max up to 90% LTV. FHA was their only option with purchases and refinances. FHA loans comes with some weird guidelines. In most cases you could buy a home without a credit score as long as you could show some sort of documentation that you have paid a cable bill, rent, water bill, or other ford of payments. This was perfect for people who have never had a credit card or a car payment and was especially good for first time home buyers. The mortgage companies could either start doing FHA loans or go bankrupt. Tough decision huh?
8. All of the mortgage companies jumped on the bandwagon mainly because they had to. They could not qualify anybody on their own guidelines because pretty much everybody who owns a home has seen 20%-30% of the equity of their home go bye-bye. You know that hardly anybody ever saves up any money to put as a down payment on a house so the FHA 100% financing was their only option. After all of the major mortgage companies let a lot of their employees go they started training their mortgage bankers about the FHA loan. The employees started understanding how it worked and many mortgage companies started closing a lot of FHA loans to the point where it was now 50% of their business. Things looked like they were going to level out and the FHA was going to be the life saver it was meant to be.
9. Many mortgage companies thought they were doing well enough again to hire people so they started doing it. I even started getting a few phone calls and e-mails from a couple of resumes I have floating around the internet. Since I did use to work at a mortgage company in the past for a couple years it would look like on paper that I would love to go back to it. All of these mortgage companies (especially mortgage brokers) were telling me how much money they are making now with the FHA loan. This sounded like the same speech I heard when I started working for my previous employer. They kept telling me that I could be making $20k a month. Sounds pretty good, but there is one thing they were not telling me. The $20k is revenue, not profit (take home). After expenses it was more like $3700. The thing with mortgage bankers is that they do not make a lot of money, their Regional Vice-Presidents do. Sure, there are some mortgage bankers that made around $100k a year but most of them had been there for 3 years or longer and did not mind working 80 hours a week. If you broke it down to what they would make in a 40 hour work week it was more like $45k a year. Anyways, I enjoy more talking about mortgages and finances more than working for them anymore. I respectfully declined all offers because I knew this short burst of business was not going to last. And it didn’t. This short burst of new business from the FHA started around January 2008. The FHA October 2008 guidelines will be getting rid of down payment assistance. Down payment assistance is a joke to begin with. All it is is a way to get a business to lend you money to help you close on the house and the seller would have to take the profits out to pay for it in the closing costs. This is really a bad practice because it does not promote anybody taking an initiative in saving up any money to buy a house. The FHA realized this and recognized that what they were doing was enabling people to get into a house and instead of mortgage companies continuing the mortgage mess, it was them doing it. One of the other guidelines that will be changing with the FHA on October 1, 2008 is that everybody buying a home must put down 3.5% plus their closing costs. This eliminates a lot of people looking to buy homes right then and there. So what does this mean for all of these mortgage companies?
10. It means that there are going to be less home owners that can get help to refinance their home and less potential home buyers that can get a loan. A friend of mine that still works at a large mortgage company told me that a lot of the people are nervous for the month of October because at that point they are going to lose a lot of business due to the new guidelines implemented by the FHA. I was told by this person that around 90% of their new home purchases already use the old FHA guidelines and if the new ones were to get into effect tomorrow, 60% of that 90% could not qualify for a loan. With less business for mortgage companies to write, expect to have more mortgage companies, mortgage brokers, and banks go into bankruptcy. This means more job losses and more time that our country will spend in this mortgage debacle.