Mortgage Lenders Moving Toward FHA Loans
When the subprime lending crash hit a few months ago, mortgage lenders realized that changes needed to be made in the way they approved loans and went about selling loan products. Fallout from the subprime lending crash is still affecting the mortgage industry, as lenders including Wells Fargo and others announce cutbacks and earnings problems.
Now, with the era of really easy credit coming to a close (at least for the time being), mortgage lenders are looking to re-educate themselves on a somewhat forgotten program. CNN Money reports on mortgage lenders’ new interest in FHA loans:
Now with the subprime market eviscerated, loan officers will be steering more borrowers with weak credit to loans insured by the Federal Housing Administration and advising those with little savings to get private mortgage insurance in cases where they can’t put down 20 percent.
The FHA program is intended for home buyers and homeowners with weak credit. Borrowers with FHA-insured loans - which they get from private lenders as they would any other mortgage - pay a small premium to the FHA every month.
The FHA, in turn, uses those premiums to cover the lender in the event of foreclosure and requires lenders to pursue viable ways to help borrowers avoid foreclosure if they become delinquent.
Subprime loans turned out to be a bad idea. These loans often eschewed private mortgage insurance, leaving homeowners and lenders alike very few options beyond foreclosure. And many people who maybe should not have received home loans were suddenly struggling to make payments that were beyond them.
This mortgage trend is a move back to the basics of responsible lending practices, with an emphasis on FHA loans, encouraging home ownership on terms that home owners are more likely to meet without as many problems. It may mean fewer loans, but the loans that are made are likely to result in solid returns through repayment.
Tags: FHA loans, mortgage lenders, home mortgage loan, fallout subprime lending,
mortgage loan blog, mortgage industry, mortgage news
October 31st, 2007 at 12:04 pm
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