Interesting insight on defaults of downpayment assistance program loans from the recent FHA training

I attended an FHA training this week sponsored by the Washington Mortgage Lenders Association. There were about 100 people in the training. A large percentage of the audience was not from the greater Seattle area. People had come from as far away as eastern Washington, Idaho, Montana, Oregon, California, New Mexico, and even Guam. Most of the attendees were processors and underwriters. Many of the underwriters had experience underwriting conventional and subprime loans but no experience underwriting FHA. What I found interesting is that there were very few loan originators in the room. Maybe if they had offered continuing ed credit, they would have had a larger turnout.

Interesting insight: An FHA representative said that if there was one thing that could “bring down” the titanic (referring to the titanic that is, of course, FHA) it is the downpayment assistance programs. The FHA representative made no apologies for his absolute disdain of those programs, none of which were mentioned by name, and gave no statistical analysis of default statistics to back up his concerns, just that “defaults are dismal” under these programs. This would be an interesting area for further research.

There was no mention of the recent scathing HUD audit of local broker A Plus Mortgage.

2 thoughts on “Interesting insight on defaults of downpayment assistance program loans from the recent FHA training”

  1. There was a study contracted out by HUD some time ago that most HUD spokesmen refer to when stating this opinion – which is also the official opinion of HUD. Unfortunately, when reading the study in detail one of the first elements that stuck out to me was that the areas picked for the study also either were at the time, or later became, some of the top areas for mortgage fraud in the country.

    This element was never addressed in the study. Unfortunately, I have seen that much of the organized crime level fraud – where groups go through whole subdivisions at a time with straw buyers and inflated appraisals – seems to also be focused in on FHA loans with down payment assistance for obvious reasons. I think that this fact skews the statistics that HUD used for the study and even today’s current stats. If you can’t separate out the fraud, you don’t really have a clear picture of how the honest loans with down payment assistance performed.

    My personal opinion is that far too much attention is focused on areas of the mortgage business that make little difference, while for some reason everyone seems to have been ignoring very obvious methods of avoiding fraud. Just one simple example is the fact that we still ask borrower’s for copies of their W2s when that information is now quickly available directly from the IRS with no chance of receiving something the borrower, seller, real estate agent, or loan officer created on their computer. Fraud is the real monster in the closet threatening the whole financial system.

    The good news is that, in spite of all that, the recent MBA statistics show that FHA defaults are still going down in spite of the increasing popularity of FHA loans.

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