There are faster learners, average learners, and then there are slow learners. When it comes to mortgage lending local & regional banks are the fast learners, Fannie-Mae & Freddie-Mac are the average learners and FHA bless their heart they can barely stumble across the mortgage finish line.
Here is what I mean above, when the mortgage melt-down happened just last decade local & regional banks were the first to tighten their mortgage underwriting guidelines. They have to act fast because most of them are closely held and when they see mortgage defaults hurting their profits they react quickly. Why? It’s their money they are lending for mortgage transactions. When it’s your “skin in the game” you tend to make better decisions and make those decisions very quickly. So the local and regional banks were the first to make their mortgage underwriting guidelines more stringent.
Next to move toward a more secure mortgage underwriting environment were the mortgage giants Fannie-Mae and Freddie-Mac who at the time were publicly held companies. Thus, since they had shareholders in which to answer they upped their mortgage underwriting guidelines. Albeit too late as the government after the mortgage meltdown took over these two behemoths of the mortgage industry.
Finally you have FHA who issues government insured mortgages. Since they are neither privately or publicly held and funded with taxpayer money they have been the slowest to react to the need for more stringent mortgage underwriting guidelines to lessen the chance of future defaults on each mortgage they issue.
Need proof of how slowly this governmnet agency moves – just read the story in Bloomberg news where the United States taxpayers and for the most part that is you and I are going to have to now bailout FHA due to the non-performing or delinquent mortgage problem that has arisen from their slow reaction to raising their mortgage guidelines.
Here is what one economist in the article had to say about their issues:
“The FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency’s finances. “They must believe there will be very few readers in Congress able to critically review such a complex report.”
To help combat further mortgage default and future foreclosure issues from borrowers FHA is requiring that all disputed accounts on a credit card be paid in full or payment arrangements be made prior to closing on the mortgage.
FHA found out albeit much more slowly that some consumers use the trick of “disputing” deliquent accounts to temporarily improve their credit scores so they appear to be a better mortgage applicant than is their true credit/financial situation.
As the saying goes for FHA and their mortgage underwriting guideline improvements, “Better Late Than Never”.