Local lenders say utilization of Federal Housing Agency (FHA) and other government loans is up, dramatically, from levels last year. Industry sources report to The City Paper that local origination of FHA loans is currently as much as two to five times higher than numbers from this time last year.
“Government lending has become viable again,” said Chris Tabscott, president and CEO of Nashville-based Titan Home Loans.
The increase is, in part, a natural market response to decreased lending options stemming from nationwide housing market tribulations. But some in the industry believe the magnitude of the increase may also indicate that a large number of consumers who could have qualified for government loans before the crash were, instead, directed to subprime and other mortgage options that are now no longer available.
Considering the long-term benefits to consumers of government loans — especially when compared to sub-prime options — FHA loan origination increases are considered by some to be an indication of flaws in the industry prior to the market changes.
Phillip Fenton, a senior loan originator with Freeman Webb Mortgage Company who has been a certified broker of FHA loans since 1989, said he expects to complete about twice as many FHA transactions this year as last. It’s likely, he said, that last year’s smaller number indicates that some FHA-qualified buyers chose sub-prime options instead of government programs.
“That’s sad. That’s really sad,” Fenton said.
The problem may not have been entirely the fault of lenders, Fenton said, as some buyers elected to utilize sub-prime mortgages even with all aspects of the contract disclosed. But nationwide, about 22 percent of mortgage brokers are now out of the business, and many in that group may have been the brokers responsible for diverting FHA-eligible consumers to riskier mortgages.
“It’s just like anything else. There are good ones and bad ones,” Fenton said. “Most of your major lenders in town, the ones who are still in business… they’re going to be very conscientious about informing the lenders of what’s going on.”
Fenton describes FHA loans as “user friendly.” The loans allow sources of down payment and closing costs to be “gifted” by relatives and employers. Credit scores are not a factor in interest rates.
Though eligibility for the programs is best determined by a certified FHA lender, Fenton said, almost any committed consumer can take steps over the course of one year to qualify for a loan.
“The answer is never ‘no.’ It’s either ‘yes’ now, or ‘yes’ [later],” Fenton said. “I can tell, usually within 5 minutes, if it’s going to work or not work.”
Another advantage of FHA loans is that underwriting is manual, Tabscott said — meaning that lenders can look at the “merits” of a buyer, rather than just a credit score, in making an argument for approval to a lender.