In the aftermath of the great recession, regulatory agencies were born bringing tough regulations and a scrutinizing eye. The Federal Housing Administration has been no exception.
In an effort to recover massive losses during the recession, the FHA has implemented, then later rolled back, efforts to replenish the mutual mortgage insurance fund. Most recently, they are going after lenders who were involved in originating questionable, if not, bad loans.
With federal agencies taking action against several large lenders, many banks are pricing FHA loans to absorb the costs associated with the hundreds of layers of federal, state and local regulatory requirements.
One of the many banks on the FHA’s radar was Chase – the country’s second largest lender. Just last year, Chase was forced to pay a fine to the FHA and VA in a settlement with the Department of Justice.
In an interview with CNBC, Kevin Watters, CEO of Mortgage Banking for Chase, said “[…] you're trying to make sure you abide by all these different rules, and it just gets very complicated, very expensive, so for us in FHA, we've priced FHA for the risk we see in FHA, and so we've got a higher price than other people so customers are going to other places."For many of the country’s larger banks, FHA is seen as risky lending which translates into greater exposure.
According to an article in the Wall Street Journal, “The government is trying to coax banks back to making mortgage loans to risky borrowers, after a string of expensive disputes over a federal loan program led some banks to conclude it wasn’t worth the headaches.”
The consequence of larger lenders leaving the FHA arena has been a greater market share for smaller independent mortgage lenders. For these lenders, if working well within the limits of the law with transparency and agility, much of the risk can be mitigated.
The truth of the matter is, FHA is a great option for millions of first time home buyers and move-up buyers. It offers flexible lending guidelines and competitive rates while investing in real estate – it doesn’t get much better.
An unintended consequence of large banks moving away from FHA lending are those originators who are left with no outlet for their business.
These producers will be priced out of the market by independent mortgage lenders while watching their book of business, referrals and income disappear. While many originators choose to focus on conventional lending, FHA lending is just as lucrative and, when educated on the guidelines, can be just as easily processed.
These might be turbulent times for larger banks, but this is just the type of environment in which Guaranteed Rate can easily maneuver. I intentionally built the company with the ability to remain agile and transparent. We’ve grown to be quite large, but can quickly change gears in response to industry shifts. This puts us in a very unique position to gain more FHA market share and recruit some of the industry’s top talent.