Today’s post is from Joshua Freedman, a full time mortgage broker. He owns and operates in Pittsburgh, PA and specializes in commercial and residential loans. (By the way, I edit the posts a little bit…)
Over and over politicians have told us that they want to do what they can to mitigate the effects of the Foreclosure Crisis, but I haven’t seen anything other than bailouts and pleas.
has a clause in it that rids the Federal Housing Administration (FHA) qualification that requires brokers to have liquid assets, $60,000 in the bank, to get approved to do FHA loans. It replaces the liquid asset requirement with a $100k surety bond, which is a bond that a third party gaurantees that they will pay up to $100k to the federal government on demand if the broker does not live up to his/her commitments, aka fraud or regulatory fine).
This will allow more brokers to originate FHA loans for borrowers that have sub par credit and anytime you have more loans that translates to more borrowers and less of a seller market. Also keep in mind that, brokers will not be underwriting the files as the lenders will. The subprime crisis will be tapered as it will allow more origination options for homeowners to save their homes and will allow more buyers to buy homes. This is a simple fix to the problem, but it is getting jammed up.
The argument against is that allowing brokers to do FHA loans without liquid assetts and replacing it with the surety bond releases the broker from liability and you will have a bunch of fraudulent loans flying around. This just isn’t true. Every broker is still licensed by his or her respective state and does countless hours of continuing education for every state that they are licensed in. The reality is, most fraud is conducted by employees of brokers and not the broker and you are going to have fraud in any situation where there is lax supervision. A lack of liquidity doesn’t enter into the equation.