It is no secret that the Federal Housing Administration loan program has enjoyed a rebirth since the start of the credit crisis. Yet experts are saying the FHA Secure program is not where most of the volume is coming from.
Among those new players to the game is E-Loan, Pleasanton, Calif., whose president Mark Lefanowicz said, Unfortunately, we are seeing an unprecedented number of homeowners being forced to foreclose on their homes because they cannot afford their newly adjusted mortgage interest rates.
For many, the flexible guidelines and competitive rates of these FHA mortgage loans will mean the difference between losing their homes and being able to keep their piece of the American dream fully alive.
Charlotte, N.C.-based 1st Metropolitan Mortgage said it is moving to an increasing FHA-oriented origination strategy. These loans have gone from just 3% of production in March 2006 to 33% in March 2008.
For one originator, the FHA program is not a new business but a decision that its management made back in February 2006 to put more of an emphasis on.
Lend America, Melville, N.Y., and its chief business strategist, Michael Ashley, saw the business starting to change. He had been in the business for 20 years and based on his expertise, I saw the market changing and I realized there was no way things could continue to operate the way they were. Wall Street was hot and heavy but there was no way, I felt, they could price for the risk they were assuming.
So instead of playing in that oversaturated market, he saw an opportunity in a little loan program everybody forgot about called FHA.
Even though it was (and is) a full document program, with lower loan amounts, Lend America thought it was a better program than what was happening in subprime.
The first step was getting a phone number, 1-800-FHA-Fixed, followed by creating a centralized operating model, rather than having net branches or other brick-and-mortar offices.
The company is licensed in 34 states and will soon be in all 50.
The one part missing was how was it going to source business. The traditional way was to buy Internet leads and do telemarketing. But this form of marketing bumped up against the do-not-call list and other consumer regulations.
I wanted to do something totally different. I want to go on TV and do something in the infomercial space,
Mr. Ashley said, adding this form of marketing had not been targeted by other mortgage companies.
He created a 30-minute highly educational show that basically says dont go subprime, dont go with adjustables. Its bad news. Youre going to wake up one day and realize youve made a mistake. Go FHA 30- year fixed. After all, instead of taking a 2/28 at 7.5%, you can take a 6.5% 30- year fixed-rate loan. Its insured by the federal government, its safer.
Mr. Ashley has been preaching that message since February 2006. The original shows are on the companys website.
It wasnt as successful as he wished in the beginning but we found our niche on the different TV stations, figured out how to make it work and its been terrific.
When the whole subprime thing happened, we were sitting here saying, Hey, weve been telling you all along, just call 1-800-FHA-Fixed and get out of your subprime adjustable.
Since the beginning of the shift in model, the companys business has increased 500%. In the first quarter 2007, it did $151.8 million. For the same period in 2008, volume was up to $337 million. Approximately 90% of the companys total volume is FHA, and much of that is the traditional 203(B) program.
Lend America received 40,000 consumer calls in February alone just because of their educational programming.
It has gone as far to trademark the name The Authority on FHA Financing.
Mr. Ashley said, We were here before everybody else was trying to be here. Weve got a lot of experience with it, were good at it, pointing out a lot of recent industry hires have no experience with full document loans.
Approximately every 90 days, Lend America produces a new television show and buys airtime. Programs air not just on broadcast stations in New York, but on the nationwide Ion network as well. It is also on a number of cable networks.
Most of the programs run during the day from 7 a.m. through midafternoon. In the end it comes back to doing the best thing for the clients, Mr. Ashley said. If you do whats best for the clients, youll wind up with referrals down the road, you wind up better off, you wind up in business.
LeadPoint, an online lead exchange based in Los Angeles, is offering originators a lead product whose criteria uses even more conservative LTV standards than FHA demands. Consumers will have to be specific in their answers to questions like have you ever had a late mortgage payment? or have you ever filed for bankruptcy?
LeadPoint chief executive Marc Diana said this is the companys first FHA pecific product it has brought to the market. It does provide a better service to the consumer because by having them provide a little more information, they are able to complete a transaction and refi or get a loan, he said.
Because the consumers are providing the data, LeadPoint feels it is better to keep things a little tighter than what FHA allows for. As a result it gives a better product to the lending community.
Were asking a couple of key extra questions in there that are core to the FHA offering, he said, adding these questions, such as ones above, get to the heart of an FHA product that no other lead provider is doing.
A lot of companies pre-populate questions that consumers answer online in order to direct those consumers towards an FHA product they know lenders want to purchase. That is a disservice to both the lender and the consumer, Mr. Diana said. At the end, because the consumer is not answering honestly or given the proper opportunity to answer honestly, they are not going to be able to get a loan.
As a result the value chain only works for the aggregator. LeadPoint does not like to play those games, he declared. Well sacrifice revenue to make sure that everyone is winning.
LeadPoint has been seeing an increase in demand for FHA leads in the first quarter of this year and it is even escalating, Mr. Diana said. The stimulus package and temporary lifting of the FHA limits have helped this.
On the lenders side, With the changes in the regulations, there is a strong increase in terms of the appetite for the leads. In terms of consumers, there is little change from their end as they are more sensitive to an interest rate change and are not knowledgeable of what the FHA program entails, he said. As for the future of FHA, Mr. Diana said his crystal ball is hazy. There is still some pain in the mortgage industry to work through but subprime will eventually open back up and blunt some of the current demand for FHA.
Another company that has an FHA specific lead product is Data Warehouse, Boca Raton, Fla. It is targeting the borrowers whose loans were considered to be jumbo but because of the higher limits can refinance into an FHA product.
It has identified an incremental segment of homeowners who now are above the old cap but below the new cap, explained Ben Waldshan, founder of Data Warehouse and executive vice president of its parent company Tranzact, Fort Lee, N.J.
These homeowners really havent had many options at least over the last six to nine months as the jumbo market has thinned out quite a bit. With FHA raising its caps, many of these jumbo mortgage holders have options, he said, especially those who are subprime or alt-A who now qualify for FHA.
This new segment is 4.5 million mortgage holders nationwide. Because they have limited options, he continued, they are very receptive to hearing what their choices are.
The loan amounts are higher, so it makes financial sense for the lender to work with them. But Mr. Waldshan notes standards are tightening, too. The company is hearing from its clients that lenders are looking for 580 credit scores, where in the past FHA wasnt that score based.
When the government came out with the higher limits, it didnt exactly mention that it would come at the expense of tighter guidelines. He said these have been applied to the companys database, and that 4.5-million-mortgage holder size is what comes out.
Unlike the LeadPoint product, Data Warehouse does all the data and information mining. Weve multisourced mortgage dates, weve multisourced AVMs so we can help pinpoint loan-to-values on the properties, as well as some demographic and property characteristic data. Then, on top of it all, we bring in credit information to then help further qualify the consumers to build out a targeted data set that then can be mailed to or targeted directly, Mr. Waldshan said.
It goes to the county level (because FHA sets its caps by county) and then it can filter by mortgage amounts by LTV or score range or mortgage payment history to be able to help lenders reach out to the right segment that meets their underwriting criteria so that when they are reaching out and speaking with these consumers who fall within this opportunity segment, they will definitely be qualified for the mortgage, he said.
Until now the FHA customer had looked like the traditional subprime or alt-A customer. The new caps, he said, bring some prime borrowers into this category. Lenders need to remember the FHA process is different than the traditional prime process, but all-inall it is a very good opportunity for a consumer whose on a jumbo variable rate mortgage where they havent had options to convert into a fixed or even a new ARM program to look at FHA as an alternative.
(c) 2008 Broker Magazine and SourceMedia, Inc. All Rights Reserved. http://www.brokermagazine.com/ http://www.sourcemedia.com/
No comments:
Post a Comment