Friday, September 4th, 2009 at 11:43 AM
FHA Discrimination
Listing agents are getting increasingly more cocky about how they conduct their business. They can’t justify the refusal of FHA offers, but they do it anyway. In the end, while they feel quite righteous about it, they are actually damaging the seller.
A story written by Kate Berry:
Despite years of efforts by the Federal Housing Administration to cut back on red tape, a bias remains against borrowers using FHA financing.
Thousands of properties listed for sale on various Multiple Listing Services around the country say simply: “No FHA” under the description of acceptable financing, lenders and mortgage brokers say.
Some attribute the restrictions to outmoded perceptions about FHA, which in 2005 eliminated some of its strictest requirements on property repairs, home inspections and appraisals. Others say lenders are excluding FHA borrowers from buying short sale or real estate-owned properties because higher default rates on distressed properties could land them on FHA’s Credit Watch list.
“This is the worst-kept secret in real estate, that the MLS is full of listings that say ‘no FHA,’ ” said Scott Stern, the chief executive officer of Lenders One, a cooperative of mortgage banks in St. Louis.
Rodney Anderson, the executive director and managing partner of Rodney Anderson Lending Services, a unit of the Dallas lender Everett Financial, called the practice “buyer discrimination” and said that it is based on old ideas about the government program.
“There’s still a stigma from the old days when FHA required more repairs on properties,” Anderson said. “But now FHA works just like conventional loans, and there is a real lack of education out there.”
Steve Majerus, the director of retail lending at CMG Mortgage Inc., a San Ramon, Calif., lender, said there are “perceptions that FHA has roadblocks to the entire process.” The real roadblock, he said, is sellers who won’t accept FHA loans.
Mortgage brokers and lenders said the problem is most prevalent among sellers of homes that require significant repairs because many realty brokers think FHA borrowers will not have the money to cover these costs.
Raffi Tal, the chief operating officer at IShortSale Inc. in Woodland Hills, Calif., said many lenders are also refusing to accept FHA financing for short sales and REOs.
“When a property goes to REO, the lender is really discounting the price, and if the buyer has an FHA loan, it takes longer, so that’s why they’re discriminating,” he said. “The guidelines on FHA are tougher, and if they get multiple offers they don’t need FHA.”
Majerus said persuading sellers and their listing agents to accept FHA buyers is important because the housing crisis has catapulted FHA into the mainstream. In June mortgages backed by the FHA accounted for 35.9% of all applications, the biggest share since 1990, according to the Mortgage Bankers Association.
FHA mortgages currently are half of all new loans for home purchases, up from 10% in early 2008, according to analysts at Bank of America Corp.
Lemar Wooley, a spokesman for FHA, said the agency has not gotten any complaints from borrowers and was unaware that MLS listings forbid FHA financing.
But Brian Montgomery, a former FHA commissioner, said that during Montgomery’s tenure (mid-2005 to mid-2009) FHA reformed its appraisal requirements, shifting from an emphasis on minor repairs to those that endanger the health and safety of a home’s occupants.
Lenders also are concerned about the ability to close a loan, he said, since housing prices are still falling in many markets.
“If there’s something that comes back at the 11th hour and the borrower can’t use FHA, then the seller is left holding the bag,” Montgomery said.
Angelo Rhea, a first vice president of FHA underwriting at $16.4 billion-asset Flagstar Bank in Troy, Mich., said realty brokers may be randomly adding “no FHA” to MLS listings because they have not kept up with changes made by the agency in recent years.
“Many Realtors think it takes 60 days to close a loan and that the seller has to pay extra costs, which isn’t the case,” Rhea said. “If anything, it’s harming the seller not to allow FHA financing.”
The perception that FHA borrowers have lower incomes and credit scores persists even though the average FICO score on FHA loans has risen from 626 to 692 in the last year, said Brian Chappelle, a former FHA official and a partner in Potomac Partners LLC, a mortgage banking consulting firm.
“If you’re loaded up with REO properties and they’re putting ‘no FHA’ loans on the listing requirements, it’s because they’re concerned about the audit risk,” Chappelle said.
Lenders may be at risk of being placed on the FHA’s Credit Watch program if they have high default rates in certain areas such as California, Arizona, Nevada and Florida. The lender “would be worried about their liability and their FHA performance,” Chappelle said.
Kris Berg is having similar trouble:
http://sandiegohomeblog.com/2009/09/03/fha-no-no/
Posted on Friday, September 4th, 2009 at 11:43 AM in Listing Agent Practices, Thinking of Buying?, Thinking of Selling? | 26 Comments » | 
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I think I can sum up this article in one sentence.
Attention realtors accept FHA offers!
Annoying Annoying Annoying. How long before the FHA trough is empty and they’re begging for my tax dollars via bailout $$$ to stay running.
shadash | September 4th, 2009 at 11:55 amHeaven forbid a seller desires a qualified buyer.
The Blur | September 4th, 2009 at 12:28 pmPer the article, 35.9% of mortgage applicants are FHA, but make up 50% of purchases. I would say that there’s no evidence that FHA loans aren’t being widely accepted.
Byrk | September 4th, 2009 at 12:28 pmI’m with you Byrk, but in competitive situations, like we have all over SD, the sellers/listing agents have gotten greedy.
More on the antics being employed by bank-sellers and their listing agents (beyond the normal “as-is” and must prequal with their lender):
1. No appraisal contingency.
2. Seven days for inspections.
3. $250/day for each day you are late closing.
4. Counter-offering the highest-and-best offer.
5. No repairs, no termite
6. Listing agents having their own disclosure kits that regurgitates all the same boilerplate on every other disclosure in place.
7. Listing agents require the buyer’s agents to upload the offer on LA’s website.
8. Terrible or no photos/remarks.
9. Communicate by email only.
10. Cross county lines and still be cocky.
Or how about the short-sale listing agents now demanding that the buyer pay for processing the short sale – we came across one that charged the buyer $2,500 for services that the listing agent should handle as part of their regular duty to close the sale.
And somebody tell these agents that Halloween is a way off – see last pic: http://www.sdlookup.com/Pictures-090014183
Jim the Realtor | September 4th, 2009 at 12:37 pmWhat are the-powers-that-be doing?
Nothing, but Sandicor has announced that we now have a reciprocal agreement with Hemet’s MLS!
Jim the Realtor | September 4th, 2009 at 12:56 pmFHA: the next bailout
http://online.wsj.com/article/SB125202440174685297.html
arizonadude | September 4th, 2009 at 1:51 pmAs you noted, FHA takes longer and is costlier. Certain houses simply wouldn’t qualify for FHA loan without repairs for which the money does not exist. In those cases, it’s similar to demanding a price drop from a seller with no equity. Bottom line, if a median priced property is vacant an FHA offer is worth at least $3K less if not more. To be fair, so is an offer contingent on the seller selling!
sdbri | September 4th, 2009 at 1:57 pmIn the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.
Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
Jim the Realtor | September 4th, 2009 at 2:03 pmLike the FDIC, FHA can set whatever premiums they like. Which hopefully it will be taking advantage of in short order.
From arizona’s article:
‘A senior official at HUD, which oversees the FHA, said there is “no risk” that the FHA would require money from Congress if the ratio falls below 2%.’
That’s because they can charge whatever they want. If you are hoping for FHA to fail, you’re not being cynical enough.
sdbri | September 4th, 2009 at 2:05 pmMany of the No FHA’s I’ve seen are the result of FHA not financing properties in a poorly run HOA.
Mike C | September 4th, 2009 at 2:46 pmFrom the banks perspective regarding FHA offers its usually much more cost effective and quicker to accept the cash offers.
I will give you a typical Vegas Bank Owned home example:
decent 1600 sq ft listed at 120K.
We get 20 offers on it.Do a highest and best offer. 6 offers are cash and the rest fha/va.
Highest cash offer 130k . Highest FHA 145k.
what would you do?
well if the bank takes the fha offer here is what typically happens:
-long closing with a 65% closing percentage
-wont appraise at sale value.
-needs some repairs before closing.
If bank takes the cash deal- its easy, painless and closes in 20 days. no worries about repairs , appraisal etc.
I have had so many deals where the bank took the FHA deal – it took over 2 months to close-and the final price had to be lowered due to low appraisal TO A PRICE THAT WAS ACTUALLY LESS THAN THE HIGHEST CASH OFFER. This happens daily.
now with that being said , I wrote a informative piece on:
HOW TO GET YOUR FHA OFFER ACCEPTED
http://vegasbubble.com/2009/08/28/how-to-get-your-fha-offer-accepted/
vegas nrba | September 4th, 2009 at 2:50 pmJim,
You wrote “More on the antics being employed by bank-sellers and their listing agents”
I think, these “antics” are basically saying we want true “As Is” Cash buyers. I don’t see a problem. These sales will help make homes more affordable when they in turn become comps.
BSR | September 4th, 2009 at 3:55 pmLOL, Halloween!!
chrisL | September 4th, 2009 at 4:39 pmIt’s a misconception that FHA takes longer than conventional financing because of loan officers that have no clue how to get an FHA deal done. Most loan officers that have been in the business for under 10 years have just started doing FHA loans in the past year and most still think it is some sort of subprime program. On FHA the lender can still order the appraisal so from order to complete report we are seeing them back in 3-4 days. On conventional deals right now appraisals are taking 8-14 days because of the appraisal management company freak show. For some reason a lot of agents think that a bank owned property cannot be FHA financed because of the 90 day flip rule but that dosent apply to bank owned and foreclosed, only private party transfers. They also do not require clear termite unless it is in the purchase contract.
Joe Feinhandler | September 4th, 2009 at 5:24 pmThanks for that item, Jim.
As someone who will be going the FHA route, it’s disappointing to encounter the sneering & contempt that some people have for people like me. I am not the bottom-feeder that you might think (and my FICO is AWESOME!)
I’ve encountered many listings that state “no FHA.” I’ve found that most realtors simply don’t know the current rules for FHA and even fewer know about the 203k rehab loan. One house that I’m interested in is asking the buyer to pay for the seller’s costs. That one is a short sale.
For those who “demand” 20% down, consider this: 10 years ago, when I was 35, I was talked out of buying a home because I didn’t have 20% down. My goal then, as now, is to have a home paid off by the time I retire. Today, instead of being 1/3 of the way through a mortgage commitment, I have 20% down in cash…..for 1999 prices. (I refuse to liquidate 401k $) My rent has increased by 110% and the payment for the house in 1999, would have been less than my rent now. Why should I be less deserving of retirement stability than anyone else?
P.S The Halloween comment was so true!
Charlene | September 4th, 2009 at 6:27 pmIn a world where the government is trying everything and anything to push people into homes, it’s nice to hear there’s some countervailing forces. If this sentiment were more widespread the FHA might actually have a chance at survival.
On second thought… nah, it’s still toast.
tj and the bear | September 4th, 2009 at 7:21 pmI have a credit score of 800, make good income working for a top engineering company, and have lost out on numerous properties since March, which I realize now was likely due to my FHA financing. No one can tell my the contract submitted that I am a mature, responsible female with a steady job and excellent credit, as well as a previous home owner.
After reading the article and the posts, I’m feeling much better about my decision to throw in the towel and rent for another year to save for a 20% downpayment so I am not discriminated against with FHA financing.
PJ Cannon | September 4th, 2009 at 10:33 pmFor the flipper-seller, an FHA loan is a non-starter since title needs 90 day seasonsing. Most flippers want to get in and out ASAP so waiting 90 days to change title again is avoided.
DKO | September 5th, 2009 at 12:14 amAs DKO says 90 day seasoning is a barrier for any 3rd party sale on the courthouse steps (or any change of title).
MPR (minimum property requirements) are also an issue. If you don’t meet them, no FHA.
Most of the “NO FHA” comments I see are because of one of these 2 issues.
Effective Demand | September 5th, 2009 at 1:55 am[...] lending rules and they are concerned that they can actually close the deal and become homeowners. Prejudice against buyers with FHA loan approvals is also a growing concern. Overcoming these market realities is simply a matter of [...]
First-Time Buyer FHA Loans in California | Sacramento Home loan Articles | September 5th, 2009 at 2:00 amFHA is a huge scam to give speculators free put options at the expense of taxpayers. It’s going to end badly.
As long as they’re handing them out, I want my free put option. F the taxpayers.
http://wcvarones.blogspot.com/2009/09/fha-subprime-lending-about-to-blow-up.html
W.C. Varones | September 5th, 2009 at 10:39 amHi,
Can a mortgage commitment contingency EXCLUDE FHA laons? My deal on fell through after the bank realized the condo association had an FHA outstanding already and owed more than $10K in fees. Now the seller is REFUSING to refund the downpayment saying it does not apply to the type of mortgage I applied for.
K from NYC.
Karina | December 3rd, 2009 at 9:32 amIts another way that banks and realtors can discriminate under the table. I really think this should be called the new “red lining” of the new 21st century.
Alex | February 1st, 2010 at 2:01 pmAttention State Attorneys, easy pickens if it wasn’t for the bank and lender lobbists.
This is such a disservice to FHA buyers. I am in the market for a new home, never one late in 8 years of credit history. My FICO is great but I have listing agents brushing me off b/c I insist on FHA. Is there a remedy for this? Against the law? Could I sue the listing agent for discrimination or breach of fiduciary duty?
Josh | March 9th, 2010 at 6:42 pm[...] didn’t get the house. A buyer with a substantial down payment won. We were used by a bunch of FHA-hating-house-flipping-turds for leverage. The deal was shady from the get-go — it truly wasn’t [...]
In a Western Place - the drawing board | March 30th, 2010 at 11:16 pmI am in the FHA bucket too – I’m doing something about it – we all need to do something about it. I’ve complained to HUD – they say I have to resolve this through the state – but they are investigating our claim since they have received so many complaints about this in So Cal. Someone posted that they are giving up and renting – why do that? Man or woman up and do what is right – fight discrimination wherever it exists. I have decided to stay and fight! Potential buyers need to unite against thug realtors and investors who are dominating the scene and benefitting from other people’s hard luck. My money is as green as anyone elses.
cml | June 9th, 2010 at 8:16 am