BREA, Calif., May 31, 2018 /PRNewswire/ -- Bloomberg published an article last week presenting a Branch Manager—who is a valuable member of his community, the mortgage lending industry, and American Financial Network, Inc. (AFN; NMLS #237341)—as "Getting Rich on Government-Backed Mortgages."
The article contained some unpleasant remarks toward our Team AFN Branch Manager—Angelo Christian, the Federal Housing Authority/U.S. Department of Housing and Urban Development (FHA/HUD), lower income borrowers who want and deserve a fair opportunity to participate in the pride and joy of homeownership, others in the industry who facilitate FHA lending, and AFN.
In the article, FHA lending is characterized as "hard selling meets hard luck." In reality, FHA lending—as with all mortgage lending—comes with scrutiny of seasoned and professional underwriters, strict guidelines, and agency/federal/state regulations. Inaccurate parallels were drawn between FHA lending, which is sometimes paired with Down Payment Assistance (DPA) programs, and the type of Subprime lending that veritably crashed the mortgage lending industry in 2007. This is an unfortunate and sorely misinformed comparison.
The truth: due to the strong economy, lowest delinquencies since 2006, decreasing compare ratios (outside of the hurricane hit areas), job creation equal to the low unemployment, standard product line saturation (approximately 99% is Conventional/FHA/VA), and limited Non-QM and Subprime products—which have a legitimate place in the mortgage lending arena—government-backed mortgages maintain a proven track record with continued low delinquencies in the current lending environment. In fact, all mortgage delinquencies declined even further in the first quarter of 2018. Ginnie Mae, an entity that helps make homeownership a reality for millions of low to moderate income families across America by providing funds so lenders like AFN can offer FHA, USDA, and VA loans, has never needed a bailout from the federal government and does not itself buy or sell loans or issue mortgage-backed securities (MBS).
We at AFN realize that those in the industry know the truth about FHA lending and nonbank lenders. For the sake of current and future borrowers, however, we want to correct the record and offer accurate information for those who may be considering achieving homeownership by qualifying for a FHA loan.
Commission: All mortgage loans come at a price. The lender receives a premium for taking the risk of loaning such a large sum of money. There are regulations in place preventing FHA lenders from charging excessive fees to borrowers, so rest assured all fees are legitimate and are not usurious.
Credit Score: All borrowers' credit histories, credit scores, and ability to repay are scrutinized by all mortgage lenders. AFN funds FHA loans with credit scores of 500 and above, with credit scores below 580 requiring management approval. Some of the FHA products offered require credit scores of 600 or higher. It is true that borrowers with higher credit scores receive lower interest rates on all loan types, and a lower interest rate translates to a lower monthly payment amount, therefore it is in the borrower's best interest to take steps to improve his/her score. Neither AFN nor its Branch employees, however, are able to be "lenient" when it comes to a credit score requirement.
Bankruptcy: For FHA lending, a bankruptcy must have been discharged for at least 24 months; and loans greater than $424,100 may not have a bankruptcy or foreclosure within the last 7 years.
Debt-to-Income Ratio: While we cannot relay exact details of the loan to the borrower named in the article, there are guidelines for the percentage of housing expense and percentage of total obligations compared to borrower income, and this is referred to as Debt-to-Income Ratio or DTI. DTI requirements for FHA vary from 43% to 55%, depending on other details of the loan.
Qualifying: While AFN believes in Financing the American Dream and wants to help as many qualified borrowers as we can to become homeowners, FHA borrowers need more than a pulse to qualify. As discussed, there are guidelines for a borrower's credit score, credit history, and DTI. Additionally, the property must meet stringent FHA guidelines and be owner-occupied.
First-time Homebuyers: AFN agrees with the following paragraph from the article: "For first-time purchasers, many nonbank lenders rely on the government's affordable financing, backed by the Department of Veterans Affairs, the Department of Agriculture, and, most of all, the Federal Housing Administration. Lending under these programs differs in some important ways from the subprime mortgages of the aughts. Unlike the usurious loans of the past, federally backed mortgages can charge low rates—often less than 5 percent—and require documentation of jobs and income. Jonathan Gwin, American Financial Network's chief operating officer, says delinquencies are low for these kinds of loans. And overall, it's still difficult for many people to get a mortgage. (Only 3.5 percent of new loans are to people with credit scores below 620, compared with 15 percent in 2007.)"
Down Payment: FHA requires a minimum down payment of 3.5% of the purchase price of the home. There are indeed Down Payment Assistance (DPA) programs that will pay some or all of the down payment on behalf of the borrower. AFN believes there should be no negative connotation in a homebuyer using a DPA program to help them purchase a home. Like FHA loans, these programs have strict guidelines for qualification.
The recent article paints a very bleak picture of lenders offering U.S. government backed loans through FHA (and also USDA and VA) programs; however, the truth is FHA loans are helping people realize their dreams of homeownership, and have been since 1934. As a FHA approved lender that has received much recognition over the last several years for positive achievements, AFN is also helping first-time homebuyers and others get into a home, possibly refinance to a lower rate or better product, or even buy an owner-occupied income property of up to 4 Units.
The article suggests that "bankers make millions peddling mortgages to the poor." As previously stated, commissions are indeed made, and there are guidelines and regulations that cannot be waived or ignored when approving borrowers for FHA, USDA or VA financing. FHA loans are made to teachers, police officers, firefighters, first-time homebuyers, young families, empty nesters, and so many others who make real contributions to our society as a whole. Life happens, and sometimes people run into financial difficulty and/or get a blemish on their credit record. That doesn't mean they should not have an opportunity at homeownership. VA loans are made to our country's veterans and active duty service members; the best our country has to offer. No upstanding lender, which certainly includes AFN, would peddle any mortgage to an unqualified borrower.
About American Financial Network, Inc.
As one of top 50 mortgage bankers in the United States, AFN opened its doors in 2001 under the leadership of John Sherman and Jack Sherman, and has since expanded into many community-based branches across the nation. Headquartered in Brea, California, American Financial Network, Inc. built its reputation as an outstanding mortgage banking firm by serving the lending needs of real estate professionals, builders, and individual homebuyers throughout the United States. AFN is a Direct Lender with delegated authority to underwrite, fund and service Fannie Mae, Freddie Mac, Ginnie Mae-FHA, USDA, VA, and Jumbo loans products in-house. Our success and expansion is built on core values including streamlined and efficient operations that optimize organizational output as well as an approach to customer service founded on exceeding expectations. If interested in joining our team, please contact Jonathan Gwin, COO ([email protected]). For media contacts, please contact [email protected].