JPMorgan Chase may be the second largest mortgage lender in the country, but when it comes to government-backed Federal Housing Administration low-down payments, it doesn’t even make the top 100. Onerous costs and the constant threat of litigation have all but the schemes of these loans, which were originally designed to help first-time homebuyers with lower credit scores and less money, have been stalled.
“The FHA requirements are reduced to a FICO (credit score) of 520 and you only have to deposit 3.5%; these are subprime loans, and we are not in the subprime business, ”said Kevin Watters, CEO of Chase Mortgage Banking.
Chase Mortgage hasn’t completely stopped giving FHA loans, but its FICO requirements are much higher and its loans are more expensive to factor in the added risk.
“It’s not just the CFPB rules or Fannie and Freddie or the Treasury rules or Ginnie Mae, who is the duty officer for the FHA – you also have 584 different state and local rules. to make sure you follow all these different rules, and it gets very complicated, very expensive, so for us in FHA, we priced the FHA for the risk that we see in the FHA, and therefore we have a higher price than the rest, so customers go elsewhere, ”Watters said.
Independent lenders have taken over from the FHA to the big banks, but with that comes an added risk that Ginnie Mae is ill-equipped for, according to Ginnie Mae’s own chairman Ted Tozer.
“Today, almost two-thirds of the securities guaranteed by Ginnie Mae are issued by independent mortgage banks. And independent mortgage bankers use some of the most sophisticated financial engineering the industry has ever seen,” Tozer said in a speech delivered Monday in Arlington, Virginia. “We’re also seeing more reliance on lines of credit, securitization involving multiple players, and more frequent trading of management rights – all of these things have created a new and difficult environment for Ginnie Mae.
Frankly, as we look to the future, I don’t think we have a big enough engine to handle the steep slope ahead of us. In other words, the risk is much higher and the business models of our issuers are much more complex. Add significantly higher annual volumes, and those risks are magnified many times over. “
Ginnie Mae has called for a $ 5 million budget increase, but so far Congress has denied it. Combined with the fact that some of these independent lenders are very small, this only increases the risk.
“So you have people who aren’t as highly regulated, who aren’t as well capitalized, and I’m sure a lot of them are doing a great job, but there are a lot of new ones, and I think that it would be safe to go and see them, ”Watters added.
Chase isn’t the only bank to pull out of the FHA. The nation’s largest mortgage lender, Wells Fargo, has also raised minimum FICO scores for its FHA borrowers. Realtors say large banks’ withdrawal from this low down payment option is hurting housing recovery, especially
“I think it will have a measurable impact in curbing some of the early adopters,” said Lawrence Yun, chief economist for the National Association of Realtors. “Therefore, I think from a government policy point of view, they need to look very broadly at any mistake that the lender has made or break the law and deal with it, but any uncertain litigation that arises from right and left [field], this will slow down the market recovery. “
Home sales fell in August, much more than expected. First-time buyers still represent less than a third of the market. Historically, they normally represent over 40 percent of home buyers.