FHA loans draw comparison to sub-prime

by Justin da Rosa23 Sep 2015
Loans that were originally intended to help first-time buyers more easily access mortgages are being compared to the very loans that contributed to the housing bust.

"FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down,” Kevin Watters, CEO of Chase Mortgage Banking told CNBC. “That's subprime lending, and we're not in the subprime lending business."

Though Chase, and other big banks, still provides these loans, smaller originators have picked up much of that slack.

And Watters is calling on more oversight for smaller lenders offering FHA-backed loans.

"So you've got [originators] that aren't as highly regulated, that aren't as well capitalized, and I'm sure many of them do a great job, but there's a lot of new ones out there, and I think it would be prudent to go check on them," Watters said.

JPMorgan Chase is one of the country’s largest mortgage lenders, but – like many big banks – it has shied away from FHA loans.

For those loans, the bank requires stricter lending parameters.

"It's not just the CFPB or Fannie and Freddie's rules or Treasury's rule's or Ginnie Mae, who's the servicer for FHA—you've got 584 different state and local rules too,” Watters said. “So you're trying to make sure you abide by all these different rules, and it just gets very complicated, very expensive, so for us in FHA, we've priced FHA for the risk we see in FHA, and so we've got a higher price than other people so customers are going to other places."

COMMENTS

  • by Michael | 9/23/2015 11:41:29 AM

    So, Chase can't be competitive and their answer is to whine about smaller lenders who are kicking their butt. And he admits that they are up-pricing the mortgages which means Chase is punishing borrowers who are not as qualified on a program that is GUARANTEED by the Federal Government. The bottom line is they want to keep ripping people off and when smaller lenders are more competitive and better serve American homebuyers, Chase disparages them and tries to convince us that they are somehow superior. Shame on them.

    Why don't you mention the settlement with FHA last year where you got caught screwing up FHA mortgages? Guess your superior knowledge of regulations didn't help you there. Same old Chase...scum.

  • by Jeff | 9/23/2015 11:52:28 AM

    Michael seems to be whining more than Chase. The fact is that scores below 620 ARE considered subprime, and those types of mortgages were a contributor to the 2008 meltdown. I sell all of our long-term financing mortgages into the secondary market. Not a single investor I use for FHA mortgages will buy one with credit scores below 620, and I'm fine with that. 520 with only 3.5% down is asking for a default. And what's worse, make that mortgage per FHA guidelines and if it defaults for any reason, FHA holds that against you on your rating. When I first started in this business in 1992, over 90% of my mortgages were FHA and today it is less than 5%. As for the guaranty, he is right. It is guaranteed by FHA, and they are pretty quick to pay a claim, but you also will have to wait an average of 2 years for them to pay out on your legal expenses. It just isn't that great a program in today's world and because of the MMI, it truly is a mortgage of last resort.

  • by David Abrahamson | 9/23/2015 12:02:29 PM

    FHA did not cause the crash or it would have started 70 years ago. Subprime did not cause the crash. Alt A lending was the cause. Further, these so called journalists and credit experts need to get the facts right. Any FHA mortgage with a FICO below 580 requires a 10% down payment and has for a good while now.

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