The letter was signed by a Mr. Paul Burkett of Fifth Third Mortgage at 630-545-5506 and a Mr. Dan Rock at Guaranteed Rate at 630-364-7506.
The letter provided some untruths, or half truths about FHA and our association.
Here are some facts which might be of interest to owners. These were not provided in the letter, which seems to have as it's main purpose the promotion of sales (and commissions) for the realtor, the bank and the mortgage company.
Here's a few quotes from an article in "the Real Deal" about FHA:
"FHA is great for a certain segment of the population," said Brooke Jacob, the CEO of Everest Equity. But the additional premiums required for FHA loans can add up to "a huge expense over the life of the loan," she cautioned, so buyers who have the option of getting a conventional mortgage should generally avoid FHA loans. "If a buyer doesn't need [FHA], they're overpaying," she said.
"FHA loans are riskier and more expensive for buyers than other kinds of loans. And most consumers don't realize that FHA loans can be significantly more profitable for both banks and mortgage brokers than conventional mortgages, because of the way that banks are compensated for servicing them. As a result, some unscrupulous loan originators are steering buyers in the direction of FHA loans, experts say, even when those buyers could qualify for conventional loans...... Borrower[s]...pay an up-front mortgage insurance premium of 2.25 percent of the loan amount, and also an annual premium of 0.55 percent of the loan, paid each month."
"Mortgage brokers typically make about 1 point -- 1 percent of the loan amount -- or $4,000 on a $400,000 loan...But some banks are currently paying brokers four to five points for originating FHA loans... That means the broker can make $20,000 on only one transaction. "
"This sets up an incentive structure that makes it tempting for mortgage brokers to push borrowers toward FHA loans."
"There are definitely brokers out there who would convince a client they have to get an FHA loan because they know they're going to make more money," Shnayder [Shnayder, director of new development lending at Home Owners Mortgage] said. Despite today's tough lending climate, he added, there are "plenty of mortgages" for qualified borrowers, even in buildings with few presales, though they are harder to find (see "A new holy grail for loans").
"Many of the people who were doing subprime are now doing FHA loans, because they're highly profitable," said Alan Rosenbaum, the CEO of GuardHill Financial...Rosenbaum said the high earning potential on FHA loans attracts unethical brokers to the industry, and makes it more tempting for them to commit fraud or shoehorn unqualified buyers into FHA loans, leading to more defaults down the road."
"When you pay such high compensation, you attract loans from brokers and banks who thrive on a higher level of compensation because they have a lower volume of quality loans," he said. "It brings in a lot of undesirables, and then our industry gets a bad name."
The original article is available at:
Link to "The Real Deal"
Is there a cost to an association to be "FHA Qualified?"
Yes, there is. Legal documents must be filed. That means legal fees to the association at about $200 per hour. To be FHA qualified, an association may also need a reserve study each year. Costs to an association may exceed $10,000 per year. That comes out of current owner's fees and may increase the fees to owners.
What are the Benefits of an FHA loan?
The main benefit of an FHA home loan is that the credit criteria for a borrower are not as strict as FNMA or FHLMC. A buyer who may have credit problems should not have a problem obtaining FHA financing. Also, FHA loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new FHA loan if they qualify.
What about the Seller?
The seller must pay for part of the closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. 100% of the down payment and closing costs can be gifted. In other words, the buyer and the seller both pay.
What does a buyer need?
Even though most lenders do not allow you to go to 95% LTV (loan-to-value), with an FHA Loan the buyer is allowed to pay as little as 3.5% of the purchase price of the home as the down payment (96.5% LTV). the buyer may also finance the closing costs with the mortgage loan. A unit at BLMH selling for $150,000 would require a down payment of about $5,000. Less than many car leases!
What does it take for a buyer to qualify for an FHA loan?
In order to qualify for an FHA loan, a buyer must have a valid social security number (if the buyer doesn't have a social security number there are other methods of qualification available). A buyer must have legal residency in the United States and be of a legal age to sign on a mortgage in the state of Illinois.
Who determines who is qualified and who is not?
The lender will verify the income, assets, liabilities, and credit history for all parties on the loan. "Trust me" is what the lenders tell us!
What about the credit worthiness of a buyer?
FHA does not require a minimum credit score. Lenders may (or may not) use past credit performance as a guide in determining a borrower's attitude toward credit obligations and predicting a borrower's future actions. Using FHA's guidelines, the lenders will make a credit determination based on the merits of each case. Again "trust me" the lenders are telling us! The lender makes all of the decisions, and the taxpayer pays for the defaults!
If a FHA buyer defaults, who wins and who loses?
The mortgage companies are fully paid because FHA loans offer a loan guarantee for mortgage companies. The realtor collects their fee at the closing..The seller gets what's left after covering some of the closing costs and paying the fees of the Realtor.. If the buyer defaults, he or she loses their home. If the buyer defaults, the association deals with a unit in default, and struggles to collect the fees. If those fees can't be collected, then every other owner in the association pays a higher fee to make up this shortfall. So the association loses and everyone who sent the letter you received, wins. So in a default, you, the other owners in the association, all lose.
Why are Fifth Third Bank and Guarantee Rate interested in financing at BLMH?
If a buyer acquires an FHA loan to purchase a home, the FHA is not actually lending money to the buyer; the FHA simply guarantees the lender (Fifth Third Bank and Guarantee Rate) in case the borrower, default on their mortgage payments. In other words, Fifth Third Bank and Guarantee Rate are assured they will get paid, no matter what!
Who ultimately pays for these FHA defaults?
You and I, and all of the other taxpayers in the USA are the ones who pay the taxes to cover these loan defaults.
How large are these losses? According to a recent US government report originated by the Office of the Inspector General (OIG) “From … 2007 through 2010, HUD experienced a nearly 174 percent increase in the dollar value of claims paid that resulted in FHA’s paying off the mortgage, from about $5.3 billion in 2007 to about $14.5 billion in 2010.” This year [2011] HUD estimated that it would pay out more than $20 billion in fiscal year 2011 for all forms of payments from the insurance fund, a nearly 31 percent increase from 2010.
So what's the bottom line?
REMAX at 1417 Main Street, Fifth Third Bank, and Guarantee Rate are all extremely interested in accomplishing a sale at BLMH. Why is that? Because each of them will make money in doing so. If you want more information on the advantages of FHA mortgages for realtors, bankers and mortgage companies, I suggest you call REMAX at 630-653-1900, Paul Burkett of Fifth Third Mortgage at 630-545-5506 and Dan Rock at Guaranteed Rate at 630-364-7506. I'm sure they will tell you why they are so eager to get our association to FHA approval status and the personal financial benefits they will reap.
Comments, Corrections, Omissions, References
Note 1. Additional, supplemental information was added on 9/21/11.
Thank you very much for posting about this. I was checking this blog the past few days to see if you were going to say something about this letter. I had a feeling that they weren't telling the whole store in the letter, however it still had me a bit worried. They made it sound like the sales at BLMH were going to take a dive if we didn't remain FHA 'qualified'.
ReplyDeleteI suggest you come to the annual meeting. Sales at BLMH were good this year. I won't publish the statistics here. However, that information is available to any interested parties via the county records.
ReplyDeleteThat means that the REMAX office that mailed the letter, the broker who signed it and the banker who signed it are all aware of the sales at BLMH. They didn't provide that information to owners in the letter.
Was the letter issued as a "scare tactic?" I'll let you draw your own conclusions, and come to your own opinion!
Seems like Christy Michelson from RE/MAX is doing some back peddling. Today I got a letter that apologized for the previous letter in that it could have been unclear. She said that Paul Burket and Dan Rock had no involvement in the original letter. Check your mail today, I'm sure you'll get one too.
ReplyDeleteOh those realtors and bankers...what would we do without them.
I got the letter, and I'll be posting the "official" letter from Ms. Michelson.
ReplyDeleteTo be frank, I do appreciate the efforts of various Realtors and others in marketing this unique and wonderful property. However, this is a unique property and we're a well managed, well maintained and financially stable and well-funded community. Our owners, management, and various boards have done a remarkable job, and we (the owners) have made financial sacrifices to make this community what it is. I was very disappointed by the original letter I received from Ms. Michelson, which she was unwilling to sign, and sent under the signatures of others. The original letter, and Ms. Michelson's retraction letter, do not in any way acknowledge what a financially sound, well managed and unique community this is. I will be sending the REMAX office a personal letter about this.
I've attended the majority of board meetings since 2007 and I am very aware of the concern, and discussions between management, board and even the owner forums about FHA financing.
All I can say is, I was and continue to be very disappointed by the letters recently received. The original letter was supposedly signed and issued by two brokers, but the return address was a local REMAX office. In the retraction letter, there is no real apology for this apparent deception on the part of Ms. Michelson.
When I first received the original letter I called the REMAX office and talked briefly to the Broker Manager. This remains a disturbing thing to me.