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December 12th, 2011
The FHA has established minimum credit score requirements in order to be eligible for FHA financing.
The FHA guidelines specifically exclude from eligibility any borrower with a FICO score below 500. Theoretically, any borrower with a credit score above 500 can be approved for an FHA loan but realistically, the lower the credit score, the more difficult it becomes to actually obtain FHA loan approval.
Borrowers with a FICO score between 500 to 579 are eligible for FHA-insured mortgage financing but are required to make a 10% downpayment and be able to verify sufficient income. There are actually very few borrowers that wind up obtaining an FHA mortgage under these requirements. A low credit score is indicative of a high level of mismatch between a borrower’s debt obligations and income, resulting in late or defaulted loan payments. Under these circumstances, it is highly unlikely that a potential borrower would be able to accumulate a 10% downpayment.
Borrowers with credit scores above 580 are eligible for maximum FHA financing and are required to make only a 3.5% downpayment. From a practical standpoint, however, it has become extremely difficult to obtain FHA loan approval unless the borrower’s credit score is above 620. This is due to the fact that FHA lenders have established their own credit criteria for loan approval which exceeds the FHA guidelines. Most of the largest banks that make mortgage loans under the FHA lending program require a minimum FICO score of 640.
The FHA and the banking industry have dramatically tightened underwriting criteria for loan approval due to the collapse of housing values and the large number of mortgage defaults. A borrower applying for an FHA mortgage today with a FICO score below 620 has a very low chance of being approved.
At the peak of the housing bubble in 2007, a huge 45% of FHA loans were approved for borrowers with credit scores below 620. In 2008, the number declined to 33%, in 2009 to 14% and in 2010 to only 4%. The number of borrowers approved for FHA insured mortgage loans with a credit score below 620 declined to 3% in 2011.
Borrowers with a credit score above 660 have the best chance of being approved for FHA financing as can be seen in the graph below. In 2011, 70% of all FHA mortgage loans were given to borrowers with a credit score of 660 or higher.
from FHA website
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Freaked by the housing market , more would-be home buyers are opting for rentals – driving rents up along the way.
But it’s not just rising rents that new renters have to worry about. A handful of new costs could make renting less than the bargain it appears.
The average national vacancy rate for rentals fell 17% last year to 6.6%, according to Reis, Inc., which tracks rental performance data. And as renting has gotten more popular, prices have jumped.
The average monthly rent, including studios, one- and two-bedroom apartments is now $986, based on Reis data. Before the recession, the average was just $930.
And in some markets, it’s far worse: In New York, rents are up 9% on average in the last five years; in San Jose, they’re up 8%.
The market is only likely to get tighter.
For the first time in memory, the federal government is actively encouraging people to rent, rather than buy.
The Obama administration’s recent housing proposal calls for Click Here for Full Video/Article (Members Only)
The FBI report draws attention to one type of fraud that has grown considerably since the bubble burst: borrowers on the brink of foreclosure who hope to avail themselves of financial assistance related to federal stimulus legislation.
October 14, 2010 /24-7PressRelease/ — Once the dust had cleared from the recent economic collapse, the media focused a great deal of blame on one group: financial professionals involved in real property transactions who were accused of fudging documents, lying to buyers, falsifying appraisals and other illegal activities. New data from one federal agency reveals a growing interest in investigating all types of mortgage fraud and helping the Department of Justice pursue convictions.
The latest annual mortgage fraud report from the Federal Bureau of Investigation (FBI) reveals that the agency has taken a greater interest in crimes involving financing of homes and other real estate. From 2008 to 2009, investigations rose over 70 percent. The stakes are high: two-thirds of pending investigations during 2009 involved losses totaling more than $1 million.
When the real estate bubble was swelling at double-digit rates, some industry professionals padded profits by encouraging borrowers to maximize their debt load by entering into unsustainable adjustable rate mortgages (ARMs). The FBI report draws attention to one type of fraud that has grown considerably since the bubble burst: borrowers on the brink of foreclosure who hope to avail themselves of financial assistance related to federal stimulus legislation. "Vulnerabilities associated with these and similar programs include the lack of transparency, accountability, oversight and enforcement that predisposes them to fraud and abuse," the FBI stated in its report.
The FBI indicated five states with the worst mortgage fraud problems: California, Florida, Illinois, Michigan and Arizona. In light of journalistic investigations revealing that a significant number of ex-criminals had received mortgage licenses, Florida state regulators have responded with a variety of measures to minimize risks, including annual criminal background checks for brokers and lenders.
Assembling Straw Buyers for Profit
Financial institutions are not the only parties who may be accused of making material misstatements, misrepresentations or omissions during the mortgage application process. One typical scheme perpetrated against banks and other lenders is the use of "straw buyer" scams, which involve using a stand-in to purchase property. Straw buyers can be used to obtain mortgage approval for an otherwise unattractive borrower, or to eliminate a paper trail on fraudulent investments and other scams.
One such situation recently investigated by the Tampa office of the FBI involved Mark J. Moncher, an Orlando man who posed out-of-state family members as buyers to channel mortgage funds to his business, Dream Home Management. Moncher was recently sentenced to 57 months in federal prison after pleading guilty to conspiracy to commit mail and wire fraud as part of a larger mortgage fraud scheme. His cadre of straw buyers all defaulted after obtaining more than $3.7 million in loans from various financial institutions. In addition to several years of incarceration, Moncher must pay nearly $2 million in restitution.
As this case reveals, the basic accusation behind a mortgage fraud case can be surprisingly simple: falsifying a borrower’s identity, income, employment, assets or other information can lead a mortgage lender to approve an application that would otherwise be denied. While lenders have become much more wary since the mortgage meltdown, there is still ample room for dishonest hustlers to game the system. At the same time, simple misunderstandings, honest mistakes and creative accounting can lead to baseless accusations of criminal intent and protracted legal struggles.
Protecting Your Interests by Avoiding Mortgage Fraud Accusations
Criminal allegations can arise at any stage of a real estate transaction. For example, appraisers can be suspected of mortgage fraud on behalf of either the seller or the lender by inflating the value of the property. Lenders or brokers can be accused of changing details in the paperwork, amending contracts after they are signed or failing to disclose pertinent information. Entrepreneurial buyers who quickly fix and sell homes can face allegations of illegal property flipping.
Federal and state authorities will continue to aggressively investigate and prosecute mortgage fraud involving everything from loan origination, builder bailouts, and offshore transactions to equity skimming, short sales, reverse mortgages and loan modifications. But the facts surrounding even the most basic property transaction are complex, and parties who suspect that they may be under investigation should act swiftly to protect their interests and head off a prosecution before it gets off the ground.
The FBI, DOJ and other federal and state government agencies have tremendous resources to draw from to investigate and prosecute financial crimes. A defense attorney who has experience in federal white collar criminal cases can assess your situation, explain your rights, represent you in an investigation and defend your rights in the event that federal criminal charges are filed.
Article provided by Law Offices of Mark L. Horwitz, P.A.
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