Rod's Blog

I had a gut hunch about subprime lenders and mortgage brokers many years ago. That hunch turned to disdain once I figured out and even saw first hand what these bandits were up to. Having done a few appraisals for subprime loans  -and regretting it-  I soon leared to refuse appraisal work from known (or strongly suspected) subprime players. I had earned the reputation among these vermin as being "not lender friendly". That's code for "Pennica won't give us the numbers we need to collect our commisions by making unbelievably risky loans which will create the toxic assets that will someday help sink the world economy". Having been labeled "not lender friendly" by the poster children for our current economic woes, I now happily wear that tag as a badge of honor. 

In the aftermath of the subprime fiasco, I'm getting the same gut feeling about the FHA. FHA loans are mortgage loans made by approved lenders which are insured by FHA. The are insured because they are usually riskier than conventional loans. They are characterized by very low down payments and relaxed standards aimed at helping lower income borrowers. Hmmm... this sounds a lot like.... say it with me... SUBPRIME... and they are being promoted by many of the same players that put the phrase "toxic assets" in our daily lexicon.

A recent article in Business Week magazine validates my hunch. Follow the link and you'll read, among other scarey things, about a bankrupt subprime lender who re-tooled and is now making thousands of of FHA loans. Unbelievably, this lender has one of the highest default rates of all FHA lenders in the country!

It looks like the wolves who ravaged the mortgage industry are now raiding the FHA henhouse. And who owns FHA? Just in case you don't know, the "F" stands for Federal...and thats me & you. If/when FHA implodes, guess who will be asked to bail it out? That is, if there's any money left for any new bailouts. 

I am certified to do FHA appraisals... in fact my earliest work as an independent fee appraiser was as an FHA appraiser during a refinance boom during the 1980's...but I haven't done an FHA appraisal in several years. This is because my regular clients who keep me plenty busy making sensible, responsible conventional mortgage loans are not FHA lenders.

If I get any future requests to do FHA work, I'll be asking a lot of questions before I accept an assigment.

Please follow the Business Week link above for a quick and revealing read on the subject.

OBVIOUS DISCLAIMER: Of course, not EVERY mortgage broker is a bandit or vermin. Honestly, though, I am convinced that the vast, vast majority really are. And of course, as we drain the sub prime swamp, we'll find a whole lot of complicit appraisers along side of these bad guys. They simply couldn't have succeeded without appraisers who were willing to play their game.