The reason investors such as CitiMortgage, Wells Fargo, Chase, etc (who purchase closed loans from brokers and correspondent lenders) have to take such drastic measures in pricing adjustors and internal guidelines on FHA loans is multi-faceted. One of the major reasons is that the loans are underwritten by "DE" underwriters who have for the most part ignored the FHA credit guidelines and inability to gauge the risk of the file. Many of the former non-prime shops are now trying to do FHA loans with NO prior government experience and still maintaining the mentality that FHA loans are "just like" non-prime. The resulting default rates and losses are mind boggling and purchasing/servicing lenders have to protect themselves.
Can you imagine an FHA 203b with a 450 FICO, unpaid collections over $50,000, numerous recent lates, and a debt-to-income ratio of 57% ?? Can you also imagine that a Direct Endorsement underwriter thought this loan was a good risk? Happens every day! Heaven help us![/b]
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