Mortgages insured by the Federal Housing Administration aren't the morass of paperwork they used to be, according to an expert in the product.

"With the technology tools that are available today," Renee Pierce, president of Quality Mortgage Services in Altamonte Springs, Fla., said, "the product is as easily processed, approved and closed as competitive products."

One Internet tool that's "imperative" for government-insured lending is the FHA connection, according to Pierce, who does private training for her firm's clients. "It's like your own private pipeline to the FHA," she told a group of mortgage brokers recently.

Accessed with password protection, the connection allows loan agents to obtain the required FHA case number, choose an appraiser, obtain clearance of the borrowers' social security numbers and a host of other information.

"It's your private, on-line, lender-secure hook-up" to the FHA, the trainer said. "And it will help you be much more efficient. It doesn't mean your borrower is just going to fly through (the approval process), but it should help decrease the amount of documentation."

Pierce, who has been in the housing finance business since 1979 when she went to work for a private mortgage insurer, said FHA-backed loans are products every lender should have on their mortgage menus.

"They're not just for first-time home buyers anymore," she explained. "There are advantages to the program that make it an excellent choice for many buyers."

Over the years, but particularly in the last 18 months, a number of changes have been made to enhance the program, Pierce said. Some have not been so good as others, she added. But for the most part, they have made FHA loans a "very attractive choice," not just for borrowers but lenders, too.

The trainer listed these advantages:

• Low down payments -- For the most part, borrowers need downpayments of only 3 percent of the purchase price.

• Gifts -- Cash required for closing may come from someone else as a gift. Typically, the donor is a relative of the borrower.

• Reserves -- Unlike most conventional loans, which require borrowers to have enough cash on hand at closing to cover two months worth of house payments, the FHA has no reserve requirements.

• Debt-to-Income Ratios -- The current ratios are 29 percent/41 percent. That is, borrowers are permitted to spend up 29 percent of their monthly income on housing and as much as 41 percent of their earnings can be earmarked for all their debts and still be approved for a mortgage.

  And with compensating factors, underwriters can go higher. If the house is new construction that's energy efficient, for example, the back-end ratio can be as high as 43 percent

• Credit -- A good credit history is required. "This is not a B-C product," Pierce said. "A person cannot have 5-6 pages of credit problems."

  But the FHA does not require credit scores, so it's "an excellent alternatives" for buyers with little or no established credit.

• Seller Contributions -- Sellers can contribute up to 6 percent of the sales prices in the form of closing costs, prepaid items or discount points. "Six percent on a 3 percent down loan is a good deal no matter how you cut it," the trainer said.

• Loan Limits -- Maximum loan amounts are not as high as on conforming loans, but they are "competitive," she pointed out. And they rise in lockstep with increases in the Freddie Mac ceiling.

For more articles by Lew Sichelman, please press here.

Published: August 6, 2001

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