General Understanding of the Lending Dynamic
To fully appreciate the issues with conflicting information that is often presented by different Mortgage Lenders, you must understand the actual lending dynamics.Understanding these dynamics will clear up a lot of this confusion.
1) Neither FHA, FNMA, nor VA actually offer home loans to the public. They are involved in insuring, guaranteeing, secondary markets, and other functions. The Lenders make the loans. The guidelines that are imposed from these entities represent “Minimum” requirements that must be met to qualify for their function as it relates to a specific transaction. They do not dictate what a Lender may decide to impose themselves as standards and overlays that may be “More” restrictive. Just because FNMA, FHA, or anyone else allows something, it does not mean that a single lender may be willing to actually consider making a loan based on that standard.
Throughout my career I have had countless Realtors inform me that FHA guidelines dictate that Lenders “Have to” allow something. I have been through the guidelines very thoroughly and I can tell you with complete confidence that there is no “Have to” chapter anywhere in the guidelines. A very good example of this is the removal of the $8,000 cap that FHA had imposed on EEMs. This was removed in June of 2009 (In the specific EEM section I will cover this in greater detail). Many lenders supported this increase in the amount allowed for an EEM right away, including my company. Some are still not allowing the increase to this day, and are still capping at $8,000. FHA does not require them go to this higher limit. In fact, there are a few FHA lenders that do not even allow EEMs at all. (Watch to see how quickly this changes when they start to lose a significant number of loans because of the demand we are going to create for EEMs.)
Another good example is the “Flip” rule on conventional loans. FNMA does not specifically prohibit this but I am often referred clients from other lenders because their client is buying a “Flip” property using Conventional financing and their company will not allow this. (This is also another area where Realtors often relay to me that other lenders have told them that FNMA does not allow flips. FNMA does not impose that restriction.)
2) Many Loan Officers represent their own company’s additional restrictions as if they are the policy of FHA, FNMA, or VA. I hear it all the time where Loan Officers will make statements like “FHA caps EEMs at $8,000”. FHA doesn’t cap it at that, their company does. They just do not want people to go find someone else who can accommodate the higher EEM amount needed. I do EEMs over $8,000 all the time.
3) Just because someone is a Loan Officer does not automatically mean that they know anything at all about specific loan products or guidelines. Very few will admit they don’t have this knowledge. In reality, the rules and guidelines are extremely complex and confusing. This was one of my primary motivations for providing this practical guide.
4) Many of the guidelines are ambiguous, confusing, and even incorrect. This creates differences in interpretations between Lenders that can affect what they will allow.
The most important thing to realize is that much of what I am going to explain relating to different structures, programs, and opportunities, may not be offered or allowed by all lenders. (I am also going to try to point out the areas where I may not be able to offer something, but you might find a lender who will.)
Just because a Loan Officer has access to a specialty product does not mean they have the slightest idea how to actually put it together. One of the reasons I am posting this information is because there honestly is not a resource I have been able to locate so far that provides clear, accurate, and practical instructions for Loan Officers to develop competency in these products. Currently, there are not nearly enough Loan Officers who are experienced in this specialty area to adequately support this effort. If they have to invest almost 20 years like I have, to learn this, we are in trouble.Although there are a few Loan Officers that have no qualms about learning this stuff at the expense of the Contractors, Realtors, and Clients out there, the vast majority have far too much integrity to attempt something that they know they cannot responsibly offer. They do not have a good resource to learn this information, so they have sacrificed the opportunity to address this need. Considering the damage that has been done by the individuals who attempted to promote an expertise they did not have, I have a lot more respect for those Loan Officers that chose to act responsibly. The honest and conscientious Loan Officers are the ones we need to involve in this effort. Hopefully, they will find their way here.
Sacramento 1st DBA Comstock Mortgage – Lic : 01390474
Kevin Nunn – NMLS 305826 / DRE 01158674
