FHA Condo Spot Approval
An FHA condo spot approval is a process where a lender can have a single condominium unit approved for FHA financing. Since FHA has become one of the most and well used residential loan programs available today it goes without saying that FHA loans are needed in order to fund the majority of condo sales or condo sales will continue to fall through the bottom. FHA loans for condominiums can be done only if the Condo complex has been approved for FHA financing.
FHA condo spot approvals are now being abused in huge numbers. Reason: spot approvals require that the lender conduct due diligence in the existing ratio of FHA loans versus non-FHA loans in the entire complex. The process requires that the lender send a questionaire to the home owners association for completion and determination of the proper FHA loan ratio. FHA will only insure a spont condo if the complex is not overweighted with FHA loans. FHA doesn't want to have too many loans in one complex.
What most often happens is that the fraudulent mortgage banker will send the questionaire to the association for completion and the HO will tell the broker that they don't have the required information- this is the case in 99% of the cases. Associations don't keep FHA loan or practically any financing data on record. So what happens? The fraud heavy mortgage broker or banker pushed to complete the deal by the Realtor in the transaction will 'customize' the form as needed by whiting out the form or creating a new one. I imagine this occurs in most of the spot approval transactions. The taxpayer will again pay for the fraudulent activity of the mortgage banking industry.
The proper way to conduct the due diligence for the spot approval, and the way we do it in our office is to pull all the mortgage deeds in the complex and write a letter as to the findings of the actual data.
FHA Over Used and Abused
As of this writing the FHA loan program has become over sixty percent of residential loan production nationally. The current financial climate mandates that FHA be the benchmark loan program. Though we as a nation are trying to move away from a national mortgage and financial crisis, we are now moving in another direction heading for yet another crisis. Weak oversight on the part of government managers and agency officials are the prime culprit.
The credit standards for FHA are often very low which causes many residential lenders to use FHA as a dumping ground for their most disfunctional borrowers. Poor credit inconjunction with the low down payment requirements is a sure guarantee for high default rates. Some estimates put the FHA loan default rate at approximately 12% or more. FHA will be the next wave of subprime issues.
Up until October 1st of 2008, lenders were able to construct zero down loans with seller assisted down payment programs. This tweek in the down payment protocol may increase FHA defaults an additional 7% above the already high default rate. These zero down scams/programs were still being promoted as beneficial while the financial markets were colapsing by congressional members such as Maxine Waters of California.
FHA is also wraught with Fraud. Many of the originators in the system have "gamed" the program by doctoring financial and supporting documentation for many unqualified borrowers. With the lax oversight on the part of the lenders and HUD, the opportunities to take advantage of the system are plenty.
