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Raw Numbers A Look at an FHA Loan

Posted on February 13 By MLP Blog

Thankfully, mainstream media outlets continue to give ink and air time to the growing subprime crisis. We've been talking about it for months here at Mortgage Loan Place, striving to keep people informed and up to date regarding a fiscal calamity that has shook every corner of the American economy.

As part of its extended examination of the subprime disaster, the New York Times recently published a story that delves into how subprime mortgages became a lucrative staple for the nation's largest home lender, Countrywide.

While the story is significant and worth your time as a whole, a few major themes jumped out and, ultimately, confirmed what we've been telling you for months now — the Federal Housing Administration can play a major role in healing the home-lending crisis for businesses and homeowners alike.

At one point, the story outlines how subprime loans wind up costing low-income homeowners significantly more than FHA loans. A few weeks before the story's Aug. 26 run date, a former Countrywide sales rep priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620, according to the story.

And here's where it gets interesting. With those terms, an FHA loan would have come with a 7 percent rate and 0.125 percentage points. Countrywide? Try a 9.875 percent figure and three more percentage points.

What's more, the FHA loan would have generated a $1,829 monthly payment — that's $558 a month less than the Countrywide monthly bill. Carry that over a year and you're looking at an additional $6,696 a year, which, as the writer notes, is "no small sum for a low-income homeowner."

Best of all, though, we couldn't help but pass on a quote from that former Countrywide sales representative, which comes just after the story reveals those telling statistics.

"F.H.A. loans are the best source of financing for low-income borrowers," the former sales representative said. He added that Countrywide's subprime lending program "is not living up to the promise of providing the best loan programs to its clients."

That story is one of the most recent and provocative examples yet of how an FHA loan can help borrowers grappling with foreclosure, mounting bills and all the other hassles and headaches associated with the subprime fallout. Whether it's a refinance or a brand new loan, the FHA can help homeowners save their homes and economic futures.

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