According to a 2007 report by the Government Accounting Office (GAO), FHA’s product restrictions and lack of process improvement relative to the conventional market was largely responsible for the decline in market share, despite comparing favorably in cost to the subprime programs that largely eclipsed them. The collapse of the subprime market has led to the resurgence of interest in FHA, and recent revamping has positioned the agency to reclaim the volumes it once enjoyed. GAO expects FHA to fund 10% of home purchases in 2008 and 15% in 2009, continuing to levels not seen in over a decade. So how do lenders get their piece of the pie?
If you’re a lender that’s unfamiliar with FHA Lydian Data Services is banking on those lenders looking to simply outsource that to vendors that do know a thing or two about FHA. Specifically, Lydian Data Services has established Lydian Data Government Services, a new fully integrated subsidiary to provide expert mortgage processing, closing, post-closing and quality control services for FHA and VA loans.
“We have formed a new subsidiary called Lydian Data Governance Services realizing the renewed demand for FHA,” explained Brian Fitzpatrick, executive vice president of Lydian Data Services. “This will focus on FHA and government loans. We’ll be an outsourcer for lenders that are experiencing barriers to entering FHA.
“FHA was designed to do loans for the underserved credit markets. That credit spectrum was completely served by subprime and now that’s not there anymore so FHA is going to experience a dramatic increase in market share. We saw this trend starting last year and have been planning ever since. Now we’re operational with Lydian Data Government Services.”
Back in the 1970s and 1980s, mortgage bankers tended to specialize in FHA/VA lending while savings and loans concentrated on conventional loans. Skilled workers used to be readily available, but that labor force dwindled over the last 10 years as home prices rose beyond FHA limits in many markets, government programs became less attractive to originators, and nonprime loan products became more prevalent.
“We decided to open this subsidiary in New Jersey because it’s closest to the biggest home loan centers. Philadelphia HOC is the largest HOC,” noted Mr. Fitzpatrick. “During the time FHA was going gangbusters a lot of lenders in this area started FHA. A lot of the employees familiar with FHA are in the area. We found it to be a target-rich place for FHA employees. Because FHA has trailed off there isn’t a lot of experience so we decided to go where the experience is.”
And no doubt other vendors will follow. Lenders need help capitalizing on this one hot area of expansion in the current down market and vendors will respond. Expect to see more automation around FHA real soon.
