The hypocrisy of tightened lending standards and the increased presence of PMI

[Jon P.]

With lending standards just now beginning to loosen from a historic tightening, I find it bizarre (and frankly, offensive) the idea that Private Mortgage Insurance will now be something that will be permanently affixed to all FHA backed loans...even long after the property has the 20-25% equity that has formerly resulted in PMI's vanishing.

It's as simple as this: If the bank is going to hold potential homeowners to high standards, that is fine by me but stand by your underwriting process. For the record, I find the underwriting process to be absurdly stingy, but that's a different story for a different time.

It is hypocritical to make someone run through a gauntlet to qualify for the loan and then slap them in the face with the idea that these borrowers still can't be trusted with the loans fulfillment.  In theory, PMI shouldn't be necessary if the underwriters gamble on the right applicants.

Of course things happen.  Great borrowers can lose their jobs and default.  Obviously underwriters are not soothsayers, but the banks putting money into the market place in the form of a mortgage is an investment on their behalf.  Investments fail some times.  Sometimes you lose...and you lose big.

It is a choice to apply for an FHA loan so certainly there is a "if-you-dont-like-it,-go-home" argument to be made against me. But the fact of the matter is that more often than not, the FHA is what will allow the first time home buyers into the market. If your goal, as the bank, is to protect your investment with such vigor that you negatively effect the market from you reap so much benefit...well, then...bravo.

But if FHA is going to compound their lack of faith in borrowers on top of these high lending standards, I'd appreciate it if mortgage brokers out there would stop pretending like we're all in this together