An Object in Motion

Joe Brancucci
December 31, 2008 | COMMENTS

The first half of Newton's First Law of Motion states simply, "An object in motion tends to remain in motion."  Abundant examples of this fundamental law are all around us. How about the stock market? One of us asked the other on a recent day how the market was doing. The response? "The market's trading in a fairly narrow range today." How narrow? "Plus or minus 200 points."  

While the stock market appears to have settled down somewhat, there's another market in motion that, as a group, we need to pay attention to. FHA lending began its recent growth spurt in January of this year. Prior to its recent surge, this type of government lending was the sleepy backwater of the mortgage business. From 2004 through 2007 it obeyed the other half of Newton 's First Law: An object at rest tends to remain at rest. At its low point, no more that 3.77% of all homes were financed with an FHA loan. That was the case in 2006.

We all know what was happening in 2006. The sub-prime market was booming. We've talked about this before: FHA financing was practically extinct. The GSEs recorded some of their lowest market shares in years. The private markets, feasting on exotic mortgages, grabbed all the attention and most of the loans.

When fortunes reverse, though, they tend to do so rapidly. This would seem to be at odds with Newton 's notion about motion. Objects in motion that hit a brick wall, well, they tend to remain at rest. And so it is for sub-prime lending and the private securities market. May they rest in peace.

Back to FHA lending. There's no brick wall in its way. This is the original insured, low-cost, affordability product. For years it was the loan of choice for first-time homebuyers for this very reason. It's popular again for similar reasons, and one new one:  FHA loans are perceived by borrowers as safe and sustainable, in addition to being affordable.

There's another contingent that's latching on to FHA lending: former sub-prime lenders in need of replacement products. And profits. The fact is much of the 23% market share FHA commanded as of July is a result of mortgage brokerage activity. This is market share credit unions should pursuing for the simple reason that FHA lending is a superior means of helping more members become homeowners more affordably. We know we'll offer a more affordable alternative to government financing—we simply need to get involved. Now. Remember the second half of Newton 's Law: Objects at rest tend to remain at rest.

FHA lending is Strategy 14 of the 18 Strategies. It suggests you do three things concurrently.  First, get educated. FHA lending is different than the conventional conforming and portfolio lending to which we're accustomed. Second, start the approval process now. Visit www.fha.gov. Yes, it's difficult, nitpicky, and time-consuming. Most things worthwhile are somewhat challenging. Third, while getting educated and approved, consider partnering with a third party who is in the business of helping other lenders get involved in FHA lending.  

We need to get in motion. Anecdotally we've heard FHA market share is now approaching 50%. While that may be high, there's no doubt it's growing. This object is in motion, and we know what that means.

Joe Brancucci is Council Forum Chair and Chairman & CEO, Prime Alliance Solutions, Inc.. Reprinted with Permission. Contact him at 206-439-5957 or
jbrancucci@primealliancesolutions.com.