On Sept. 18, 2009, David H. Stevens, Commissioner of the Federal Housing Administration (FHA), made an announcement in a press release. This announcement was that a proposed rule (published in the Federal Register) would not require mortgage brokers to get FHA approval in order to have access to FHA programs. This rule, in fact, became final on April 20, 2010, when the rule was published in the Federal Register.
This provides a wonderful opportunity for brokers who were previously unable to meet net worth requirements allowing FHA approval. However, the other side of this rule is that brokers will need to be sponsored by an FHA-approved lender and they must meet the FHA lender’s requirements for being sponsored.
Now the big question is: How difficult will the FHA lenders make it for the brokers? Likely, by the printing of this article, many lenders will have already established their broker guidelines for doing FHA loans. In reality, why is doing a loan that will be sold to Ginnie Mae any different than a Fannie Mae or Freddie Mac loan? It shouldn’t take a lot of effort on the part of FHA lenders to create internal policies that establish some guidelines allowing brokers to do FHA loans with them. FHA lenders already have very strict reporting and administrative requirements in place for the FHA-approved brokers they currently sponsor. Thus, FHA feels the transition will not present a big challenge to existing FHA lenders.
What about currently approved FHA brokers? The rule states that currently approved FHA lenders will do business as usual through the rest of 2010, and starting on Jan. 1, 2011, mortgage brokers will no longer be required to submit audited financials to maintain their access to FHA loans. Many brokers are ecstatic about this change and are excited about the fact they won’t have to spend thousands of dollars on the audits. I spoke with HUD directly on the question of whether or not currently approved FHA brokers will have to submit audited financials in 2010, and was told that if you are a broker that is in good standing with FHA, you will not be required to submit audited financial, but will have to re-certify through FHA Connection and pay the fee.
This leads to another question: What if an FHA-approved broker wants to get approved now as an FHA lender? The answer is that they will have to meet a certain net worth requirement, or NWR. For 2010 and 2011, smaller companies (as defined by the Small Business Administration [SBA]) will need $500,000 in net worth, and larger companies will need a minimum of $1 million in net worth. In all cases, 20 percent of the net worth must be in the form of liquid assets. In 2013 and beyond, all companies applying for FHA approval will be required to have a minimum net worth of $1 million, 20 percent of which must be liquid assets.
Given this new NWR, many companies will be faced with a tough decision. The companies that are currently FHA-approved will have to decide if they want to meet and maintain the NWR, and the companies that want to get FHA approval will have to decide if they also want to come up with the cash meet the new NWR. Because FHA is such an important loan product to have today and many loan officers need it to survive, we have seen a national trend of consolidation of smaller broker offices into larger companies just to enable access to FHA. It could be that this rule will reverse that trend. If so, we may see an increase in smaller broker offices, especially as housing sales improve.
If you are a broker who has hired a lot of talented originators and/or brokers over the past several years, you need to look seriously at why the talent would want to stay with you. Be prepared to give these talented originators a good reason to stay or be prepared for attrition, because when the market gets hot, talented people are always looking for ways to improve their lot. Now, when the market isn’t booming, is the time to start thinking about these things.
Some brokers are scared that they will not be able to get sponsored by their lenders to do FHA loans. It pays to keep this in mind … as I explained at the NAMB/WEST conference last December in Las Vegas, we are in an era of what I call “Relationship lending.” This means that good lending practices rely on and are built on good relationships. So, the brokers that have created good relationships and have delivered quality loans to their wholesale lenders will be the ones who will be sponsored by their lenders to do FHA loans. The brokers that have not created good relationships and have only shopped their lenders based on how much they can profit may find it difficult to get sponsored by an FHA-approved lender. If you are a broker not yet sponsored by an FHA lender and you need access to FHA programs, I strongly encourage you to make some phone calls to your lenders and find out their guidelines for sponsoring you to do FHA loans. Don’t sit and wait …
Jeff Mifsud founded Southfield, Mich.-based Mortgage Seminars LLC in 2004, has been an FHA originator for 13 years, is a contributor to LoanToolbox.com and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail [email protected]
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Visit author Jeff Mifsud’s Web site at http://mseminars.com for tips and information on FHA loans and details from some of the nation’s top FHA specialists.
“Be prepared to give these talented originators a good reason to stay or be prepared for attrition, because when the market gets hot, talented people are always looking for ways to improve their lot.”