The Federal Housing Administration's Mortgagee Review Board (MRB) has been busy this year. They published a notice in the Federal Register that announced dozens of administrative actions against FHA-approved lenders who did not meet FHA policy requirements. In 2010 alone, up to the time of the writing of the notice, the MRB has issued around 1,500 sanctions against lenders, including “reprimands, probations, suspensions, withdrawals of approval and civil money penalties.” The following is a quote from FHA Commissioner David H. Stevens:
"Lenders should know by now that FHA will not tolerate fraudulent or predatory lending practices … Any FHA-approved lender that does business with us must follow our standards. If we determine that our partners are not playing by the rules, we will take action—it's that simple."
If you are not familiar with the FHA's Mortgagee Review Board, it is responsible for issuing sanctions to FHA lenders that violate the agency's policy requirements. In some extreme cases, the MRB can withdraw a lender's FHA approval altogether, prohibiting the lender from offering FHA programs. In other cases, the MRB negotiates settlement agreements with lenders to insure compliance. The Board can also issue letters of reprimand and require probation, suspension, and civil money penalties.
Are you in compliance?
As the title states, FHA withdrew the FHA approval status of 905 lenders for failing to meet requirements of the U.S. Department of Housing & Urban Development (HUD). It’s evident that much of this shake-out was from smaller brokers and lenders that lacked the financial resources to maintain their FHA approval status given the new net worth requirements. Just to give you an idea of how heavy the HUD Hammer is … here are 11 examples of recent sanctions against lenders; I left the names of the companies out, but they can be viewed in the Federal Register notice:
1. A Utah lender was fined $30,000 for using the HUD seal and FHA acronym on their Web site which gave the appearance that it was a government site.
2. A Rhode Island lender was fined $7,500 for not implementing a quality control plan.
3. Another company was charged $11,000 because they simulated a government form and seal to make it look like they were doing business with HUD (this one is a big warning for all you direct mail originators).
4. A Maryland company was required to pay more than $425,000 because they charged borrowers a broker fee and an origination fee and failed to meet other compliance requirements.
5. A Missouri lender was hit with a $700,000 penalty for not reporting information according to HUD guidelines.
6. A New York firm was hit with $413,000 in fees for not registering their DBAs and for other compliance-related items.
7. One lender had their FHA approval withdrawn for having hired an employee that was debarred from HUD programs, which is a violation of HUD policy.
8. Another company was charged $68,500 for failing to ensure their employees were not simultaneously working in related fields like real estate or title companies, and for not documenting loans properly.
9. A company was charged $674,000 for not documenting files properly and not implementing quality control plans.
10. A company was fined $124,000 for not implementing a quality control plan, maintaining non-compliant branch arrangements and not reporting employee W-2 income earnings.
11. A company was charged $71,000 for hiring loan officers as independent contractors and for charging brokers fees in addition to the origination fee.
This is just a sampling of some of the companies affected by HUD’s recent roll through the lender neighborhood. It is a clear message that in this “Age of Compliance,” HUD means business! If you are an originator, it’s time to open your eyes and determine if your employer is running a compliant office. If not, you may want to explore other companies that have the proper staff, knowledge and commitment to stay compliant.
This shakedown is good for a lot more than providing more revenue for the FHA MRB. The fact is that it is good news for the industry and great news for all of you who work for organizations that take compliance seriously. Companies that invest in compliance will continue to be the players and dominate the mortgage markets. If a company is investing in the systems to assure their compliance, it’s likely that they are also investing in the proper training of their sales staff and giving them the competitive edge they need to sustain their growth.
When I think of well-managed companies who take compliance seriously, three Michigan-based companies come to mind and I will mention these three only because I know the owners personally and they have experienced growth despite the suffering local economy that relies so heavily on the success of the U.S. auto industry. As someone who has trained companies all over the country in FHA, I can tell you that you never know if a company, however large or small, is compliant unless you know the leaders of the organization personally (and even then, sometimes you get fooled!). I share these companies as examples of organizations that put great emphasis on proper hiring practices and do whatever it takes to keep a compliant office. The first two I will mention are regional FHA lenders and the third has a national reach.
Capital Mortgage Funding in Southfield, Mich. is one of the top FHA lenders in Michigan. Co-owners Harry Glanz and Dan Burke understand the importance of compliance and the value of maintaining good working relationships with correspondent lenders. In business for nearly 20 years, they maintain a stellar reputation amongst consumers and have a very high percentage of repeat customer business because of their fair and honest business practices.
They have always invested heavily in the staff necessary to keep their firm compliant.
The second company is Success Mortgage Partners based in Plymouth, Mich. Headed by Vince Lee, Owen Lee and Kevin Broughton, this is a firm that opened its doors at the onset of the mortgage crash. Although it seemed counter-intuitive to open a mortgage company at that time, they found it was a perfect time. Why? Because so many smaller brokers had to close their offices due to high overhead, this allowed Success Mortgage Partners to absorb some of the best talent in the industry and now they are experiencing steady growth and have become one of the top FHA lenders in southeastern Michigan. Success Mortgage remains a solid company because of their commitment to compliance and the hiring of the right staff to make it happen.
The final company is Gold Star Mortgage Financial, a firm that also invests a lot of resources in compliance and their staff. Headquartered in Ann Arbor, Mich. and led by Chief Executive Officer Dan Milstein and Vice President Rick Richter, Gold Star does business on a national level, and in August 2009, made the Inc. 500 list for being one of the fastest growing mortgage companies in the country. This is no small feat in the face of a challenging market! Currently the number one FHA lender in Wayne County (the 13th largest county in America), Gold Star continues to expand because of strong correspondent relationships and the outstanding business systems they have in place. Strong internal staff and well-trained loan officers assure that the company will continue to be a national force.
The one trait that is common in all of the companies I have mentioned (and all those like them throughout the country) is a long-term business vision, personal involvement in the day-to-day operations, and a passion for doing business the right way. They all understand that having the ability to provide FHA programs is a privilege and should not be taken for granted.
On the other hand, I’ve had some experiences with less impressive and likely less compliant companies. In the aftermath of the sub-prime collapse, I did a lot of FHA training for what I refer to as “580 Refi Shops” who had previously done only sub-prime. Talking on the phone with them and looking at their Web sites, everything appeared compliant, but arriving at the office, I could practically smell non-compliance. I was concerned that these were the types of companies that would likely take advantage of the FHA programs and hammering borrowers on fees to supplement their lost sub-prime business. These are the types of lenders HUD is trying to purge from the industry and, as evident from the current list of withdrawn FHA approvals and imposed sanctions, HUD is walking their talk.
It takes a lot of capital today to stay compliant, and if you are one of the fortunate ones to be working for a company that takes their HUD compliance seriously, you should feel grateful for that and express that gratitude to the owners of your companies, because in today’s “Age of Compliance,” only the best talent with the best business systems will be left standing.
Go FHA!
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].
