In 2006, the Federal Housing Administration (FHA) updated its Mortgagee Approval Handbook and said that employees of approved mortgagees “May have other employment including self-employment. However, such outside employment may not be in mortgage lending, real estate or a related field.”
To answer the question of whether a real estate agent can originate mortgage loans, you must refer to that section of the Mortgagee Approval Handbook. The answer is: Not if they work for an FHA-approved lender, even if they only originate conventional loans. As a matter of fact, they cannot even be employed in any capacity by a FHA-approved lender.
If you are a mortgage broker, your first reaction to this may be, “I am so happy I’m not an FHA-approved lender,” but if your company is originating FHA loans, the regulation may apply to you too!
When FHA eliminated the mini-eagle certification, they gave FHA-approved lenders the ability to sponsor mortgage brokers to allow them to originate FHA loans. With this increased authority came the burden of ensuring that all sponsored entities were complying with FHA requirements.
Mortgagee Letter 2010-20 says:
“HUD will hold FHA-approved mortgagees responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the approved mortgagee or by its sponsored third-party originator.”
Since FHA has recently cited lenders for having employees with impermissible outside employment, it is merely a matter of time before they notice that some sponsored mortgage brokers are violating the same rule.
If you are a mortgage broker, you may not want to wait until you are told that you are not in compliance. Once FHA has cited a lender and mortgage broker (fines can run as high as $7,500 per violation) for improperly originating loans, the state regulators get involved. In today’s regulatory environment, that could be very costly!
What should you do?
If you are an approved FHA lender or mortgage broker originating FHA loans, we would suggest you take the following steps:
►Adopt a stringent internal written policy requiring full disclosure by any newly-hired employee of any other employment or business activities. Similarly, require periodic confirmation and disclosure by existing employees, in addition to a company requirement to advise management of any changes, additions or deletions of outside employment at the time of the change.
►Adopt a policy advising your entire staff that outside employment of any kind needs to be disclosed to management immediately.
►Perform regular reviews to ensure compliance: Both at the time of hire and periodically during the course of an employee’s tenure with your firm. Check the Nationwide Mortgage Licensing System (NMLS) to see if any of your employees have other employment identified. The public access section shows all past and present employment of any licensed mortgage loan originator. Simple and free Internet searches may provide you with information on your employees.
►Adopt a policy that clearly sets forth that any employee with impermissible outside employment may be subject to immediate termination, for cause.
Remember, this rule is not merely limited to real estate agents, but it applies to anyone employed in a “related field.” This would suggest that an employee also working as an insurance agent/broker, appraiser, title agent, closing agent and many other positions would be ineligible for employment with FHA-approved lenders or mortgage brokers who are originating FHA loans.
Protect your business and proceed with caution!
This article was co-authored by Bonnie Nachamie.
Jonathan Pinard is president and Bonnie Nachamie is chief executive officer of First National Compliance Solutions Inc. in Merrick, N.Y. Jonathan may be reached by phone at (800) 400-4134 or e-mail
[email protected]. Bonnie may be reached by phone at (800) 400-4134 or e-mail
[email protected].
