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FHA Now Allows 'Double-Dipping' On Loans

David Krechevsky
Dec 16, 2022

Update of conflict of interest rule allows individuals to serve as both MLO and real estate agent, with certain restrictions.

  • Those with a 'direct impact on the mortgage approval decision' are not allowed to serve multiple roles.
  • Those with 'indirect compensation' may serve multiple roles.

The Federal Housing Administration on Thursday announced a rule change that will allow individuals to serve as both the real estate agent and mortgage loan originator for FHA-insured home sales.

The FHA released Mortgage Letter 2022-22, in which it clarifies conflict of interest and dual employment policies for most Title II single-family FHA-insured mortgage transactions. The clarifications take effect immediately.

“FHA continues to receive requests to clarify its conflict of interest and dual employment guidance regarding mortgagee employees and other individuals that may wish to perform multiple roles in a single FHA-insured transaction,” the letter states. “Most questions relate to indirect compensation, including ownership interest in a business that is participating in the same FHA-insured transaction or a family relationship between two participants in an FHA-insured transaction.”

With the letter, FHA said, it is consolidating “various conflict of interest and dual employment subsections of Handbook 4000.1 and clarifying its general conflict of interest policy by prohibiting individuals that have a direct impact on the mortgage approval decision from having multiple roles or sources of compensation from a single FHA-insured transaction.”

However, the FHA will also now permit “all other individuals to have multiple compensated roles for services actually performed and permitted by HUD (the U.S. Department of Housing and Urban Development), provided that the FHA-insured transaction complies with all applicable federal, state, and local laws, rules, and requirements.”

According to the FHA letter, individuals who have a direct impact on the mortgage approval decision, and therefore are prohibited from having multiple roles in the transaction, include underwriters, appraisers, inspectors, and engineers.

“Indirect compensation includes any compensation resulting from the same FHA-insured transaction, other than for services performed in a direct role,” the letter states. It provides examples that include, but are not limited to:

  • Compensation resulting from an ownership interest in any other business that is a party to the same FHA-insured transaction; or
  • Compensation earned by a spouse, domestic partner, or other family member that has a direct role in the same FHA-insured transaction.

In addition, for those involved with home equity conversion mortgages (HECMs), the letter states that the “mortgagee and any other party” that participates in originating such transactions “must not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity, unless the mortgagee demonstrates that it or any other party maintains firewalls and other safeguards designed to ensure that:

  • individuals participating in the origination of the HECM must have no involvement with, or incentive to provide the borrower with, any other financial or insurance product; and
  • the borrower must not be required, directly or indirectly, as a condition of obtaining a 

The FHA and HUD said they will welcome “feedback from interested parties for a period of 30 calendar days from the date of issuance” of the letter. Comments may be emailed to the FHA Resource Center at [email protected]

The FHA added that the policy update will be incorporated into a revised HUD Single-Family Housing Policy Handbook 4000.1.

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