FHA Lender Approval Announcement – April 5, 2010

FHA announced on April 5th more details about the elimination of broker approval and the increasing net worth requirement for FHA DE lenders. There are many problems with the announcement. 1) Commissioner Stevens likes to get the word out before the final word is issued. In other words we don’t have an actual final rule to work with yet, only two different press releases. These are just the political strokes to try to convince people this is strengthening FHA. All they really do is leave our industry hanging and speculating and form some: panicking. There are too many unanswered questions still. 2) Supervised and non supervised loan correspondents will lose their direct FHA approval effective January 1, 2011. Therefore, these entities will spend the rest of 2010 trying to determine what the wholesalers will want so they can retain the ability to originate FHA loans. Under FHA review, these entities would need to provide audited financial reports. They are also required to maintain regular quality control audits of their closed and denied loan pipelines. It will be interesting to see if the wholesalers really implement a better process monitoring the quality of their third party FHA originations. 3) The announcement references ‘small businesses’ and these entities will be permitted an interim $500,000 net worth requirement instead of the $1m. What is the definition of ‘small business’ in this ruling? I guess we’ll have to wait to find out! 4) What is this sentence in the announcement suppose to mean?!: Mortgage brokers or other third-party originators, already approved by FHA, will be authorized to continue to originate FHA-insured loans through the end of the calendar year without sponsorship of an FHA-approved lender. How does an FHA loan correspondent operate without a sponsorship? Who underwrites the loan? Did they just give all the loan correspondents underwriting authority? I doubt it, but you get my drift. This is a poorly worded qualifying statement. I think this is telling us that a company who cannot qualify at the $1million net worth (or $500k if you are the TDB small business type) will need to be sponsored by a wholesaler. Will FHA define the responsibilities of a wholesaler’s sponsorship and/or the sponsorship process beyond typical general statements? 5) The announcement states this is all a good idea because it’s the same process Fannie and Freddie use. That just isn’t a confidence booster in my opinion. I think they need a different reference to use when trying to convince all of us that this is a good idea. Frankly the only positive is that FHA will be able to reassign the lender approval staff. Let’s all recommend to FHA that this group is moved to help the call center!