As lenders assume responsibility for quality assurance, brokers face new rules

Darrin Stobaugh, owner, DES Financial Services

As published in Scotsman Guide's Residential Edition, January 2010.

(Editor's note: On Dec. 22, the U.S. Department of Housing and Urban Development announced it would delay implementation of new Federal Housing Administration appraiser guidelines until Feb. 15. Previously, they were to take effect on Jan. 1. This article has been updated to reflect the change.)

With the start of a new year come revisions to Federal Housing Administration (FHA) lending programs. These changes intend to rein in defaults related to FHA-insured loans. As FHA lending increased in popularity in the past two years, the rate of FHA defaults also grew.

Other FHA Changes ___________________________ On Nov. 30, the U.S. Department of Housing and Urban Development (HUD) announced other proposed changes to how brokers and lenders work with Federal Housing Administration (FHA) loans. HUD called for increasing the lender net-worth requirement to $1 million, growing to $2.5 million three years after implementation. In addition, the HUD proposal will eliminate brokers -- known as supervised and non-supervised FHA loan correspondents -- from offering FHA-insured loans directly to borrowers. Brokers could participate in FHA programs as loan originators on behalf of approved lenders. FHA would not charge these unapproved originators any fees, and the approved lenders with which they do business would be liable for all loans submitted for FHA insurance. • HUD release on these changes: sctsm.in/FHA1130 • All HUD/FHA mortgagee letters: sctsm.in/mortgagee

Changes taking place Feb. 15, delayed from Jan. 1, focus on slowing the default rate, in part by lowering the number of lenders submitting loans directly to FHA. Mortgage brokers must be aware of the changes, which include:

• Requiring submission of audited financial statements by supervised mortgagees;
• Modifying procedures for streamline refinance transactions;
• Requiring appraiser independence;
• Changing the appraisal-validity period; and
• Affirming appraisal portability.

Other changes also are on tap -- including an increase in required lender net worth -- though the U.S. Department of Housing and Urban Development hadn't announced all details and implementation dates as of press time.

Here's a closer look at changes taking place Feb. 15.

Audited financials

Under the new FHA rules, supervised mortgagees -- i.e., FHA-approved lenders -- must submit audited financials for review (for more on FHA's proposed net-worth requirements, see the sidebar). This not only will ensure lenders are well-funded, but it also will align FHA with Fannie Mae and Freddie Mac operational procedures related to limiting risk. This rule also makes it more cost-prohibitive for small mortgage brokers to deal directly with FHA.

Lenders who want to become approved sellers to Fannie and Freddie already must submit audited financials and meet other quality-assurance measures. By instituting similar rules, FHA places more responsibility for operational risk management in the hands of loan-sellers.

Streamline refinances

To prevent loan churning, FHA revised streamline-refinance requirements regarding seasoning, payment history, income verification and demonstration of net tangible benefit to borrowers. Changes to the program also provide for collection of credit scores when available and limit combined loan-to-value ratios to 125 percent.

Page: 1 2 Next