Is Lowering The Bar For FHA Mortgage Broker Approval A Good Thing?
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Since the original House Bill 1852 passed way back in September one element of that bill has caused me more than a little bit of concern. The House version of the FHA Modernization bill makes it possible for a mortgage broker who is not presently able to meet the requirements for FHA lender approval to use a bond to qualify instead of meeting the traditional audited net worth requirements.
The purpose of this change is to make the FHA loan program available to more borrowers. I am all in favor of that.
I was waiting for the Senate version to pass before I gave the issue much more thought. The Senate version fails to address this provision at all. However, according to a post that I just read on the Active Rain website by Eleanor Thorne of New Garden Mortgage in NC there is no opposition to that provision in the Senate and it will likely be included in the final reconciliation of the bill .
I sincerely want the FHA opportunity to reach as many borrowers as possible. However, I am seriously worried about the risk involved in potentially letting the same group of money hungry animals that lead us into the subprime mortgage abyss get their paws into the FHA cookie jar. Some of the subprime mortgage programs in trouble now started out as real benefits to borrowers who needed help and deserved to own a home, but couldn’t yet qualify for FHA. However, subprime lending rapidly degenerated into a free for all of fraud and constantly easier guidelines devoid of common sense. Many among the group of mortgage brokers so hungry to get into FHA lending now were leading that charge.
On the other side, I know many fine, upstanding, honest and professional mortgage brokers who don’t yet have the required net worth and can’t afford to pay astronomical fees for CPA audited financial statements needed to meet FHA approval requirements. The reasons for that run from lack of business caused by excessive honesty to ordinary prudence in not wanting to tie up substantial personal assets in a risky business like originating mortgages. Nonetheless, many of this group would make excellent additions to the FHA lending ranks.
All I can do at this point is wait to see how the final reconciled bill will turn out and in the meantime encourage everyone who is serious about FHA lending to make sure they get all the education on the subject they can find.
Related posts:
- Update: FHA Reform Bill Passes The Senate
- FHA Mortgage Reform: Still Waiting!
- FHA Mortgage Reform: The Bill Is Heading For A Vote!
- FHA Mortgage Reform: More Petty Politics In Action
- FHA Mortgage Reform Newsflash: Finally – Some Good News!
Filed under: FHA Updates • H.R. 1852 • HUD Regulations • Industry Information
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As an upstanding mortgage broker, I would submit to you that the exposure to a mortgage broker (whether they know it or not) is far greater by posting a surety bond than producing audited financials. If unscrupulous activity is going to occur, I stand to immediately feel the wrath if a surety bond is revoked and all of my assets are frozen, thusly shutting down my accounts at warp speed. I also believe that following the VA’s lead by letting the lenders determine what brokers they want to sponsor is the ultimate test as to how upstanding a broker really is. Afterall, if it’s the lender’s money I’m brokering, shouldn’t they have the largest say in how reputable I am? I’m a huge fan of the surety bond provision quite simply because I don’t want the expense of audited financials. Thanks for your interest in this issue.
James,
Very good points. I agree with you. I could be wrong, but my feeling is that the lenders have learned their lesson about neglecting quality control just because they are selling the loans. They realize now how quickly the flow of money they need can dry up. There’s no reason to inject any more bureaucracy into the situation than necessary.
I agree with James on this. In 11 years in this business I can count on one hand the number of sub-prime loans I have done. I’ve done one option arm and that was on a co-brokered loan that the co-broke setup with the borrower (I do not intend to co-broke any more loans). I cannot and will want attempt to meet the old requirements and in order to stay in business I will need the FHA. Hopefully the politicians will move their butts on this quickly.
I have been in business for 11 years as a private mortgage broker. I have established my business on honesty and integrity, moving carefully into conventional financing as my business has grown. I am doing well but want to serve my community better (I am the only mortgage broker left in a community of 20,000 people). FHA and USDA are what we need but struggle with the heavy regulation of doing those loans. As people are being turned away from banks, I need to be able to help but my hands are tied. Surety bonds are the answer and I have complied with every part of that as well as the heavy regulation by DFI. Isn’t that enough to verify my integrity and desire to help people?