FHA Puts Broker Due Diligence on Reverse Mortgage Wholesale Lenders Shoulders

image The Federal Housing Administration (FHA) announced some important changes being pursued by a rule making process which gives non-FHA approved mortgage brokers access to FHA insured products (ie. reverse mortgage).  The proposed changes also impose new financial requirements for Mortgagees to help to ensure that FHA lenders are sufficiently capitalized to meet potential needs said a statement from HUD

Currently FHA’s net worth requirement for approved mortgagees is $250,000 and has not been increased since 1993.  HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule. 

Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility.

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According to HUD, these policy changes will require an FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee.  They feel that these changes align it with the GSEs and will potentially increase the number of loan correspondents who are eligible to FHA-insured loans.

“It appears that FHA/HUD is pushing down the responsibility of the due diligence to the wholesale lender level,” said Sherry Apanay, SVP of Generation Mortgage.  Therefore wholesalers will have to determine the net worth requirements, financial strength, and other criteria that is necessary.

“Not only does this increase our risk and cost but instead of adding to the brokers that participate in FHA loans, it may decrease the number,” said Apanay.  She added that, “brokers will have to get used to more direct influence from their lender when it comes to QC and lending practices.”

Most wholesalers in the reverse mortgage industry already impose a set of strict standards that partners must follow, but this could increased since FHA is requiring the wholesalers to take responsibility for the loans originated through its channel.

These proposed rule provisions will be subject to a notice and comment period, after which the final rule will take effect.

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  • Another nail in the coffin of correspondents and brokers. It's a good thing. Sherry Apanay's statement about the number of correspondents decreasing is an understatement.

  • Okay, I'll ask the two obvious questions.

    So what exactly are we talking about here? Is it penaties for compliance shortcomings or are we talking about a lender having to eat defaults on files where at some point in the future the FHA retroactively denies mortgage insurance coverage?

  • This is not a nail in the coffin of brokers. It's simply more in line with how the traditional wholesale mortgage business has always worked. There's a reason why brokers exist (at least the good ones) – they bring choice and value to their customers.

  • Mr. Jackson is right.

    HOWEVER, it is not just the one action listed above that will drive correspondents out of this business. It is the cumulative impact of so many changes that have occurred, are occurring and will occur over the next 120 days that will ultimately strike so hard at correspondents.

    Many expect to see YSP gone from all HECMs starting in January due to RESPA changes. This could be THE final nail in the coffin for most correspondents.

  • I think it just shows that lenders will need to modify their approach on how they manage and review the brokers they approve. The quick review and the buddy referals are going to be a thing of the past.

  • I think it just shows that lenders will need to modify their approach on how they manage and review the brokers they approve. The quick review and the buddy referals are going to be a thing of the past.

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