Financial Freedom Raises Correspondent Net Worth Requirements, More to Follow?

Financial Freedom sent out a notice earlier this week announcing it was increasing net worth requirements for wholesale correspondents.  According to the notice:

Beginning 2010 you will be required to maintain a minimum net worth of $100,000 (with 50% liquidity) to continue to be eligible. In addition, Financial Freedom will also be implementing minimum production requirements.

The announcement comes days after the Federal Housing Administration (FHA) proposed a rule which increases net worth requirements of reverse mortgage lenders and would make them liable for the practices of their correspondent brokers.

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The proposed rule would also eliminate independent approval for origination eligibility which they said “will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to participate in the origination of FHA-insured loans”.

Prior to the proposed rule, in order to qualify as an FHA approved correspondent, mortgage brokers needed to provide audited financials showing a net worth of $63,000 and 20% of assets had to be liquid.

Not all wholesale reverse mortgage lenders will be increasing their requirements for loan correspondents.  “We’re staying at what HUD currently requires,” said Sherry Apanay, Senior VP of Generation Mortgage in an email to RMD.   As far as other wholesalers go, it’s not so clear.

RMD contacted another four lenders and one said it expected to join Generation by staying at HUD’s current net worth requirement but had not made a final decision. Others have yet to respond to our request for comment.

Assuming the proposed rule is approved, loan correspondent requirements could get more difficult, the exact opposite of what FHA had hoped if others follow Financial Freedom’s lead.

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  • From a purely bottom line standpoint why wouldn't the lenders make it harder for correspondents to do business? Sure, there is money to be made by working with correspondents but more to be made from the increased production that would result if there were fewer correspondents.

  • I called this as the next shoe to drop after the NRMLA event – the Lenders will begin to put production requirements on their correspondents and eliminate those who do not keep up. I t makes sense from a risk and big bank philosophy, but will continue to hurt the business as good , caring producers will be forced to work elsewhere or leave the industry. It has already started as a result of the other changes, but this is again, the next shoe.

    I'm certainly glad someone is smiling…..as the contraction of this industry continues.

    • Kevin,

      I guess it all depends upon one's view of contraction. If one is looking at employment of the very best, you are are right. If one is looking at overall employment or the the number of choices in companies which originate and variance in origination costs, there will be contraction. What is good for the large lenders may not be in the best interests of either consumers or those who originate.

      One thing it will do is reduce the number of entities HUD must directly oversee. That will be both good and bad.

  • For the long term good of the industry and the homeowner there shouldn't be any variance in origination fees. Whatever sources remain have to be healthy so investment in the business continues. It's getting more expensive to find and fund a deal. For the most part the fee cutters can't provide the type of service and care the industry should want every borrower to receive. Compliance suffers, which is why the approved lenders will be looking more closely at who they do business with. Don't get me wrong. There are lots of great top rate correpondents out there that have always been and will continue to be a credit to the industry. They will hire the best people avaiable, remain very profitable and grow.

    There will be investors that will form big correspondents by acquiring smaller ones to benefit from economies of scale. They will be able to afford working with servicing and/or processing companies that already have added compliance features into their services.

    Once critical mass is reached variable costs fall. Eventually more of increasing revenue will fall to the bottom line.

    This sounds like the “Walmarting” of the RM business. Hopefully we will never reach that point.

    • Talk to rainmand. He claims that dispite his huge discounting he will survive us all.

      Since there cannot be price fixing, there will always be discounts. That is part of the free enterprise system. I really do not believe things are that dire. There is little question that this will be a tough year for most of us. With vendors, NRMLA had 650 attendees in SD. Two years ago it was twice that large at the same location.

      Things sound like their hopping in ol' NJ and NY. I really think NY will be an even hotter spot when coops get on line. Can you imagine Manhattan? That is already one happenin' place. So I guess in part how good or bad things are, is somewhat dependent on where you live.

      Let's go out and get that next deal.

  • comment on the 650 figure- I counted less than 600 on the list provided by NRMLA at the event.
    150 were from the top 8 “big boys”
    250 were the other lenders, service companies, counselors, title cos, lead generation companies, etc.

    That leaves 250 TOPS for the rest, ….for the entire industry.
    Just making an observation, check out the attendee list!

    • Kevin,

      The 650 total was mentioned by Peter Bell. Because the programs are printed in advance of the convention, a significant number of those who actually attend are not included because they register after the list goes to the printer; however, not all who appear on the list actually attend. With larger organizations (NRMLA is small) there is usually an attempt to give a list of changes so that people know who is in attendance. NRMLA does not do that.

      650 might have been a slight exaggeration but the point is, attendance was way down.

      What do you mean by “other lenders?” Who are you including in the “8 'big boys'?”

  • Limiting competition is always bad for consumers. Senior homeowners need choice of product, price and service. Lenders can and will survive that discount fees if they have a business model structure based on that, consumers need that option, and lenders can do it with strong and caring service (it's happening now).

  • Limiting competition is always bad for consumers. Senior homeowners need choice of product, price and service. Lenders can and will survive that discount fees if they have a business model structure based on that, consumers need that option, and lenders can do it with strong and caring service (it’s happening now).

  • I do not believe that FHA's goal is to make Correspondent requirements “less difficult”.

    I believe that the purpose for eliminating Correspondent approval was simply to mitigate loss and to create better ACCOUNTABILITY; a concept in which I am a strong supporter of.

    I applaud Financial Freedom for taking the lead that HUD has exemplified.

    However, I understand that Lenders have been responsible for the practices of their Correspondent Brokers for years, is this really new?

    Travis De Renzo
    http://www.HECM.net

  • I do not believe that FHA’s goal is to make Correspondent requirements “less difficult”.rnrnI believe that the purpose for eliminating Correspondent approval was simply to mitigate loss and to create better ACCOUNTABILITY; a concept in which I am a strong supporter of.rnrnI applaud Financial Freedom for taking the lead that HUD has exemplified.rnrnHowever, I understand that Lenders have been responsible for the practices of their Correspondent Brokers for years, is this really new?rnrnTravis De Renzornwww.HECM.net

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