A proposal by FHA to eliminate correspondents and raise the bar on mortgage brokers – both forward and reverse – may have a silver lining for several industry players.
Possible increases in net worth requirements, strengthened lender approval criteria and greater lender liability for the practices of wholesale clients, appear on the surface to spell fewer originations and less business for smaller players. But it could also bring new business for outsource service providers and new liaisons between lenders and loan suppliers potentially shut out by their previous patrons.
“If larger lenders set high thresholds for brokers to be approved it will create a pool of people and we can find [new] good players,” says Bill Trask, general counsel, Security One Lending. He has heard that the [new] broker approval process “will mean higher net worth to as much as $200,000. It means that at a baseline, we would have to absorb the approval process [costs] that FHA previously used to [pay]. We’ll have to staff up for [these] background procedures.”
Companies unwilling or unable to do this new due diligence will be turning to outside firms for such help, according to Sherry Apanay, senior vice president Generation Mortgage Co. “We have a new vendor that is going to perform much more detailed due diligence for approval and provide monthly monitoring,” she tells RMD.
The FHA move is intended to “further reduce risks to [our] single-family insurance fund as [we] continue to play a critical role in today’s housing market,” the agency states. It will permit FHA to “more effectively focus its resources on lenders that pose the greatest potential threat to [our] insurance funds and to ensure that lenders possess the resources appropriate for the financial services they deliver.”
Security One’s Trask reasons that the change is a direct result of FHA’s large jump in loan-backing during the recent housing market downturn. “When you go from 5 percent to 32 percent of the market without increasing staff it means they’re stretched pretty thin.”
Written by Neil Morse