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Do_the_math
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Joined: 14 Mar 2007
Posts: 2564
Location: Groovy Town

FHA Termination of Broker Approvals
PostPosted: Wed Dec 16, 2009 9:11 pm Reply with quoteBack to top

On November 30, 2009, HUD published a proposed rule in the Federal Register (Volume 74, No. 228) seeking to eliminate HUD oversight of mortgage brokers (FHA correspondents). The rule proposes to terminate the FHA approval process for brokers, and instead require lenders to ensure brokers meet applicable standards. Lenders will also be required to assume all liability for brokers.

Excerpt from Proposed Rule: (DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 202
[Docket No. FR 5356–P–01] RIN 2502–AI81)

Quote:

Quote:
SUMMARY: Through this proposed rule,
HUD continues its efforts to streamline,
modernize, and strengthen the mortgage
insurance functions and responsibilities
of FHA, as authorized by provisions
contained in the National Housing Act,
as amended by the FHA Modernization
Act of 2008, and further supported by
the Helping Families Save Their Homes
Act of 2009. First, FHA proposes to no
longer approve loan correspondents as
approved participants in FHA programs.
Mortgagees would be required to ensure
that their loan correspondents meet
applicable requirements. The FHA approved
mortgagee will, in turn, act as
sponsor as it has in the past. However,
in using a sponsor/correspondent
relationship, the sponsoring mortgagee
must agree to assume responsibility for
any loan correspondent that works with
the mortgagee in the FHA insured loan,
and assume liability for the FHA insured
loan underwritten and closed in
the name of the FHA-approved
mortgagee.


The comment period was shortened from 60 days to 30 days. This is consistent with Steven's comments and testimony of HUD officials.

What's next? AMC's for mortgage brokers?

I would not be surprised to see broker compensation limited to 1%.

HUD also published a proposed rule to implement the Safe act.

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frankensense
Dyn-o-mite!


Joined: 11 Sep 2009
Posts: 204

Re: FHA Termination of Broker Approvals
PostPosted: Wed Dec 16, 2009 9:33 pm Reply with quoteBack to top

You're on the right track. NAMB talks about the elimination of the 1% cap as a victory. I really hope they aren't that dumb. It isn't a victory, it is necessary to allow for the new GFE coming next month.HUD thinks that with the new disclosure, no homeowner in thier right mind would pay more than a point so why create the problem of the adjusted origination. Problem is, BORROWERS DON"T SIGN IT. Talk about non disclosure. That will be the in fashion fraud key come Jan. Shady shops will have their own or old form signed and turn in the new form to the lender. Who is going to check with the borrower to make sure they saw it?
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Do_the_math
The WhistleBlower


Joined: 14 Mar 2007
Posts: 2564
Location: Groovy Town

Re: FHA Termination of Broker Approvals
PostPosted: Wed Dec 16, 2009 9:44 pm Reply with quoteBack to top

frankensense wrote:
You're on the right track. NAMB talks about the elimination of the 1% cap as a victory. I really hope they aren't that dumb. It isn't a victory, it is necessary to allow for the new GFE coming next month.HUD thinks that with the new disclosure, no homeowner in thier right mind would pay more than a point so why create the problem of the adjusted origination. Problem is, BORROWERS DON"T SIGN IT. Talk about non disclosure. That will be the in fashion fraud key come Jan. Shady shops will have their own or old form signed and turn in the new form to the lender. Who is going to check with the borrower to make sure they saw it?


HUD already set precedent for the 1% limitation via the statements made by Steven's on Equitable Trust:

http://portal.hud.gov/portal/p.....DNo.09-226

Excerpt:

Quote:
FHA limits the total loan origination charges a borrower is required to pay to one percent of the mortgage amount. In this case, FHA found that ETM charged borrowers both a broker fee and an additional one percent origination fee. By charging both a broker and an origination fee totaling more than one percent of the loan amount, ETM received excessive compensation and improperly charged consumers duplicative and unreasonable fees to originate their loans.


It is my understanding that brokers must charge a corresponding fee and can't collect straight YSP without a corresponding charge. This is problematic if HUD continues to take this stance.

I've noticed that some state regulatory agencies have noted the same violations. If a mortgagee is violated for this by HUD or any state agencies, they would be subject to enforcement actions or financial sanctions.

Its an interpretation that creates a regulatory paradox. If broker fees and compensation is limited to 1%, there is no way for brokers to charge a corresponding fee in excess of 1%.

Good luck with that NAMB.

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suzyQ
Wrecking crew


Joined: 13 Feb 2008
Posts: 1905

Re: FHA Termination of Broker Approvals
PostPosted: Wed Dec 16, 2009 10:00 pm Reply with quoteBack to top

As an FHA direct bank, underwriting and compliance on these loans is painstaking excruciating detail - because we are totally responsible for buyback or early payment default. Origination has always been limited to 1% - however, YSP an SRP allowed commensury compensation for the effort and potential liability.

I will probably limit more of my personal production because many of these loans would be an act of charity. At 1% on a $150,000 loan for challenging buyers I often work with for 3-6 months - compensation of about $1,000 doesn't cover the time involved.

And many of these buyers are purchasing bank REO property - where we have diligently made the closing date, docs are signed and we are waiting to fund - only to have the REO bank take another two weeks to sign off. Last month I had to pay extension fees on two purchases in this same position - $750/each - which was in my YSP pricing - I have it there fully knowing it will ofter get chewed up with a problem. Along the 1% scenario - I would have had no choice but to charge the borrower, redisclosue, resend docs, etc - and the deal could blow for any variety of
reasons in the interim.

With FHA's abysmal default and late pays significantly escalating on loans that were just originated the last two years when at the same time brokers were allowed into the game without the due diligence that was applied in prior years - they are basically and maybe finally locking the barn door.

Regulatory fallout will continue to be the case - unfortunately our entire society has to be regulated to the lowest common denominator. If someone can get away with something in our industry - they will continue to do it. Sad but true.

I think the last ten years will become known at the Golden Era of Fraud - some type of toxic fallout of the breakdown of America's value system. Its not a train we can reset on the tracks very easily. Too much wrong from Wall Street to Main Street. We are still in crisis management - triage. ICU. The patient is critically ill - life support, transfusions, prayers, voodoo - you name it. Survival unknown.

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PHM
Dud?


Joined: 18 Jun 2008
Posts: 21

Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 12:33 am Reply with quoteBack to top

I know this is a HUD PROPOSED change. When is this proposal being decided if it will be in effect for 2010? does anyone know? We are at that audit time of year again. I cannot seem to find the definitive answer from anyone if we need our annual audited financials to continue our FHA originations in 2010. Time is ticking

Anyone??
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Do_the_math
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Joined: 14 Mar 2007
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Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 12:55 am Reply with quoteBack to top

PHM wrote:
I know this is a HUD PROPOSED change. When is this proposal being decided if it will be in effect for 2010? does anyone know? We are at that audit time of year again. I cannot seem to find the definitive answer from anyone if we need our annual audited financials to continue our FHA originations in 2010. Time is ticking

Anyone??


That is a tough one. The comment period is being limited to 30 days instead of 60. This puts it at the end of December 2009. HUD could expedite the change to the beginning of 2009 if there isn't substantial public resistance.

What is your re-certification date? And what is your drop dead date on your audit? I would not put myself in a position where I would risk letting your approval lapse, yet there is a likelihood that you will not be able to be FHA approved if the FHA adopts the final rule.

Have you signed your engagement letter? Is it possible for you to delay the audit and then pay an additional fee to expedite your audit and LASS reporting (I HATED doing LASS every year)?

Its unclear what the lender approval standards will be or whether audited financials will still be required. HUD may still require that lenders ensure that brokers still meet existing FHA requirements.

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MakingIt
Nitroglycerin


Joined: 04 Dec 2007
Posts: 629

Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 4:01 am Reply with quoteBack to top

PHM wrote:
I know this is a HUD PROPOSED change. When is this proposal being decided if it will be in effect for 2010? does anyone know? We are at that audit time of year again. I cannot seem to find the definitive answer from anyone if we need our annual audited financials to continue our FHA originations in 2010. Time is ticking

Anyone??


What makes you think that there will be no more audit ? I would bet lenders have standards that are SAME or TOUGHER than current standards.
Imagine an audit plus a bump in net worth. Each lender will have their own standards and I highly doubt any lender would want to be adversely selected by being the easy lender to sign up with. OR could grandfather current brokers and have a tougher standard initially for new brokers. This is all speculation at this point.
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Do_the_math
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Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 4:12 am Reply with quoteBack to top

MakingIt wrote:
PHM wrote:
I know this is a HUD PROPOSED change. When is this proposal being decided if it will be in effect for 2010? does anyone know? We are at that audit time of year again. I cannot seem to find the definitive answer from anyone if we need our annual audited financials to continue our FHA originations in 2010. Time is ticking

Anyone??


What makes you think that there will be no more audit ? I would bet lenders have standards that are SAME or TOUGHER than current standards.
Imagine an audit plus a bump in net worth. Each lender will have their own standards and I highly doubt any lender would want to be adversely selected by being the easy lender to sign up with. OR could grandfather current brokers and have a tougher standard initially for new brokers. This is all speculation at this point.


There will always be lenders that will allow the minimum standards required by FHA. No more, no less.

The question remains what HUD will require for lender approval. It also remains to be seen if HUD sets a limit on broker fees. There is still the power to do so, and Stevens comments against Equitable Trust should raise an eyebrow.

We all know brokers have earned in excess of 1% for years. Brokers had been allowed by lenders to charge origination, discount, and earn YSP.

With the new changes to the GFE and RESPA, total broker fees must be disclosed. HUD can cap the amount of total broker fees. Keep that in mind.

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MakingIt
Nitroglycerin


Joined: 04 Dec 2007
Posts: 629

Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 4:26 am Reply with quoteBack to top

HUD will have no minumum standards as there will be no such thing as loan correspondent or mini eagle. No lender in this environment would make easier. To answer the question, 99 % chance that audited financials would be needed, so don't hold off on them.

HUD has already said FHA cap is 4% with new GFE. FHA's little brothers, VA and RD , have not said a word yet.

It's the Flat Fee movement that is just plain silly , crazy , punitive, and wrong.
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Do_the_math
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Re: FHA Termination of Broker Approvals
PostPosted: Thu Dec 17, 2009 5:22 am Reply with quoteBack to top

HUD can still cap broker fees. How many times do lawmakers allow a loophole to get something passed only to close the loophole at the first chance?

HUD has recently gone after lenders for charges in excess of 1%- even when broker charges were disclosed to offset YSP credits (which is actually in the correct spirit of disclosure as set forth in HUD SOP 2001-1). State regulatory agencies are following suit.

I can't see lenders setting up departments to review audited financial statements and a host of additional information. The reality is that current broker net worth requirements offer lenders very little in the way of recourse. A bond requirement is much more likely. Its much easier to verify a bond and insurance coverage than it is to analyze audited financial statements.

An educated guess would be that lenders (and HUD) will require evidence of State Licensing under the SAFE act, and bonding. Seems much more likely and fruitful than collecting audited financial statements that do little to protect the lender (not that the lender broker approval departments ever knew how to read them).

An educated guess would also be for HUD to place a 1-2% cap on broker's fees within 6 months. I mean really, do you honestly think that the big banks will continue to allow such high profit margins for brokers when lenders obviously have significant political pulll and a borderline monopoly on the market? The benefit of brokers is immediate market saturation and reduced administrative costs. I think the big banks are willing to give up 1-2% for the convenience, but no more. Furthermore, the higher the compensation, the higher the incidence of fraud.

Remember, whenever there is a big pile of money, there are crooks circling it.

If by June 2010, I'm wrong, I'll send you a bottle of wine. If by June 2010, I turn out to be right- I'd like a nice bottle of Port. Wink

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