Loan Modification

Will reduced broker access to FHA loans hurt you?

By Gina Pogol

FHA no longer approves mortgage brokers to originate FHA loans.

Instead, it has decided to leave that up to its approved direct lenders. Recently, the agency stated that broker access to FHA products should continue by virtue their current relationships with banks and other wholesalers, saying, “It is the mortgage lender with the greatest control over the mortgage loan that should be subject to FHA?s rigorous lender approval and oversight processes, and bear the greatest degree of responsibility and liability for the mortgage loan obtained by the mortgage borrower and insured by FHA.” So if you are a mortgage broker, as long as the wholesale lender is willing to trust you, so is FHA. Of course, if the direct lender has too many loans go into default, it could lose its FHA approval and with it a lot of money.

Well it looks like not all direct lenders are comfortable with the idea.

Yesterday Bank of America shut down its wholesale lending and cut off broker access to its programs including FHA loans. The lender had opted out of wholesale lending back in 2007, only to resume it following its purchase of Countrywide. Now it has quit wholesale lending again.

Other banks have made a similar decision, citing the greater likelihood of broker-originated loans to end up in default. Employee-originated mortgages have better outcomes according to lender studies.

So does that mean less access to FHA products and less competition for your FHA business?

Not according to Lisa Schreiber, Chief Strategy Officer at NetMore America, a mortgage banker with expanding retail and wholesale mortgage origination channels. In a Niche Report article, she explained that the flip side of this policy change is that responsible brokers who would not have been approved as FHA lenders on their own — because of their smaller size or the fact that they couldn’t afford the audit process required to gain access to FHA programs — can get these programs through lenders they have relationships with. So competition for your FHA business is alive and well.

How do mortgage borrowers find these smaller companies who may offer better mortgage rates?

An easy way is to shop online, checking rate sheets posted by lenders or by completing the form on this site. The Internet puts more lenders on equal footing because they don’t have to put up flagship headquarters or purchase expensive advertising to get on your radar. They need only offer fair deals and earn your business.

Full post as published by FHA Mortgage Guide on October 06, 2010 (boomark / email).