 Call to Action: FHA Proposed Rule (December 28, 2009)Dear NAMB Member,On November 30, 2009, the Department of Housing and Urban Development (HUD) released an FHA Proposed Rule on loan correspondents (mortgage brokers) no longer needing independent FHA-approval for origination eligibility, as well as increasing the net worth for FHA-approved mortgagees. Comments are due by December 30, 2009. NAMB supports some of the efforts by HUD, however there are significant concerns with aspects of the rule that are ultimately harmful to consumers and small businesses. While NAMB continues to craft its comment letter, we are asking that NAMB Members send their own letters to HUD. Provided below are talking points that will assist you in crafting your letters as well as submission information. 1. HUD Rule: FHA proposes to no longer approve loan correspondents as approved participants in FHA programs. “Loan correspondents will continue to be authorized to participate in the origination of FHA loans through association with an FHA-approved mortgagee, but these entities no longer will be subject to the FHA lender-approval process.” NAMB Position: o NAMB supports this decision that would allow mortgage brokers to function similarly to the way they currently operate with Fannie Mae & Freddie Mac. o This would open opportunities for more brokers to participate in the FHA program, thus leading to significantly less expense on the broker’s part. o NAMB does not support brokers being unable to pull case numbers for FHA loans or communicate directly with FHA as a mortgagee. o Lack of communication or access to FHA websites would create difficulty in determining if parties are eligible for FHA financing. o Correspondents should have full access to the FHA Connection and be able to pull case numbers and assign FHA-approved appraisers. This is a benefit to consumers and the economy. o Correspondents should retain full access to HUD to ensure education and information flow to keep a healthy program. 2. HUD Rule: Sponsoring mortgagees would be required to ensure that their loan correspondents meet applicable requirements. NAMB Position: o HUD’s requirements are essentially the requirements of the SAFE Act, which will not be fully implemented until at least January 1, 2011. RESPA is scheduled to take effect a year earlier than these requirements. o It is acceptable for HUD to set standards for originators that can reasonably be performed by sponsors. Some tracking and control functions are better performed by a government agency. o Correspondents should be maintained with a shared oversight role between HUD and sponsors. o Sponsors can effectively manage the quality control reviews rather than Correspondents. 3. HUD Rule: 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. NAMB Position: o NAMB recognizes that this requirement isn’t a new development from HUD, as stated in the Consolidated Audit Guide for Audits of HUD Program 7-4 and 7-5. o This rule plays on a loophole in the Helping Families Save their Homes (HFSH) Act: (1) REQUIREMENT.—Any person or entity that is not approved by the Secretary to serve as a mortgagee, as such term is defined in subsection (c)(7), shall not participate in the origination of an FHA-insured loan except as authorized by the Secretary. o The HSFH Act placed prohibitions on advertising by mortgagees that will not be applicable to non-mortgagees. There are restrictions on using the name Federal Housing Administration or FHA that will make it difficult to know who is authorized to advertise FHA mortgages. o In general, the intent of the HFSH Act was to tighten restrictions on those originating loans under the FHA program. It would be impossible for sponsors to exercise that authority. An example would be when an originator working for a company is sanctioned under the SAFE Act. No sponsor could track such actions and would not have the authority to take action against a company. o The rule states in its reasoning on correspondents, “but they would no longer be subject to the rigorous FHA lender approval process, which is more appropriate for those entities that underwrite the loans.” This statement, in itself, indicates less scrutiny of those originating FHA loans. 4. HUD Rule: The loan must be underwritten by and closed in the name of the FHA-approved mortgagee. NAMB Position: o This will create problems in states with other state and federal laws where correspondents act as a lender. It will make anyone who is not a full mortgagee a mortgage broker, irrespective of their net worth. 5. HUD Rule: FHA proposes to increase the net worth requirement for FHA-approved mortgagees for the purpose of ensuring that approved mortgagees are sufficiently capitalized. NAMB Position: o The rule would greatly increase the net worth requirements for approval as an FHA mortgagee. Currently, FHA only requires a $250,000 net worth requirement to be a full mortgagee. That would change to $1 million dollars in one year and $2.5 million dollars in three years. The increased net worth could eliminate a large number of smaller wholesale lenders who are currently servicing mortgage brokers. This would eliminate choice, and harm consumers. o The analysis of the financial impact is misleading. They reason, “Because assets held for net worth may still be invested elsewhere, it is only the 20 percent liquid asset portion of a mortgagee’s capital that is affected by the increased net worth requirement.” Converting business assets to corporate assets will not result in the same yield or even similar yield, especially when those assets must be liquid. o In terms of when lenders become brokers, HUD states, “The functional impact of the option is that they no longer would be able to underwrite and process the loans they originate. The economic impact that would result from those limitations would be the loss of income from those aspects of the FHA mortgage lending process they no longer would be permitted to perform and the added costs they would be required to pay to their sponsor for processing and underwriting.” o HUD reasons that these entities would only lose a $200 processing fee. This results in a $45.1 million loss. Lenders receive an increased amount over brokers on sale of loans due to their RESPA rules and the Fed’s TILA rules. It is close to a 1% difference in revenue. These companies will lose employees and will no longer be able to act as wholesalers creating as much as a $1 billion or more impact. o We concur that the audit is not of value for Correspondents. o The net worth requirement is excessive. It is understandable why Ginnie Mae should have criteria similar to the GSEs since they perform similar functions. FHA is similar to PMI companies who have no such net worth requirements. Submission Information: Docket No. FR 5356–P–01 Title: Federal Housing Administration (FHA): Continuation of FHA Reform— Strengthening Risk Management Through Responsible FHA-Approved Lenders ADDRESSES: Interested persons are invited to submit comments regarding this proposed rule to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title. 1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-0500. 2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the www.regulations.gov Web site can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically. Note: To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the rule. No Facsimile Comments. Facsimile (FAX) comments are not acceptable. Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m. weekdays at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance by calling the Regulations Division at 202-708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Information Relay Service at 800-877-8339. Copies of all comments submitted are available for inspection and downloading at www.regulations.gov FOR FURTHER INFORMATION CONTACT: Office of Lender Activities and Program Compliance, Department of Housing and Urban Development, 451 7th Street, SW., Washington, DC 20410-8000; telephone number 202-708-1515 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Information Relay Service at 800-877-8339. |