HUD Proposes New Rule to Change Broker Approval Process

In a new HUD rule proposed today, HUD seeks to change the process to become an FHA approved lender, among other things. Whereas currently the FHA approves both mortgagees and correspondent lenders, the new rule would streamline the approval process so that the FHA will only approve mortgagees. Correspondent lenders will then need to be “sponsored” by an FHA-approved mortgagee, with the sponsoring lender assuming responsibility for the loan correspondent. This means that the sponsoring lender would be responsible for insuring that the FHA loans from the loan correspondent meet FHA standards, correspond with the HFSH Act’s requirements and meet the requirements for integrity and financial soundness. If the loan correspondent is found to be out of compliance, the FHA-approved mortgagee would be liable for sanctions.

The new HUD rule also increases the net worth requirements for FHA-approved mortgagees from $250,000 to $2.5 million over three years. The changes will also apply to those applying for FHA mortgagee approval.

The FHA is soliciting public comments on the proposed rules via mail and email through December 30, 2009, a period of 30 days as opposed to the usual 60 days. The proposed changes are unsurprising, as the FHA has seen an unprecedented number of lenders applying for approval in the last two years, and there is already a huge backlog of lenders waiting to be approved. The proposed changes will hopefully help reduce FHA’s workload while allowing more lenders to originate FHA loans (though likely as correspondent lenders instead of full-fledged mortgagees).

The proposed rule can be found in its entirety here.