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.

HUD Grants Cushion for New Regulatory RESPA Requirements

The US Department of Housing and Urban Development (HUD) announced today that it would instruct the Mortgagee Review Board (MRB) in enforcing the new Real Estate Settlement and Procedures Act (RESPA) requirements during the first four months of 2010. The instruction means that as long as FHA-approved lenders are acting in good faith in the spirit of the new RESPA guidelines, they will hopefully be immune from actions against them. HUD is also asking federal and relevant state agencies to give lenders the same 120-day grace period.

A lender will be considered to be in good faith based upon whether the lender is using the new RESPA guidelines and other FHA materials for guidance and whether they have invested in and committed to the training, technology, and quality assurance necessary to be in compliance.

Given the burden the new RESPA guidelines will place on lenders, it is good of HUD to allow more leniency in punishing lenders for being out of compliance-- at least in the early stages of the new regulations. Changes include the use of a new standardized Good Faith Estimate (GFE) with specific disclosures as to the key loan terms and closing costs. The changes to RESPA go into effect on January 1, 2010. They apply to reverse mortgage lenders as well as traditional mortgage lenders.