FHA Proposal Will Stifle Competition, Claims NAMB
The National Association of Mortgage Brokers (NAMB) criticized a Department of Housing and Urban Development (HUD) proposal that would change how brokers and lenders operate in the Federal Housing Administration (FHA) loan program. The association contends HUD’s actions will adversely affect competition in the FHA loan market and have far-reaching economic impacts on lenders and correspondents both. As HousingWire has previously reported, the proposed rule would eliminate the FHA approval process for loan correspondents, instead transferring the role of supervising correspondents to FHA-approved mortgages, who would in turn, be required to hold increased net worth reserves. Most NAMB members that participate in the FHA program are non-supervised loan correspondents, and under the HUD proposal, these members would no longer be eligible to receive independent FHA-approved status. The association asserts this policy change is contradictory to other regulatory actions, specifically the Helping Families Save Their Homes Act, enacted to tighten restrictions on FHA loan program participants. The change would prohibit correspondents from using FHA systems like the Technology Open to Approved Lenders (TOTAL) Scorecard and FHA Connection software systems, both crucial to the mortgage origination process, the group said. NAMB argued correspondents should maintain status with HUD and the FHA, in order to obtain case numbers for FHA loans and communicate directly with the FHA. “If qualified loan correspondents are not given the tools needed to perform their critical functions, borrowers choosing to work with these entities will be forced to apply blindly for FHA loans,” NAMB CEO Roy DeLoach wrote in an open letter to HUD (download here). “Denying loan correspondents’ access to TOTAL Scorecard and FHA Connection will make it impossible for these originators to make any initial determination as to whether a borrower is qualified, the borrower has been excluded from participating in a government loan program, or the property is unacceptable by FHA standards.” The association claims while mortgagees can conduct some oversight over correspondents, most tracking and control functions are better performed by a government agency and called for HUD and mortgagees to share the supervising responsibility. On the matter of increased net worth requirements for mortgagees, the NAMB argues the incremental increase to $2.5m from the current level of $250,000 is unjustified. While HUD cites Fannie Mae and Ginnie Mae’s recent increases in net worth requirements, DeLoach argued that reasoning is flawed. “FHA is more akin to a private mortgage insurance (PMI) company than to Ginnie Mae or the GSEs,” he wrote. “While it is reasonable for Ginnie Mae to establish and maintain criteria similar to that set by the GSEs, since these entities perform similar functions, it is unreasonable and excessive for FHA to impose such requirements when its contemporaries – the PMI companies – require no similar net worth.” The association is concerned that the increased net worth requirements would concentrate power and control of the market for originating FHA-backed loans to only the largest of lenders, increasing the cost of borrowing for consumers. If one of these large lenders were to fail, it would put the FHA insurance fund at risk. In addition, the group said, fewer mortgagees would result in fewer correspondents, especially if the mortgagee assumed responsibility for its correspondents. “The net result will be fewer entities originating FHA loans, as many highly qualified originators will be forced out of the FHA market altogether, due to lack of sponsorship and insufficient capital to obtain independent approval,” DeLoach wrote. Instead of establishing increased net worth requirement, the NAMB wants HUD to explore implementation of a recovery fund, where every FHA-approved mortgagee would contribute to the fund in order to originate, fund or service an FHA loan. The association also warned the proposed rule change could cause correspondents to be subject to new or additional state licensing, which could impact what fees correspondents could collect for the services they offer and new disclosure requirements. NAMB isn’t the first to criticize the proposed rule change. In an analysis of the rule by lawyers at global law firm K&L Gates argued the proposal has far-reaching consequences HUD hasn’t fully considered. Write to Austin Kilgore.