Loan Modification

Canned! FHA Pulls Approval of Over 900 Lenders

By Gina Pogol

In 2010 thus far, the Federal Housing Administration?s Mortgagee Review Board (MRB) has sanctioned nearly 1,500 lenders. Actions taken include reprimands, probation, suspensions, approval withdrawal, and fines.

A list of the spanked lenders can be found in the Federal Register.

?Lenders should know by now that FHA will not tolerate fraudulent or predatory lending practices,? proclaimed FHA Commissioner David Stevens. ?Any FHA-approved lender that does business with us must follow our standards. If we determine that our partners are not playing by the rules, we will take action — it?s that simple.?

According to the report, the MRB withdrew FHA approval of 905 lenders for one year for lack of compliance with its annual re-certification requirements. The list of companies named in report include CitiMortgage, Equitable Trust Mortgage Corp., Academy Mortgage Corp., VanDyk Mortgage Corp. and more.

What gets a lender suspended or worse?

FHA lenders with moderate-to-serious violations go before a Mortgage Review Board (MRB) for sanction.

Lenders can end up there by committing any of a wide variety of missteps, for example:

1. Operation without HUD approval or proper branch office registration (something to check for before you give a lender your personal information).

2. Improper handling of escrows (I once worked with a loan agent who took a non-English-speaking borrower’s down payment in cash and neglected to deposit it with the title company for two weeks — of course he was fired immediately)

3. Failure to submit annual audited financial statements (FHA lenders must be financially healthy).

4. Failure to satisfy ongoing requirements for FHA approval concerning, for example, net worth, liquidity, warehouse lines of credit, and payment of application and annual fees.

5. Submission of false information to HUD in any transaction (make sure everything you sign is accurate; never sign a blank application).

6. Employment or retention of officers, partners, directors, principals or employees who have been suspended, debarred, or subject to a Limited Denial of Participation (in most states, you can check the license / disciplinary status of your lender with the financial institutions or real estate division).

7. Violating RESPA (make sure you get your mortgage disclosures within three days of your loan application).

FHA has recently shifted the approval burden for mortgage brokers onto the wholesale lenders they work with.  Wholesalers are now responsible for any of their fundings originated by their brokers and insured by FHA.

Only an approved FHA-lender can fund an FHA loan. Anyone else will have to submit it through an FHA-approved direct lender. You can find FHA-approved direct lenders on HUD’s Web site.

Full post as published by FHA Mortgage Guide on July 27, 2010 (boomark / email).