HUD has just release the final rules on the required net worth requirements for mortgage  lenders to keep their HUD approval.

If your net branch company is currently a HUD approved lender the new HUD rule will increase the minimum net worth by 4 times. The old net worth requirement was $250,000, the new one is $1,000,000 plus 1% of volume for mortgage lenders that generate over $25,000,000 per year (meaning all companies with production of over $2,000,000 a month).

Some estimates say that at least 25% of current lenders will not be able to meet the new net worth requirements.

If you ware currently with a net branch group or are considering joining one, you need to make sure that the company is financially able to stay in business.

Net Branch – FHA – HUD

I always welcome comments, questions, and subscribers!

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.

HUD has extended the deadline for correspondent lenders (mortgage brokers) to provided their audited financials.

The big problem is that the extension period is useless. It’s a 30 day extension.

Since HUD has a proposed rule change in the works that will eliminate the approval for Loan Correspondents (Brokers) There is almost a 100% chance that  the financial audits will not be necessary.

Financial Audits for HUD are expensive and time consuming. They cost thousands of dollars and must be completed by a CPA.

Doesn’t any one at HUD know that it is tax season. Extending a deadline from March 31, 2010 to April 30, 2010 for work that a CPA has to complete will not help the Mortgage Broker  Companies one bit.

They are still going to have to pay to have the audits completed.

I can hear the call to the broker’s CPA – Hi Bob, Great news! HUD has extended the deadline to April 30 for our financials. Since they are preparing to eliminate the requirement you might not have to do them for me this year.

Bob laughs uncontrollably for 10 minutes and then tell the Broker that audits take 60 – 120 days to complete and since HUD as of today still says you have to have them you will have to pay for one even though HUD has said that the Audit will more than likely be unnecessary.

The NAMB brain trust was in DC last month. Did anyone at HUD bring up this extension idea with them for input? Does anyone at HUD know a CPA?  Does anyone at HUD know that it is tax season? Does anyone at HUD care?

Net Branch – HUD – FHA

I always welcome comments, questions, and subscribers!

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.

There is now a new 4 page GFE (Good Faith Estimate) and new disclosure rules to go with it. The new GFE has you disclosing the figures several different way to (in theory) help the borrower better understand the transaction.

The initial fees that you disclose are now locked in and you cannot change them. Meaning that if you disclose 2% fees on a $200,000 loan ($4,000) and the loan amount changes you are tied into the dollar amount that you disclosed not the percentage.  There is a very small margin of error on some of the fees, but for the most part they are locked in.

The initial fees you itemize on your Good Faith Estimate now must carry over to your HUD-I closing statement.

How you disclose YSP has completely changed. If you are closing the loan as a mortgage broker you will show the YSP as a credit to the borrower, then you will have the borrower sign a mortgage broker agreement  to pay you the YSP.

The YSP like other costs on the GFE cannot change later in the transaction without completely re-disclosing the loan.

There is some ongoing  discussion about how the YSP is disclosed. Bottom line if you are a broker the old method used in many state allowing you to state the YSP as a percentage range (o% – 3%)  and not counting it in the closing costs is no longer legal.

HUD has published a new Settlement Booklet that you must provide to the borrower(s) with in 3 days of the application date .  It covers both the new GFE and the new HUD-I statement. I have provided a link  to the new document.
Settlement Booklet

For branch managers and  loan officers the changing rules continue to make it more difficult to earn a living. The opportunity is in learning work within the new rules. Someone will close that next loan – will it be you!

I always welcome comments and subscribers!

If you would  like to know more about our net branch partner program visit our Frequently Asked Questions page.
http://www.netoriginator.com/NetBranchFaq.htm

mortgage net branch managers in 2010.

I have noticed that there are several “side businesses” trying to recruit loan officers.

By “side businesses” I mean companies that offer services like credit repair or loan modification.

My in-box is full of offers and I see recruiting ads everywhere.

These companies are trying leverage the loan officers ability to connect with a group of clients that could also be prospects for their business. This is common business practice and you can find this in many industries.

It does raises a few real important questions.

1. What is the best use of your time.

Should loan officers invest their time building their own origination business or become a referral source to help someone else build their business?

Should you spend your time finding credit repair leads or another type of mortgage or real estate related service for someone else instead of investing your time in developing a referral network that delivers you an ongoing stream of business?

Credit repair and loan modification are not bad things (although everyone has heard the stories of companies that charged for services and did not deliver much in the way of results) and these services could help some people in the long run.

But I think that the question is really about time, focus, and reward.

How much time do you have to spend, is the activity diluting your focus, and how much of a reward will you receive.

Based on time and reward I think anyone would be better off focusing on their core services. You will profit more by focusing on the activities that help your core business instead of diluting your focus by spending time and effort on an activity that does not generate revenue for your core business.

Ask your self the question. Am I a loan officer or a loan modification representative? If you have to decide – which one are you?

What ever your answer is that is what you should focus on. Any one who tries to be all things to all people will fail at all of them.

2. Is this legal?
If you originate FHA loans – in today’s environment almost everyone does – you could be in violation of HUD employment rules.

HUD says it is OK for a mortgage company’s employees to have other employment but it cannot be with another mortgage company, a real estate company or any other finance related company. Here is the exact wording from the HUD handbook “They may have other employment including self employment. However, such outside employment may not be in mortgage lending, real estate, or a related field.” You can find this in Chapter 2, Item 2-9, G (Full Time, Part Time and Outside Employment).

I think credit repair and loan modification would fit HUD’s definition of “a related field”.

Credit repair has been around for a log time but for most of the time that the industry has existed FHA played a minor role and most mortgage companies did not consider HUD rules for many of their practices and policies. That has changed. FHA now is the primary product at most mortgage companies.

Loan modification is a relatively new part of our industry. I do not think many companies have gotten that far yet to ask the question of their compliance department – “Does this violate the HUD employment rule?”

The HUD rules on employment are simple. It is only a few sentences and leave little room for misinterpretation. As an employee of a HUD approved mortgage company you cannot work for another mortgage company, real estate company, or any company in a related field.

If you are employed as a  loan officer and you  are also acting as a credit repair, and/or  loan modification agent to earn additional income you should question your compliance department to make sure you have their OK.

Get it in writing.

Lee Walsh

Instead of joining a net branch company to originate FHA loan wouldn’t it be better to get your own company approved by HUD to originate FHA loans?

In most cases the answer is no.

Let’s look at some of the costs associated with any mortgage company getting a HUD approval.

Broker – If your company is a mortgage broker and you want to originate FHA loans you need to be approved as a non-supervised loan correspondent (I know the way different groups in our industry use the same term to mean completely different things is confusing and frustrating).

The minimum net worth is $63,000 plus $25,000 for each branch office (up to $250,000). At least 20% must be in liquid assets at all times.

This requirement is not a deal killer for many companies. But to prove your company’s net worth you must provide audited financials. This can run from $2,000 to $5,000 and take months to complete.

Then there is the HUD process. Once you have obtained the required financials it can take 6 months or longer for the application to be processed. I have talked to companies that have had their application in for over 8 months without any action.

If you want to be approved as a lender (non-supervised mortgagee in HUD speak) the net worth requirement jumps to $250,000 with a 20% liquid net worth. Renewal can bump the net worth requirement to $1,000,000 depending on the company’s production volume.

** update 11/01/2009 – there has been a major change in the HUD rules sinc ethis article was published. The broker approval process will be discontinued and the net worth requirements for a lender  is being increased to $1,000,000.

This will make it more difficult to become a HUD lender and the approval process to do 3rd party origination will become tougher.

For a small independent mortgage company these requirements can be a burden to maintain.

After you clear the net worth hurdle you have the HUD compliance requirements to meet. This is a lot more than reviewing closed files to make sure that the signatures, dates, and terms are correct.

Although some companies use a third party compliance review company for this process and they only do the minimum required by HUD for the process they are setting themselves up for some real financial pain down the road. HUD usually requires 10% – 20% review. That means that companies that only review the minimum  are leaving 80% to 90% of their files in the unknown category when they ask the question how compliant is our company.

When you become a branch of a national company they take care of these issues. The parent company is responsible for the net worth requirements and they are responsible for the compliance requirements.

For most  branch managers their income relies on their personal loan production. If they have to spend the majority of their time on the non-production activities that small independent owners must focus on they are losing revenue. When you are not originating you are not making money.

Nothing is free. A branch has to bear some of the cost for these services but instead of one or two offices bearing all of the costs they are spread out through out the entire branch network.  Each branch has far less cost for these services than they would if they were operating as a small independent company.

With a net branch mortgage company the branch managers can spend their time on the activities that generate income.

I hope you found this information helpful.

I always welcome comments and subscribers!

The three lenders are: Golden First Mortgage Corp of Great Neck, NY; Great Country Mortgage Bankers, Inc. of Coral Gables, FL; and Beneficial Mortgage Corporation of San Juan, PR.

Any Lender or Broker subject to suspension is prohibited from originating new FHA-insured mortgages pending completion of HUD’s investigation into their lending practices.

The reasons for each company’s suspension vary and include failure to implement a required quality control plan, failure to ensure that employees worked exclusively for the company, failing to notify HUD/FHA of an investigation by the Office of Thrift Supervision (OTS) into the business activities of the company’s president and failing to notify HUD/FHA of an investigation and sanctions imposed by the another regulatory agency related to mortgage servicing practices.

The message from HUD is clear – if you are involved with HUD lending you need to be compliant with all rules and regulations.

In the past many companies – especially net branch groups played fast and loose with state and federal regulations. Many mortgage companies ignored HUD rules and regulations thinking that they are not paying attention.

That (if it was true) has changed.

If your company’s compliance department is not paying attention they could one of the next companies to be featured in a HUD press release.

For more information about these companies and HUD see the full press release:
http://www.hud.gov/news/release.cfm?content=pr09-086.cfm

This bill – H.R. 6694 was introduced 8/1/2008 by U.S. Rep. Al Green (TX), and co-sponsored by U.S. Representatives Gary Miller (CA), Maxine Waters (CA), and Christopher Shays (CT).

It is a short addendum to the housing bill recently signed into law by President Bush that attempts to correct the exclusion of seller assisted down payment assistance. The bill also sets some risk based pricing guidelines for HUD.

As introduced seller assisted DPA would be allowed for borrowers with a credit score of 620 or higher.

There are some M.I. guideline for DPA loans also set with this legislation.

Seller assisted DPA, like every other mortgage program and service has experienced some abuses over the past 3- 4 years. But this is type of assistance has also helped over 1 million families buy homes.

You should urge your representatives to support this bill.

I always welcome subscribers and comments.

• What is it?
• What is your number (Compare Ratio)?
• Why is it important?

If your branch has poor numbers in Neighborhood Watch  you could lose the ability to originate FHA loans. The Neighborhood Watch System is a web-based software application that displays loan performance data for lenders and appraisers, by loan types and geographic areas using FHA-insured single family loan information.

What is it?
The loan information is displayed for a two-year origination period and is updated on a monthly basis. The default data includes current defaults, and defaults within the first year and first two years from endorsement. A defaulted loan is one that is 90 or more days delinquent. First defaults are when the loan went into default the first time and could have been subsequently cured. Current defaults are loans that were 90 days or more delinquent as of the date reported and have an active FHA insurance status. These loans are displayed in the statistics because it is important to note that a loan went into early default within the first 24 months of its origination. The loan performance data is HUD’s method for grading and monitoring the performance of a company’s loan production.

Compare Ratio
Compare ratio is the value that reveals the largest discrepancies between the subject’s default percentage and the default percentage to which it is being compared. The percentages being compared are the percentages of originations that first defaulted during a selected period (e.g., defaults within the first two years). A higher ratio is indicative of an area (or lender) that has an unusually high default percentage in comparison with that region or lender’s surrounding area. For example, if a lender has an 8% default rate in California and 4% of all California loans defaulted, then the lender’s compare ratio equals 200%.

What is your number?
Looking up your number is very easy. You go to the HUD link, search your company name, locate your office if your company has more than one office. You can filter by branch, institution or by originator.

The Compare Ratio is shown as a percentage. Higher numbers over 100% are bad, lower numbers below 100% are good. Many wholesale investors will not accept loans from offices with numbers over 150%.

Companies that operate as a centralized operation instead of licensing each branch with HUD run the risk of losing their authority company wide if their numbers are very high.

Companies that license each branch separately are minimizing their risk.

Net Branch and Neighborhood Watch

I have yet to see one of these banks named in any marketing information.

They use the F.S.B.’s exemption from state licensing laws as the basis for this ability.

It is true that a federal charter grants the bank an exemption from many state lending laws.

The problem is that HUD, not the states regulate the origination of HUD supervised loans – FHA and VA.

HUD is a federal agency.

So the question is can working for a bank as a net branch allow you to originate loans anywhere in the country?

That is what everyone is being told, that is the way many of the recruiters are attracting good people. If it was true life would be good. You could originate loans in California, Pennsylvania, Florida, Texas, Utah, anywhere that you can get an application. It would be nice. It would be better than nice. It would be great.

That is why many people are considering this type of opportunity.

There is only one problem. It’s only one problem

But it’s a big one.

According to HUD a bank’s Federal charter does not exempt the bank from HUD rules for originating FHA loans.

There is an FHA term called “Area of authority”. According to HUD this applies to all originating entities, brokers, lenders or banks. This is the geographic area that a branch or loan officer is authorized to originate from within.

I emailed HUD with a simple question.
—
From: Lee Walsh [mailto:xxxxxx@yahoo.com]
Sent: Thursday, June 26, 2008 11:26 AM
To: FHALender
Subject: net branch question

Hi,

I am writing to ask about several “net branch” companies who are marketing that they are a division of a bank with a federal charter. They are advertising that as one of their loan officer or branch managers that I would be exempt from the state licensing and HUD branch restriction concerning states I can originate in from my home state.

They are telling me that because of their federal charter I can originate in all states from my home state.

Is this true?

Thank you for your assistance

Lee Walsh
—–

Here is the answer I received from HUD.

RE: net branch question
Thursday, June 26, 2008 7:04 PM
From: “FHALender”
To: xxxxxxxx@yahoo.com

It is true that States exempt banks from their State licensing requirements. It is not true FHA allows a bank to originate anywhere it wants.

So, please read over our FAQs on branches and see if they help. If you want to write us again, please provide the bank’s FHA ID number and who you are talking to.

—–
Here is the FAQ information HUD forwarded with the reply.

In order to take FHA loan applications in a State, you must first meet all requirements of the State (either have a State license, exempt from having a license or State doesn’t require a license) and have that State in the FHA lending area of your home office or a branch office that is registered with FHA.

Each lender office’s “Lending Area” is composed of the State that the office is located in plus all adjacent States where a FHA registered branch or its home office. This geographic restriction does not apply to streamline refinance loans. In the FHA Connection, a lender can see the lending area of each of its registered branches and its home office under the section entitled AAFB (Areas Approved for Business). The AAFB is a listing of all HUD field offices located in the States within the lending area and is located under the Institutional Profile tab in the Lender Approval section..

See this link for HUD’s list of “Lending Area’s” based on the state where you are located.

So the question you have to be asking (I asked myself the same question) is: If it is not legal how are they doing this?

This answer is an easy one. They (the bank) have not done their due diligence to determine if this practice is legal. It took me one simple email to HUD.

I don’t think that any major banks are doing business this way. They are smaller banks that have the federal charter.

For more information please visit NetOriginator.com

Now let’s take a look at the next items on the list of important criteria you should consider if you are considering a net branch opportunity and intend to originate FHA loans.

• FHA originated using the corporate address or the branches?
• Corporate processing of FHA loans or at the branch?
• Level of the company’s experience with FHA?

Many companies offering net branch programs will let a branch originate conventional mortgages from the branch but they will require the net branch to send all FHA transaction to the corporate office for processing.

Why is this a problem?

There are several important issues that make this a practice you should be concerned about.

Control – the net branch has lost local control of their loan. The processing and placement is now in the control of someone who at best you have had phone conversations with. The borrower, real estate agent , and closing agent are now working with someone else or they are calling you for progress updates and you do not know. The loan is out of your control.

Compliance – when you put your name on the 1003 with an address that is not your branch address you are putting false information on the document. Some companies have lost their ability to originate FHA loan for putting false information on a 1003. A company that uses the centralized call center approval from HUD for FHA loans is stating to HUD that all FHA originating is done from that office. If you take the application (originate the loan) locally and then sent it to the call center for processing you are violating HUD law and could lose your license.

A key point to remember when you are looking for a net branch opportunity is that not all companies have done their homework when it come to compliance laws.

Some of this is due to lack of experience and some is due to a lack of concern for the rules.

You should always investigate the net branch companies experience level. This is even more important when you are going to originate FHA loans.

HUD does not always move swiftly to stop problem companies but they do catch them. When they do it either results in large fines and or loss of license.

Do your homework. Make sure you are really partnering with a net branch company with a proven track record with HUD (FHA / VA) loans.

For more information please visit: NetOriginator.com

If you find this information helpful please let me know. I always welcome suggestions, comments and new subscribers.
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Mortgage Net Branch -  Net Branch – Net Branch Opportunity