Should you join a national mortgage branch company for FHA?

Should you join a national mortgage branch company for FHA?

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.

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!

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http://blog.netoriginator.com

Mortgage Bank's, Net Branch, and FHA Nationwide

I have seen an increase in net branch recruiters working for affiliates of Federal Savings Banks stating that you can originate FHA loan nationwide from any location.

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

I want to originate in all states! - Are you sure about that?

I want to originate in every state where you are active.

In my work speaking to prospective branch managers I hear this statement every day.

My answer / question is always the same. Are you sure?

I then ask several important questions.

• Have you researched the licensing requirements for loan officers and branch offices in the states where you are interested in originating?
  
• Are you aware that many states require licensing fees for a branch office to originate in their state?
  
• Are you aware that many states also requires fees for loan officers to originate in their state?
  
• Do you know that many states also require some type of continuing education in order to originate in their state?
• Do you know that some states require a physical location to originate in their state.
• Are you aware that some states like North Carolina require each loan officer to be licensed and that the education and test must be taken in person?
  
• Are you aware of the state specific compliance requirements for the states you where want to originate.
  

Some people thinking about opening a branch office of a national company think that they can originate in every state where the company is active without any additional time, effort, licensing or money. Unfortunately that is not true.

An "out of state" originator interested in developing business in Florida, California, Maryland, North Carolina, South Carolina, Ohio and many other states has to comply with each states licensing, education, disclosure and compliance requirements. Usually it does not work as intended.

Don't misunderstand me, there are situations where you should work in more than one state.

• If you are in a border city like Kansas City, Missouri - you should also be licensed in Kansas.
• If you already have branches setup in more than one state - you should continue when you change companies.
  
• If you have established referral sources in other states - you should consider the investment of time and money to capitalize on those relationships.
  
• If you have an established office, you want to expand into another area and are prepared financially - that is a sound business decision.
  

The main point I am trying to make is that more or bigger is not alway better. Most offices "find" the majority of their business within 25 - 40 miles of their location.

Another related statement I hear is that there are other companies that allow me to originate in all states with out going through the licensing and education requirements.

I will try to address that topic in another post.

I always appreciate subscribers and welcome comments and questions.

For more mortgage net branch information visit: NetOriginator.com