Independent Mortgage Lenders are becoming major players as issuers of Ginnie Mae securities. Major banks like Wells Fargo, Chase and Bank of America have pulled back on FHA lending because of the increased risk plus past and potential enforcement actions from Federal Housing Administration (FHA) and Department of Justice (DOJ). This opens the door for non-bank lenders to fill the void in originating government loans, especially those insured by FHA. Opportunity knocks.
Recently, Ginnie Mae has seen a spike in mortgage-backed securities since the FHA’s cut in the annual mortgage insurance premium. This is mainly due to an increase in FHA lending by Independent Mortgage Lenders. It presents a great opportunity for the independents to increase business and income, from this increase in FHA lending. But is this all good?
Coincidentally, a recent brief issued by Laurie Goodman of the Urban Institute (Brief), reported the increased risk to FHA lenders from potential enforcement actions under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
This brief further explains the unintended consequences such enforcement actions have had on Banks’ FHA originations. It doesn’t seem to have the same effect on independent lenders.
To be approved to originate FHA-insured loans a lender must provide FHA with certain annual certifications. A lender must also provide company level and loan level warranties in essence attesting that all FHA-insured loans meet all required Housing and Urban Development (HUD) rules, requirements and regulations and are eligible for the FHA mortgage insurance.
In addition, for an FHA loan placed into a Ginnie security, a lender is required to advance payments when a borrower does not make the monthly payment. Coupled with broad-based certifications, the volumes and complexities of HUD rules and regulations, and the potential for human error, that is why many banks have elected not to originate FHA loans. It’s just too risky.Sorry, there are no polls available at the moment.
So, now Independent Mortgage Lenders have stepped into the bank’s shoes. Do they have the wherewithal and financial stability to stand behind the FHA certifications and the advances required for Ginnie Mae pool delinquents?
Can they be confident that all FHA loans they originate are done in full compliance with all of HUD’s underwriting and endorsement requirements? Can they withstand a DOJ attack under the False Claims Act if and when FHA loans default? These are some issues worth thinking about.
The opportunity exists for Independent Mortgage Lenders to sail into the lead in FHA lending. In doing so, they also must take the helm and guide their ship to maintain integrity in lending and comply with the certifications they make to HUD.
Their success and the continued survival of the FHA endorsement program is depending on it. They are venturing into some dangerous waters. It’s important to be diligent, well prepared and on the constant lookout for problems that may torpedo their efforts.
Stay afloat my friends.