These facts of life are particularly true for small community banks that make only a dozen FHA-insured loans a year.
And come July, some banks will have to add a FHA direct endorsement underwriter to their staff to meet FHA requirements.
"Having a DE underwriter on staff is expensive," said Ron Haynie, president of ICBA Mortgage. "They are difficult to find and it is a big cost," he added.
FHA-approved lenders also have to submit annual financial and compliance audits to the Department of Housing and Urban Development, another added cost.
HUD has waived the financial audit requirement for community banks with less than $500 million in assets. But the waiver expires next April.
The Independent Community Bankers of America is hoping the waiver on the financial audit will be extended beyond 2012 and HUD will relax the compliance audit too.
FHA officials said they are trying to accommodate the small banks but they have not made a decision with regard to the compliance audit. That is still "outstanding," one official told ON.
However, HUD officials are working on a mortgagee letter. "The forthcoming ML will simply articulate alternative requirements for lenders who fall under the waiver thresholds," an official said.
Meanwhile, "some community banks are dropping their FHA eagle," Haynie said, and they won't be able to table fund anymore.
Without an Eagle, community banks can still broker FHA loans, but they have to close the loan in the investor's name. Haynie stressed that the banks prefer to table fund a loan in their own name.
Some banks feel it diminishes their brand when they broker a loan, he said, because they are sharing their customers with the big banks.
One mortgage broker suggested community banks should broker loans for midsize banks that don't operate in their territory. "They will probably get better pricing," he said. And their customers probably won't recognize the name of the investor bank.
Restrictions on FHA table funding have prompted the American Bankers Association, Mortgage Bankers Association and ICBA to seek a legislative fix.
It is an "unfortunate unintended consequence" of HUD's efforts to hold FHA-approved lenders responsible for the loans they origination. MBA chairman Michael Berman recently told a congressional panel.
HUD, along with the trade groups, are supporting an amendment to the National Housing Act that would allow non-approved lenders to table fund FHA loans and close in their own name before the loan is transferred to the investor.
This table funding amendment was passed by the House last year but the FHA reform bill died in the Senate.
This year the outlook is not much better. "We are not making much headway," one lobbyist said.