FHA Letter Supports Payment for Non-approved Brokers

Mortgage brokers that are not approved to originate Federal Housing Administration loans can be paid for counseling borrowers and referring them to FHA-approved lenders, according to Mortgagee Letter 2008-17, issued on June 20. However, the broker has to be paid directly by the borrower in cash and the fee has to be recorded on the HUD-1 settlement sheet, according to the letter. The Department of Housing and Development also expects non-approved brokers to enter into an agreement with the borrower. And FHA lenders must include a copy of this agreement or contract with other loan documents that FHA requires to insure a mortgage. "HUD is signaling that it is going to scrutinize these fees and services to make sure the borrowers are not overcharged," said K&L/Gates attorney Phillip Schulman. Due to the increasing popularity of FHA loans, brokers are rushing to become FHA-approved loan correspondents but HUD cannot process the applications fast enough. To deal with this backlog, several California congressmen are trying to insert a provision in a major housing bill that would temporarily allow FHA direct endorsement lenders to fund loans originated by non-approved brokers. The National Association of Mortgage Brokers supports this bill. The Mortgage Bankers Association and other lender groups oppose this provision.