Small community banks will have to pay for a compliance audit if they want to continue to originate FHA-insured single-family loans, according to the Department of Housing and Development.
The Federal Housing Administration signaled earlier this year that it would waive the financial audit requirement for banks with less than $500 million in assets. But banking groups like the Independent Community Bankers of America requested a waiver from the compliance audit too.
"We are happy there's a waiver on the audited financials," said Ron Haynie, president of ICBA Mortgage. "But I don't think it will have a big impact simply because you still have to do the compliance piece."
He expects the added cost of a compliance audit will force some banks to drop their status as FHA-approved lenders that fund and close FHA-insured loans in their own name. The only way they can continue to participate in the FHA program is by brokering loans as a sponsored correspondent.
In addition, the waiver from the financial audit expires April 7, 2012, according to HUD Mortgagee Letter 2011-25. This creates uncertainty, Haynie said. "The question is what about next year?"
HUD has imposed tougher standards on all FHA-approved lenders to better manage its counterparty risk.
