Lenders Oppose Broker Surety Bonds

Five lender groups that are supporting quick passage of a Federal Housing Administration reform bill want the House and Senate banking committee leaders to drop a provision that would allow mortgage brokers to buy a $50,000 surety bond in lieu of meeting FHA net-worth and audit requirements. Because there is no federal oversight of brokers, "it is critical that they continue to submit the annual audited financial statements to the FHA in order to participate in the program, and more importantly, protect the integrity of the FHA," the five trade groups say in a letter to the committee chairmen. The National Association of Mortgage Brokers maintains that more brokers would be willing to distribute FHA loans if they didn't have to pay for an expensive audit. The surety bond provision in the House-passed FHA bill has "belts and suspenders to protect the FHA program," NAMB executive vice president Roy DeLoach said. He stressed that the FHA commissioner can control the number of brokers using surety bonds. In addition, every broker has to be coupled with an FHA-approved direct endorsement lender, who reviews every loan before the closing. The Mortgage Bankers Association, the Lenders One/National Alliance of Independent Mortgage Bankers, the Independent Community Bankers of America, the American Bankers Association, the American Financial Services Association, and the American Institute of Certified Public Accountants signed the Jan. 30 letter.