TACOMA, Wash. - Don’t expect technology to lend a helping hand as credit unions delve into FHA loans.
“We need automation through the entire FHA loan process,” said Caleb Cook, lending manager at Sound Credit Union here, which is now originating about 50% of all its mortgage loans through the FHA (CU Journal, June 9).
“A lot of institutions don’t even offer FHA loans because they’re so confusing,” he continued. “An FHA loan takes us twice as much time to process as a conventional loan.”
That from a man who has been making FHA loans for “several years now. Even after three or four years I’m still not an expert, but I’m familiar with the process,” said Cook.
Other credit unions told Credit Union Journal that they were at the beginning stages of offering FHA loans to members and had not yet fully considered automation. One described the process as “daunting.”
Very little of the process is eased by technology: for each origination, Cook must hunt for the appropriate lending forms and regulations at the FHA website, or within the credit union’s loan origination system (LOS). “Both the FHA and the VA require so many complicated forms,” he said. “Each loan is so different, and there are so many regulations tied to each loan. I’m always going out to the FHA website to look up a rule or get a form.”
For example, to pay off an FHA loan, the borrower needs to complete a HUD Netting Authorization, “which is one of those things you just need to search for at the website,” said Cook.
In addition, there are specialty documents, such as verification letters, that underwriters request, he said. Cook would welcome an alternative. “For me, I’d like to hit one button in my LOS that says ‘FHA Disclosure Package’ and have all the forms and regulations come up automatically. That would make for a quicker process in getting the correct forms to the underwriters.”
In the meantime, Cook has created his own repository within the Sound LOS that houses groups of FHA disclosure forms, closing costs and compliance defaults he has collected over the years.
Beyond the LOS, Cook said that wholesale lenders could benefit from automation as well. “FHA loans are hot. The FHA can’t handle the volume of applications–it’s taking the wholesale lenders up to 20 days to underwrite the loans because of the volume.”
Another bottleneck is human resources–FHA loans require an FHA-approved underwriter, “and they’re hard to come by these days,” said Cook. Just a few years ago, originators didn’t have to worry about putting together an application, Cook continued. “HUD would do it all for you.”
The rising popularity of FHA loans may force HUD to roll out some of its own lending technology just to help keep up with the demand, Cook suggested. As it continues to offer low-downpayment, low-rate loans to people with marginal credit, the FHA will soon “realize they are becoming the new subprime lender.”
Sound CU has been doing a brisk FHA loan business lately, said Cook. Whereas currently half of its loan originations are FHA-based, in previous years those loans accounted for only 5% of loan volume at Sound CU.
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