The large number of financial institutions seeking a Federal Housing Administration license has created a backlog of applications at the Department of Housing and Urban Development. If an application is approved as submitted, it is not uncommon for institutions to wait two to three months to receive the approval.
Further requests for information or disapproval of an initial application can add another month or more to the processing time. Many institutions applying for the licenses are doing so for the first time and are unaware of the FHA's specific program requirements. As a result, they may submit applications that contain erroneous or incomplete information, slowing down the approval process.
The good news is that institutions can take steps in the process to ensure that their application can be approved as quickly as possible.
To get started as an FHA lender, you need to obtain the correct application package and determine what type of approval is required. Approval requirements vary according to the mortgage function the lender intends to perform and the types of loans it wants to originate.
All lenders must obtain all required business licenses before or in conjunction with submitting the application, and copies must be submitted with the application. State-licensed lenders must also submit a letter certifying that they have not previously been denied a license or sanctioned, or they must submit documentation concerning any actions.
In addition, all FHA-approved mortgagees, including loan correspondents, must have a quality control plan for the origination and/or servicing of insured mortgages. In fact, a copy of the plan must be submitted with the application. The plan will be the centerpiece of an institution's operating plan for FHA lending and needs to be constructed carefully.
Unfortunately, that is where most institutions go wrong, because they are unsure of how to do so.
HUD offers basic instructions on how to construct and implement a quality control plan through a handbook found on its Web site, but it is clear that an institution will require more knowledge than that. Even veteran loan officers with little or no FHA experience may lack the expertise to get started on the application and establish a solid operating plan.
The plan needs to outline how the institution will manage compliance and operational risk throughout the FHA origination and servicing life cycle. This includes monitoring the loan application process, conducting pre-funding reviews and identifying patterns of default early on.
Historically, lenders have often performed quality control after a loan has closed. But this plan and all its processes must be designed to ensure compliance with FHA origination and servicing practices, to protect the FHA and the lender from unacceptable risks and to guard against errors, omissions and fraud.
Since speed to market is critical for most institutions, those without FHA experience will want to consider recruiting professionals with such experience or working with an outside service provider. These providers can use their expertise to help lenders complete their application quickly, develop strong quality control and operating plans and begin lending as soon as they are approved.
To ensure you have this expertise, HUD will check that everyone within an institution involved in FHA lending is properly trained on their role in the lending process. This means initial training for everyone from loan officers to processors and risk management professionals. HUD will also require an institution to have a continuing education program to stay abreast of changes to program and regulatory requirements.
In addition, HUD will want to be sure that, as part of the quality control plan, an institution has a solid risk management strategy that allows it to maintain full compliance with federal and state banking regulations in addition to the FHA's specific requirements.
The institution will need to perform initial and regular subsequent strategic-level lending compliance reviews. These reviews will help the institution establish the proper compliance processes and procedures and document loans correctly. They will also help the institution discover potential problem areas before they are uncovered in an exam, audit or compliance review, helping it to manage risk and avoid violations that are costly from a financial, legal and reputational standpoint.
Finally, HUD will want an institution's quality control plan and overall application to reflect the goal of running a well-managed program from not only in terms of risk management but also from a business perspective. In addition to ongoing quality control and training, the institution should seek annual recertification and show that its operating plan will help it be a successful FHA lender well into the future.
A knowledgeable FHA lending staff can help an institution do all of this. Hiring experienced lenders and/or partnering with outside experts with FHA expertise is the quickest and most profitable way to get there.
