Proposed Changes to Mini Eagle and Full Eagle Lender Approvals
Over the weekend, I received a copy of the proposed HUD changes that will impact correspondent “mini eagles” and mortgagee “full eagles”.
According to the letter, the changes are aligned with provisions contained in the National Housing Act, as amended by the FHA Modernization Act of 2008. The letter, date November 30, 2009, provides a comment period of 30 days rather than the normal 60 days. They’ve put this on fast tract so it can be implemented by the first of the year. You can read the entire document HERE
Two changes jump out at me:
1. FHA will no longer approve or oversee loan correspondents (mortgage brokers) that originate FHA loans. The approval and oversight will fall on the mortgagee that sponsors them. There are certain requirements that mortgagees must adhere to when approving correspondents, but it appears the sponsoring mortgagee will require a process to approve and monitor them. Another change is correspondents will not have FHA numbers; only the sponsoring mortgagee will have an FHA number. Therefore, all loan originations will be tracked by the mortgagee’s FHA number.
2. The other change is the increase in net worth requirements from $250,000 to $2,500,000 over a 3 year period. As the letter stated the increase in net worth requirement is to “Strengthening the Capacity of FHA-Approved Mortgagees”. Existing mortgagees will have time to meet a $1M net worth within a year of enactment, moving to the $2.5 within the 3 year period.
I had a conversation with a small mortgage banker on the East Coast yesterday regarding the proposed change. He’s been originating and selling FHA loans for over 15 years in his community. He more than meets the first year net worth requirement, but believes the only way for him to meet the net worth requirement within 3 years is to essentially defer all his personal compensation. Over the past year, he’s seen the ante increase for warehouse lines, investor approvals and now FHA.
My thoughts are...
Yes, barriers of entry are increasing and will push out many players. Capital and a solid balance sheet are going to be paramount to compete as a mortgage banker. It might look bleak, but new opportunities are already emerging: Private equity groups are interested in investing in mortgage banking companies; community banks are looking to partner with bankers; and larger better capitalized mortgage banks are assimilating smaller originators into their organization.
If you’re a small mortgage banker, don’t become “road kill”. Start planning your future today.