As the largest insurer of mortgages in the world, lenders can often rely on a steady stream of FHA (Federal Housing Administration) loans coming across their desk.
The reasoning is simple. For starters, millennials are only projected to keep buying homes, with demand about to hit an all-time high in 2020. This decision to jump into homeownership is then met with the very-appealing option to only put 3.5% down on a home through an FHA loan.
And while there are other low-down payment options out there, the FHA has insured more than 47.5 million properties since its inception in 1934. They have a bit of a track record and history behind them.
This means that one of the most popular loan products is likely to continue to be in high demand by millennials. However, it is important for lenders to understand the associated risks. This is an exciting new wave of business that lenders have to look forward to, as long as they prepare for it. Lenders need to take steps now to not let this opportunity jeopardize their business. This is especially important given the recent changes the FHA made to their loan process.
As a leading correspondent investor in FHA loans, here are some reliable and practical best practices for lenders to ensure their FHA loans are sellable. Look at implementing these readily available tools and refreshing policies to make sure no loan is left on the books and unsellable.
This list spotlights three easily accessible tools on HUD’s early warning website that lenders need to take advantage. Think of them as a barometer on the health of a company’s FHA pipeline.
BE PROACTIVE NOT REACTIVE
This first tools allows lenders to check their pipeline to see if they have an issue. It’s vital that management uses the “HUD Pipeline/Insured” query to prevent problems. Depending on what the report pulls up, it might be time to reevaluate the process and see if there are any gaps before it’s too late, leaving the company with too many unsellable loans.
Additionally, lenders can also go in the FHA connection and look next to each case number to see the latest activity on the individual loan. This gives them a pulse on the loan’s status, so they can track exactly when it is logged. Here’s a quick breakdown of what the activity acronyms mean.
- APRSR LOG: This means the appraisal has been recorded in HUD’s origination system. It also means the insuring people haven’t started working on this loan. But, if it shows “APRSR LOG” and a date next to it, the date is when the appraisal was logged.
- INSUR APPL: This shows that the insurance application information has been entered through the FHA Connection. Closing package (case binder) information has not been recorded in HUD’s origination system.
- NOR: Notice of Return has been issued. Case is not endorsed for FHA mortgage insurance. This means the lender’s staff didn’t insure the loan and the missed the file.
The industry average for a loan to be insured is 19 days (breakdown below). It’s important to get the closing timeline to mirror this. If it doesn’t, there’s a gap in the process.
- Day 1: loan funds,
- Next 1-3 days: pay UFMIP (max allowed 10 days before a penalty)
- 7 days later: Insure the loan
CHECK IF IT’S ALREADY TOO LATE
The goal is for lenders to use the above tools to create the most efficient and streamlined FHA process. However, sometimes it’s already too late for a lender, and they need to get a pulse on how much their process is lagging.
The “Late UFMIP” and “Late Endorsement” queries serve as proof that there is something wrong. The “Late UFMIP” query is to check and see if the Up Front Mortgage Insurance Premium (UFMIP) was paid within the required 10 days, while the “Late Endorsement” is to see which loans were insured very late. It needs to be a priority to get these loans insured. While the gauge shows there is already a problem, it incentivizes lenders to change their operational process, so they can originate FHA loans correctly.
A streamlined and process with clear check points to verify that a loan is insured is all it takes to feel confident about originating FHA loans. It moves a lender from being reactive with their portfolio to being able to proactively ensure that their loans will get sold, allowing lenders to capture the new wave of millennials and fuel America’s dream of homeownership.