FHA Net Branch Opportunities – are they all the same? (part 1)

OK you have decided that you are going to focus on FHA and to do that you are going to join a net branch company.

Are they all the same? Is FHA the same everywhere?

That’s an easy one to answer. No!

Here are some of the key differences that you should understand when choosing a company to work with.

  • FHA as a lender or as a broker?
  • FHA originated using the corporate address or the branches?
  • Corporate processing of FHA loans or at the branch?
  • Level of the company’s experience with FHA?

These, in my opinion are the primary points to focus on when deciding which company to join if FHA is important to you.

Let’s talk about the first item on the list.

Does the company function as a lender or a broker for FHA?

There is no right answer to this one. It’s really what is important to you because there is a trade off between the 2 options.

If the company closes FHA as a lender this means in most cases that you will not have to lowest price on the street. As a lender your company is gettingĀ  getting correspondent pricing, not broker pricing (correspondent is better). The company has to pay for the expanded operations cost and will have some markup on the pricing. As a correspondent they get a better priceĀ  but they have to cover the extra operations costs. Make sure your are not priced out the market. (Most experienced originators have found that the lowest price on the street usually has the worst turn time and service.)

There are several other disadvantages.

  • If you are closing FHA as a lender at most companies you cannot also broker FHA loans. So if you have an FHA loan that your company’s underwriters does not like you may not have the option to broker that loan to an investor that does like the loan.
  • Most lenders sell their closed funded loans to two to four of the big 10 correspondent investors. This can limit the decisioning. If you take the same FHA loan and submit it to 3 different investors usually you will get 3 different answers. The difference could be pricing, conditions, or both. Make sure that the company has a solid relationship with their investors and is not selling to one investor.

The advantages to closing FHA as a lender are that you do not have to disclose the YSP, you can say you are a lender, and you and your company have more control of the origination process.

If the company closes as a broker you have several disadvantages

  • You have to disclose your YSP.
  • State and Federal regulators have turned anti broker recently and upcoming legislation concerning YSP and other fees are making it more difficult to function as a broker.

The advantages are that you can shop different investors to find the right approval and conditions.

In the next installment we will discuss the other differences.

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