Mortgage Banks, Net Branch, and FHA Nationwide

I have seen an increase in net branch recruiters working for affiliates of Federal Savings Banks stating that you can originate FHA loan nationwide from any location.

I have yet to see one of these banks named in any marketing information.

They use the F.S.B.’s exemption from state licensing laws as the basis for this ability.

It is true that a federal charter grants the bank an exemption from many state lending laws.

The problem is that HUD, not the states regulate the origination of HUD supervised loans – FHA and VA.

HUD is a federal agency.

So the question is can working for a bank as a net branch allow you to originate loans anywhere in the country?

That is what everyone is being told, that is the way many of the recruiters are attracting good people. If it was true life would be good. You could originate loans in California, Pennsylvania, Florida, Texas, Utah, anywhere that you can get an application. It would be nice. It would be better than nice. It would be great.

That is why many people are considering this type of opportunity.

There is only one problem. It’s only one problem

But it’s a big one.

According to HUD a bank’s Federal charter does not exempt the bank from HUD rules for originating FHA loans.

There is an FHA term called “Area of authority”. According to HUD this applies to all originating entities, brokers, lenders or banks. This is the geographic area that a branch or loan officer is authorized to originate from within.

I emailed HUD with a simple question.

From: Lee Walsh []
Sent: Thursday, June 26, 2008 11:26 AM
To: FHALender
Subject: net branch question


I am writing to ask about several “net branch” companies who are marketing that they are a division of a bank with a federal charter. They are advertising that as one of their loan officer or branch managers that I would be exempt from the state licensing and HUD branch restriction concerning states I can originate in from my home state.

They are telling me that because of their federal charter I can originate in all states from my home state.

Is this true?

Thank you for your assistance

Lee Walsh

Here is the answer I received from HUD.

RE: net branch question
Thursday, June 26, 2008 7:04 PM
From: “FHALender”

It is true that States exempt banks from their State licensing requirements. It is not true FHA allows a bank to originate anywhere it wants.

So, please read over our FAQs on branches and see if they help. If you want to write us again, please provide the bank’s FHA ID number and who you are talking to.

Here is the FAQ information HUD forwarded with the reply.

In order to take FHA loan applications in a State, you must first meet all requirements of the State (either have a State license, exempt from having a license or State doesn’t require a license) and have that State in the FHA lending area of your home office or a branch office that is registered with FHA.

Each lender office’s “Lending Area” is composed of the State that the office is located in plus all adjacent States where a FHA registered branch or its home office. This geographic restriction does not apply to streamline refinance loans. In the FHA Connection, a lender can see the lending area of each of its registered branches and its home office under the section entitled AAFB (Areas Approved for Business). The AAFB is a listing of all HUD field offices located in the States within the lending area and is located under the Institutional Profile tab in the Lender Approval section..

See this link for HUD’s list of “Lending Area’s” based on the state where you are located.

So the question you have to be asking (I asked myself the same question) is: If it is not legal how are they doing this?

This answer is an easy one. They (the bank) have not done their due diligence to determine if this practice is legal. It took me one simple email to HUD.

I don’t think that any major banks are doing business this way. They are smaller banks that have the federal charter.

For more information please visit


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