The Federal Housing Administration “FHA” published Mortgage Letter (ML) 2022-22 on December 15, 2022, which provides new clarifications on its Conflicts of Interest Policy and Dual Employment Policy for most Title II Single Family FHA-Insured Mortgage Transactions.
The new Mortgage Letter revisions have taken a dramatic change in that FHA Policy now permits individuals who do not have a “direct impact on the mortgage approval decision” to have various compensated positions for services performed and allowed by the Department of Housing and Urban Development “HUD”, provided that the transaction complies with all applicable federal, state, and local laws, rules, and requirements.
The 2022-22 Mortgage Letter now consolidates various conflicts of interest and dual employment subsections in the Single-Family Housing Policy Handbook 4000.1 into one subsection and provides clarification on FHA policy regarding prohibited conflicts of interest by individuals that directly impact the mortgage approval decision and permitted dual employment for other individuals who perform services in a single FHA-insured transaction. FHA believes the policy consolidation and clarification will help facilitate an easier understanding of existing FHA requirements given feedback from the real estate industry and from confusion internally at FHA with how to apply the past Policy.
The clarifications apply to all FHA-insured transactions unless otherwise specified in program requirements. In addition, the clarifications:
(1) Explicitly prohibit individuals “directly impacting the loan approval decision” from having multiple roles or sources of compensation, either directly or indirectly, from the same FHA-insured transaction;
(2) Reinforce the mortgagee’s responsibility to ensure compliance with the new updated conflicts of interest guidelines and existing policy regarding prohibited payments; and
(3) Consolidates the general conflict of interest and dual employment policy in Handbook 4000.1.
FHA further identified which individuals would have a direct impact on the mortgage approval decision and the following participants are barred from having multiple roles in the same transaction: (1) mortgage underwriters, (2) appraisers, (3) inspectors, and (4) engineers.
The new policy change is already causing heartburn among many in the non-bank lending, title insurance industry, and real estate brokerage industries due to the fact it will place additional burdens on compliance departments if their company allows real estate agents to also operate as licensed loan officers and/or title agents due to heightened liability risks.