FHA is the hottest niche. You are going to be making tons of money with FHA loans this year. FHA is the new sub-prime. This is the hype we are hearing. Now for a little reality check on FHA. Plainly stated, there is some risk with FHA loans. The money is there for the making, but if you are about to get involved in this great lending niche, you should be aware of the five risks of making FHA loans.
1) Attempting to get into the business without knowing the FHA program can be a recipe for disaster. Sign up for an FHA Training Course or purchase a FHA Training Guide and read up on the program on your own time. There’s a lot of good training programs out there (and some bad ones too so be cautious in what your choose). Expect to pay $89.00 for training and up to $500.00 for some training programs.
2) There are significant licensing and ongoing compliance hurdles involved with FHA loans. You need to be properly licensed to offer FHA loan programs to your customers. You can be licensed as a loan correspondent (broker) or an a non-supervised mortgagee (lender). Also, you need to make sure you have the proper FHA disclosures ready to provide applicants for FHA loans regardless of which FHA licensing your obtain.
3) FHA loans must be perfectly originated and underwritten or they will be rejected when you apply for the FHA insurance to be placed on the loan. You have heard this before, all your “i’s” need to be dotted and your “t’s” crossed in the right place when you originate a FHA loan. You will need to be sure that your FHA submissions are being reviewed by an experience DE FHA underwriter who understands the FHA program who comes to the business with many years experience underwriting FHA loans.
4) Repeated violations of the FHA loan program may result in assessment of civil money penalties and forfeiture of your FHA license. The federal government monitors the performance of the FHA loans funded by your company. If your FHA loans show a pattern of problems or poor underwriting that results in significant defaults on these loans, you could be pushed out of the FHA program.
5) A significant requirement of having a FHA license is that you must follow an established Quality Control Plan. For the most part this means that you must review at least 10% of the FHA loans your originate for proper underwriting, disclosures, proper appraisals. Your Quality Control group should be issuing monthly reports to company management regarding any deficiencies found.