FHA Surety Bond Requirement Update

One of the biggest questions we receive of Mortgage Brokers is what is going on with the Federal Housing Authority (FHA) Bond?

The Federal Housing Authority (FHA) loan program is of vital importance to mortgage brokers. According to The Department of housing and Urban Development (HUD) sources, brokers originated 38.6 percent of all FHA loans for a total of $110 billion in 2003. In the past, many Mortgage Brokers have not been able to afford the costly audited financials that would qualify them to write the FHA Mortgage.

The Federal Housing Authority (FHA) bond program is currently awaiting a vote in the Senate. If accepted, this Federal Hosing Authority (FHA) program will allow a Mortgage Broker to obtain a $75,000 Surety Bond in lieu of audited financials. This will dramatically change the makeup of Mortgage Brokers that will have the ability to write mortgages for the Federal Housing Authority (FHA).

Most small businesses find the cost to produce audited financial statements to be a significant burden. The cost of hiring an accountant who meets government auditing standards and the man-hours needed to compile and report the needed data is simply impractical for a small business. As a result, many mortgage brokers decide not to originate FHA loans. By asking these businesses to purchase bonding, the Department of Housing and Urban Development (HUD) will increase competition for FHA loans. These bonds are generally cheaper than auditing financials and still providing relief to injured customers.

With the upcoming presidential election, it is speculated that the new FHA Bonding requirements will not be going through the Senate until a later time. Still, it is expected that both the Democratic and Republican Parties support these proposed bond requirements and it should fall in place. The new program will allow people from all different walks of life and financial levels to be enrolled into the FHA program. Applicants will even have opportunities if they have suffered bankruptcies. Applicants with little credit only need two lines of open credit to apply for an FHA loan. And in the event a borrower does not have sufficient credit on their credit report, the FHA will allow substitute forms.

The Mortgage Brokers will have to qualify for the new bond, which as of today it is unclear what standards the Surety Companies will set in place. The bond itself must be somewhat friendly to the Surety Company and will be analyzed by the individual companies that choose to write these bonds. We look forward to being able to write these bonds and serve a slumping industry towards a good push in the right direction.