Federal Housing Administration (FHA) insured residential mortgage loans have become one of the major sources of financing for new home buyers and existing home owners. Due to the collapse of sub-prime lending and the tightening of Fannie Mae and Freddie Mac guidelines, FHA approved lenders are handling record numbers of applications and approvals for borrowers looking for FHA insured residential loans. FHA doesn’t actually provide the funds or make loans directly. They rely on their approved network of lenders to carry out all the functions involved in the mortgage approval process. FHA basically insures the loans made out by its approved lenders following all the guidelines mandated by it.
Due to the responsibility and the critical nature of the lending functions carried by FHA approved lenders, a number of qualifications and procedures need to be followed and met before one can be approved as a FHA lender. Individuals and sole professorships can’t qualify to become an FHA approved lending institution. Only those entities that are either structured as corporations, partnerships, LLCs, Chartered institutions, or government agencies can do so.
FHA has drastically changed its approval regulations to completely eliminate the approval of lenders as Supervised and Non-supervised Loan Correspondents effective May 10, 2010. Due to this change related to correspondent lenders, the number of categories under which an entity can seek FHA lender approval status got reduced to four instead of six.
The FHA offers the following four different types of lender approvals. These are:
- Non-supervised Mortgagee: Any entity that is not into banking or affiliated with a government agency should seek this approval if they wish to engage in the origination of FHA loans along with the related processes relate to underwriting, and servicing. The FHA approved lenders under this category can also engage in the purchasing, holding and selling of FHA insured mortgage loans.
- Supervised Mortgagee: Banking institutions such as national and state banks, credit unions and savings banks can apply to be an approved FHA lender under this category. They can perform all the functions related to FHA insured loans.
- Government Mortgagee: If an entity seeking the approval as an FHA lender is a Federal, State or a local government agency, then they fall under this lender category. They can also perform any and all functions related to FHA loans.
- Investing Mortgagee: If any entity only seeks to engage in the investing activities such as purchasing, holding and selling of FHA loans, then this type of approval is appropriate. These FHA approved lenders can engage in the origination, funding or servicing of FHA loans.
The complete list of all approved FHA lenders can be found on the HUD website. When applying for a loan, make sure the lending institution is properly approved and authorized by FHA to handle your loan.