FHA Mortgage Guide

Last week HUD announced that it would be just dandy if lenders were to pay community housing counselors, individuals who often suggest mortgage options to would-be borrowers. The idea raises the specter of obvious conflicts-of-interest because — after all — why would a lender contribute to community counselors if there is not some benefit?

In Massachusetts, according to the Boston Globe, the Office of Consumer Affairs and Business Regulation asked lenders to contribute money to the states housing counselors to offset the cost of foreclosure assistance. Massachusetts, which has a large number of foreclosures, pays counselors a $1,500 bonus for each case they are able to resolve without the loss of a home. (See: “Lenders pressed to pay for advisers,” October 4, 2007)

This is not only a good deal for counselors and homeowners, but it’s also great for lenders given that it costs about $40,000 every time a home goes to foreclosure. Even so, the Globe reports that lenders have chipped in a total of $10,000 to help with the counseling program.

It could be argued that the failure of the Massachusetts program to attract lender contributions supports the notion that the HUD proposal is harmless. But the Massachusetts effort is directed toward loans which are already in place, commissions and fees for lenders and loan officers are generated when mortgages are originated.

Again, it will be interesting to see what the HUD rule produces. Just don’t be surprised if it turns out that when lenders pay housing counselors they will only pay when commissions and fees flow back to the lenders themselves.

Check out these FHA resources for more information

This entry was posted on Sunday, October 7th, 2007 at 5:06 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.