Mortgage Daily Logo
mortgage news from industry experts

FHA Originators Must Be W-2

FHA Originators Must Be W-2HUD handbook updated

August 28, 2006

By LISA D. BURDEN
WASHINGTON correspondent for MortgageDaily.com

FHA loan originators cannot be paid as contractors.The Department of Housing and Urban Development is requiring FHA-approved lenders to pay their loan officers and underwriting and servicing employees via W-2s.

The requirement is part of a recently released update of the Federal Housing Administration handbook. The updated handbook — the first revision of the book since 1993 — provides specific guidance about the requirement.

The latest version of the handbook says that all compensation including salary, commissions and bonuses must be reported on the W-2 form.

HUD decided to update the handbook after it’s Office of Inspector General issued an audit report, “Use of Independent Contract Loan Officers to Originate FHA-Insured Loans,” HUD spokesman Lemar C. Wooley told MortgageDaily.com in an e-mail statement As a result of a recommendation in that audit report, FHA agreed to revise its Mortgagee Approval Handbook that clarified the use of employees and the requirement of reporting income for employees on a W-2.

The new policy means that loan officers for FHA-approved lenders cannot be independent contractors paid under 1099s.

The agency expects the change to have minimal impact on lenders, because HUD has always required FHA-approved lenders to use employees rather than contract staff to perform critical loan functions,.

Wooley explained that underwriting and servicing staff have been included in the requirement because, as a “critical component” of mortgage lending, it is important that such staffers be compensated based on the quality of the work performed and not upon the volume of work completed as might be the case with commissioned-based compensation.

He said that if an FHA-approved lender is paying its loan officers and other staffers as 1099 contractors, FHA will make a determination if the violation creates a material risk to the FHA Insurance Fund and then take appropriate corrective action.

“We are very pleased that FHA is participating in the process of cleaning up the mortgage business,” said Don DeRespinis, a certified public accountant and partner in Connecticut-based Danbury Mortgage, a subsidiary of Charter Oak Lending Group, LLC. “As a small mortgage company who has always complied with this law, and competed against many businesses that do not comply, we are very much in favor of this. Our hope is that FHA will enforce these rules in cooperation with the IRS.”

But not everybody is happy with the clarification.

“I am, frankly, not sure why FHA is now requiring that FHA-approved lenders pay their loan officers and underwriting and servicing employees with W-2s” rather than 1099s,” said Christopher Cruise, a former loan officer and an industry trainer. “It seems to me an intrusion into a private business’ concern, and is reflective of a mentality on the part of FHA that makes the industry shy away from dealing with the product.”

As of July 31, 2006, over 9,300 lenders were FHA-approved.


Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts

THE TRUSTED PROVIDER OF ACCURATE RATES AND FINANCIAL INFORMATION