Right now this is a very relevant question - Can an independent net branch of a licensed FHA Lender or Broker legally originate FHA loans under HUD rules?

HUD recently answered this question with a big, "No, you can't" in October 2007. HUD did this by focusing on brokers who are not FHA-approved brokers.

HUD reasoned as follows: "In transactions where the mortgage broker is not an FHA-approved broker, the loan origination services cannot be performed. Under these circumstances, RESPA would prohibit the payment to the non FHA-approved mortgage broker because those services, under FHA regulations, would have to be performed again by either an FHA-approved lender or loan correspondent. The payment to the unapproved broker for duplicated services amounts to an unearned fee in violation of section 8(b) of RESPA."

So the real question really comes down to whether you are an FHA approved broker when you associate with a net branch lender? To answer this question, you need to understand the basic rule that all originators who work for an FHA approved broker must be a W2 employee of that broker.

This means that all compensation paid to the loan originator must be in the form of commission earned from the loan and must be paid W2 (with all applicable federal and state taxes deducted) on the originator's paycheck. No monies can be paid 1099 for FHA business.

This is where most net branches fail to meet the HUD requirement since many net branch lenders pay their loan officers on a 1099 basis to avoid paying employer payroll taxes and this is the problem with trying to net branch FHA loans. You might therefore consider getting your own FHA license or at least learning about what is required to see if now is the right time for your company to become FHA approved.

Want to learn more about the how to obtain your own FHA Mortgage License? Download my brand new free guide here: How to Get a FHA License