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Copyright 2011 First National Compliance Solutions Inc.
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First National
Compliance Solutions Inc.
Can Real Estate Agents Originate Mortgage Loans?
By Jonathan Pinard & Bonnie Nachamie
From the
National Mortgage Professional Magazine  August 2011 Issue

In 2006 the Federal Housing Administration updated its Mortgagee Approval Handbook and
said that employees of approved mortgagees “may have other employment including self-
employment. However, such outside employment may not be in mortgage lending, real estate,
or a related field.”

To answer the question of whether a real estate agent can originate mortgage loans, you
must refer to that section of the Handbook. The answer is: not if they work for an FHA
approved lender, even if they only originate conventional loans. As a matter of fact they
cannot even be employed in any capacity by a FHA approved lender.
If you are a mortgage broker your first reaction to this may be “I am so happy I’m not a FHA
Approved Lender”, but if your company is originating FHA Loans, the regulation may apply to
you too!

When FHA eliminated the mini-eagle certification they gave FHA Approved Lenders the ability
to sponsor mortgage brokers to allow them to originate FHA Loans. With this increased
authority came the burden of ensuring that all sponsored entities were complying with FHA
Requirements. Mortgagee Letter 2010-20 says; “HUD will hold FHA-approved mortgagees
responsible for compliance with FHA requirements in all aspects of an FHA loan transaction,
whether performed by the approved mortgagee or by its sponsored third party originator”
Since FHA has recently cited lenders for having employees with impermissible outside
employment it is merely a matter of time before they notice that some sponsored mortgage
brokers are violating the same rule.

If you are a mortgage broker you may not want to wait until you are told that you are not in
compliance. Once FHA has cited a lender and mortgage broker (fines can run as high as
$7,500 per violation) for improperly originating loans, the state regulators get involved. In
today’s regulatory environment that could be very costly!  
What should you do?

If you are an approved FHA Lender or mortgage broker originating FHA loans, we
would suggest you take the following steps:

•        Adopt a stringent internal written policy requiring full disclosure by any newly hired
employee of any other employment or business activities. Similarly, require periodic
confirmation and disclosure by existing employees, in addition to a company requirement to
advise management of any changes, additions or deletions of outside employment at the time
of the change.

•        Adopt a policy advising your entire staff that outside employment of any kind needs to
be disclosed to management immediately.

•        Perform regular reviews to ensure compliance: Both at the time of hire and periodically
during the course of an employee’s tenure with your firm. Check the NMLS system to see if
any of your employees have other employment identified. The public access section shows all
past and present employment of any licensed MLO. Simple and ‘free’ internet searches may
provide you with information on your employees.  

•        Adopt a policy that clearly sets forth that any employee with impermissible outside
employment may be subject to immediate termination, for cause.

Remember; this rule is not merely limited to Real Estate Agents but applies to anyone
employed in a “related field”. This would suggest that an employee also working as an
insurance agent/broker, appraiser, title agent, closing agent and many other positions would
be ineligible for employment with FHA Approved Lenders or mortgage brokers who are
originating FHA Loans. Protect your business and proceed with caution!!