FHA Revises Dual Employment and Conflict of Interest Requirements

FHA issued a new Mortgagee Letter which revises and clarifies its requirements regarding when an individual may have multiple roles or sources of compensation in connection with a single FHA loan transaction.

The guidance provides that individuals that have a direct impact on the mortgage approval decision are prohibited from having multiple roles or sources of compensation, directly or indirectly, from a single FHA loan.  Such individuals include underwriters, appraisers, inspectors, and engineers.  Participants that do not have a direct impact on the mortgage approval decision may have multiple roles or sources of compensation for services actually performed in connection with a loan, so long as this is otherwise permitted by HUD and complies with all other federal, state, and local laws and rules.

The guidance explains that indirect compensation includes any compensation resulting from the same FHA loan transaction, other than for services performed in a direct role.  As non-exclusive examples, indirect compensation could arise where the individual has an ownership interest in another business that is a party to the same FHA loan transaction, or where the individual’s spouse, domestic partner, or other family member has a direct role in the loan transaction.

Mortgagees are responsible for ensuring that participants with a direct impact on the mortgage approval decision do not have multiple roles or sources of compensation in connection with a loan.

The new guidance is effective immediately for FHA loans with case numbers assigned on or after December 15, 2022.