Do you know what an FHA lender is, and whether or not you should use one?

When you need special treatment, you see a specialist. Eye doctors take care of vision, mechanics handle cars, and plumbers fix pipes. By now, you should know that it takes a specialist to fund a sound mortgage loan.

The Federal Housing Administration (FHA) is poised to become a primary service provider in the mortgage industry. But this government agency doesn't actually make mortgage loans. Instead, it relies on approved lenders to manage the loan qualification and funding processes in accordance with its guidelines.

Funding your FHA loan

Approved FHA lenders must meet minimum requirements pertaining to the qualifications of the owners or officers, the size of the office staff, and the adequacy of their facility. Further, the FHA requires that approved lenders be structured as corporations, partnerships, LLCs, chartered institutions, or government agencies. Sole proprietorships will not receive FHA lender status.

These requirements are in place to ensure that your lender has the staff, experience, and infrastructure to assist you in applying for, and closing, an FHA mortgage. Given the ongoing problems in the mortgage industry, this extra scrutiny might be reason enough to pursue an FHA loan over a conventional one. At least you'll know that the officers in charge of your lender's FHA division have a minimum of three years' experience. On top of that, you'll also know that your FHA lender must be staffed with at least two full-time employees. Hopefully, that means that your loan application won't be gathering dust while your rep is out drumming up new business.

Six levels of approval

The FHA offers six types of lender approvals. These are:

• Non-supervised loan correspondent. Only mortgage brokers can receive this level of approval; it allows them to originate Title II single-family loans, and Title I loans. Correspondent lenders and mortgage lenders can also obtain non-supervised loan correspondent status.
• Non-supervised mortgagee. This approval type allows correspondent lenders and mortgage lenders to originate, underwrite, service, and own FHA mortgages.
• Supervised loan correspondent. A supervised loan correspondent is a bank, savings and loan, or credit union that originates Title II single-family FHA loans.
• Supervised mortgagee. Banks, savings and loans, and credit unions can obtain the supervised mortgagee approval to originate, underwrite, service, and own FHA mortgages.
• Government mortgagee. A government mortgagee can be any federal, state, or local government agency that wants to originate, underwrite, service, or own FHA loans.
• Investing mortgagee. The investing mortgagee is only allowed to own FHA loans; this is the only approval level that's not authorized to fund FHA mortgages.

The FHA lender approval is essentially an added layer of oversight, specific to lenders specializing in FHA loans. It's there to protect you-and these days, that's worth a lot.