Supervised Vs. Unsupervised Mortgage

The FDIC, Federal Housing Administration and U.S. Department of Veterans Affairs (VA) all approve mortgage lenders. The FDIC generally has the broadest oversight because they approve the national mortgage lenders that offer conventional loans. The FHA approves lenders to offer FHA-guaranteed loans; the VA approves lenders to offer VA-guaranteed loans. Similar to the FDIC, the FHA approves four types of lenders including supervised and non-supervised. The VA divides mortgage loan providers into two categories: supervised and unsupervised.

A supervised mortgage lender is also referred to as a supervised mortgagee. Supervised mortgagees are banks, savings and loans, and credit unions that are members of the Federal Reserve System or whose deposits are insured by the FDIC or the National Credit Union Administration (NCUA). Supervised mortgage lenders have banking as their principal activity or operate as subsidiaries of financial institutions that primarily provide banking services.

Because supervised lenders are part of regulated institutions, their regulators hold them to high standards of compliance. If you're shopping for a mortgage lender, you can take comfort in selecting a supervised lender. In addition, the FDIC, NCUA, FHA and VA closely monitors supervised mortgagees, subjecting loan officers to periodic review to determine if the lender meets all the lending standards. If you have a complaint about a supervised lender, one of these federal agencies will investigate.

On the other hand, non-supervised mortgagee have no banking operations. They operate solely as mortgage lenders or investors. Non-supervised mortgage lenders, also referred to as unsupervised, must maintain a warehouse line of credit or similar funding program. This ensures that the unsupervised mortgagee has the money to fund your mortgage as well as everyone else's that it enters into contract to fund. The credit line also ensures it has enough money to cover its operations. Non-supervised mortgage lenders package their loans and sell them to wholesale lenders or to Fannie Mae. Fannie Mae is the quasi-federal agency that buys mortgages, packages them and sells them as bond-like instruments on the market. Unsupervised mortgagees also file certified audits with the applicable agency, which the agency reviews annually.

Both supervised and unsupervised mortgages can originate, underwrite, hold and service mortgage loans. Both of these entities can also purchase mortgages and sell FHA insured mortgages, if approved by the FHA. However, supervised lenders are held to a much higher standard and subject to more regular monitoring than unsupervised lenders.