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FHA, VA and HECM mortgage news. HUD and G i n n i e news also. Originations, servicing and FHA approval.

FHA Approval Requirements Updated

Mortgagee letter outlines changes to HUD handbooks

Sept. 26, 2011

By staff

Updates to handbooks for Federal Housing Administration mortgagees outline revised requirements for FHA lender approvals. Clarification was issued for net branch arrangements.

The Department of Housing and Urban Development has modified sections of two handbooks that outline mortgagee approval requirements.

The impacted handbooks are Handbook 4060.1 REV-2, "FHA Title II Mortgagee Approval Handbook," and Handbook 4155.2, "Lenders Guide to Single Family Mortgage Insurance Process."

The revisions were outlined Friday in Mortgagee Letter 2011-34.

The new requirements are immediately effective.

HUD said that all corporate officers need to be listed by the mortgagee. These include executives who will be directly involved in managing, overseeing or conducting the FHA business. A resume and credit report must be included for each officer listed.

"The term 'corporate officer' refers to a natural person who is an owner, president, vice president, chief operating officer, chief financial officer, director, corporate secretary, chief executive officer, chairman of the board or member or manager of a limited liability company," HUD said. "This definition of corporate officer supersedes the definition of 'corporate officer' which is contained in Mortgagee Letter 2010-38."

Owners also need to be identified. These include shareholders with a 10 percent or more stake in a publicly traded company or a 25 percent ownership interest in private companies. All owners must be listed for limited liability companies, and general partners are required for partnerships.

Subsequent changes in officers or owners need to be brought o HUD's attention.

While branch office facilities are no longer regulated by HUD, the agency could make an on-site visit to home offices to verify compliance.

Mortgagees looking to convert their FHA-approval types have to submit a new lender approval application package and pay a $1,000 application fee.

HUD clarified that "net branching" is prohibited and revised its handbook to eliminate duplication in this area.

"Approved mortgagees must pay all expenses incurred in the operation of their home, branch, and direct lending offices directly, and may not engage in 'net branching' arrangements in which a party, other than the approved mortgagee, pays some or all of the branch office expenses," the letter stated.

Mortgagees must notify HUD within 10 business days when any corporate officer, owner or production employee has been suspended by another federal agency. HUD also needs to know when any of this group has been indicted or convicted or is subject to unresolved findings as a result of a HUD or government audit, investigation or review. The agency also wants to know when any of these partners are using nontraditional lending practices.

Convictions tied to mortgage crimes during the past seven years need to be disclosed, as do all felony acts during any time period when "an act of fraud, dishonesty, or a breach of trust or money laundering" were involved. Violations of the Secure and Fair Enforcement Mortgage Licensing Act of 2008 must also be disclosed.

All other names that the mortgagee does business under must be registered with HUD.

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