AllRegs Compliance Commentary: HUD Issues Revised Lender Approval Requirements

by Anna DeSimone*, October 4, 2011 

Related Topics: mortgage insurance, HUD, FHA Servicing Guidelines, mortgage compliance

On September 23, 2011, HUD issued Mortgagee Letter 2011-34 to announce changes to the requirements for FHA lender approval and operations. These changes are effective immediately and supersede specific sections of HUD Handbooks 4060.1 REV-2 and 4155.2. The mortgagee letter applies to all FHA-approved lenders and applicants for lender approval.

Modified lender approval requirements include Identifying Officers, Identifying Owners, Office Facilities and Conversion of FHA Lender Approval Type. Modified lender operational requirements include Prohibited Branch Arrangement, Single-Family Loan Origination Lending Area, Business Changes Subsequent to Approval, Doing Business As (DBA) Names, Office Changes and Ownership Changes.

Click to view: ML 2011-34 

Lender Approval Requirements  Applicants must list all Corporate Officers on Form HUD 92001-A, and must provide a credit report and resume for each individual listed. Applicants must also list the appropriate owners for their business form. All office and home facilities must comply with state licensing requirements; however, HUD is no longer regulating branch offices facilities.

Applicants are no longer required to submit evidence of acceptable home office facilities; however, the Department will verify compliance through any on-site visits. Lenders that wish to change their FHA approval type must re-apply and pay a new $1,000 application fee.

Please refer to: Section 6.16 of Handbook 4060.1

Lender Operational Requirements

Approved mortgagees must pay all operational expenses directly and may not engage in “net branching” arrangements. The single-family origination lending area or a lender’s Area Approved for Business (AAFB) has been expanded to include all HUD field office jurisdictions. Mortgagees must remain compliant to maintain approval. Therefore, mortgagees must now notify HUD within 10 business days if the mortgagee (or any affiliate thereof) has been suspended, convicted, is under governmental review or is in violation of the Secure and Fair Enforcement (SAFE) Act or any state law.

The deadline for mortgagees to report any sanctions, exclusions, fines or penalties has been amended to 10 business days. Further, lenders must register all of their DBAs. The FHA Connection now allows up to 6 registered DBAs for each branch. Lenders must submit any additional DBA names and supporting documentation to the HUD address provided. FHA lenders must also report any changes to Corporate Officer identities and ownership to FHA. 

Please refer to: Section 2.19, A-B of Handbook 4060.1

Handbook Requirements Being Modified or Superseded The chart below reflects specific sections of HUD Handbooks 4060.1 REV-2, "FHA Title II Mortgagee Approval Handbook," and Handbook 4155.2, "Lenders Guide to Single Family Mortgage Insurance Process" being modified or superseded by Mortgagee Letter 2011-34.

Ownership Changes Paragraph 6-13 of Handbook 4060.1 is amended to require FHA-approved lenders to report all ownership changes, including new owners and changes in ownership interests, in accordance with the ownership requirements for their business form as detailed in lender approval requirements section of this mortgagee letter. The mortgagee letter revises the requirements for obtaining, maintaining and utilizing an entity’s FHA lender approval. The FHA Resource Center is available to answer any related questions at 1-800-CALL-FHA. HUD’s Notification Address for FHA Approved Mortgagees has been provided:

U.S. Department of Housing and Urban Development Office of Lender Activities and Program Compliance Attn: Director, Lender Approval and Recertification Division 451 7th Street, SW Room B-133/P3214 Washington, DC 20410

PDF version »

*Anna DeSimone is President and founder of Bankers Advisory, Inc., a quality control and compliance audit services company. Bankers Advisory authors state compliance matrices, policy manual templates and compliance commentaries exclusively for AllRegs.

Disclaimer: The information presented in this article represents the opinion of the author and not that of AllRegs. This article is not meant to be nor should it be construed as advice of legal counsel. The applicability of the information contained herein will vary based on the nature of each lending institution's business, under what law it was created, and its loan products and procedures. Readers are strongly urged to consult with their legal counsel and/or contact local counsel as appropriate in the various states and jurisdictions to determine the applicability of the materials contained herein to the specific facts and circumstances of each organization's programs and products and to identify other law applicable to its business operations. The information contained herein was not reviewed or approved by counsel in the respective jurisdictions.