Table of Contents. Table of Contents Chapter 1 Introduction Goals and Objectives Required Review Applicability...

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1 ... 1 Chapter 1 Introduction Goals and Objectives Required Review Applicability... 5 Chapter 2 Accountability and Monitoring Internal Controls Monitoring Underwriters New Direct Endorsement (DE) Authority Monitoring of Correspondent (TPO) / Broker... 8 Chapter 3 Staff and Training Ongoing Training New Hire Training Chapter 4 Lender General Eligibility and Approval Standards Business Form Partnerships Business Name Non FHA Approved Entities Capitalization Single Family Program Net Worth Requirements Multifamily Net Worth Requirements Dual Participation Net Worth Requirements Creditworthiness Licensure Ethics Lender Experience Staffing Employees means, by or to any party outside of. 1

2 4.7.2 Officers Definition of a Corporate Officer Underwriting Escrows Servicing Business Changes Financial Statements Quality Control Branch Offices Conflicts of Interest Reports Ineligibility to Participate Funding Program Fidelity Bond and Errors and Omissions Insurance New Approval Submission Annual Recertification Chapter 5 Direct Endorsement (DE) Program Eligibility Requirements Underwriter Qualifications and Responsibilities DE Registration Prior DE Registration Mentor Program Prohibitions DE Underwriter Responsibilities Lender Eligibility Requirements Unacceptable Underwriting Home Equity Conversion Mortgage (HECM) Chapter 6 Principal / Authorized Agent DE Status Required Chapter 7 Title II Lender Insurance Authority Chapter 8 Correspondent (TPO) / Broker Eligibility Correspondents Underwriting and Approval Authority; Appraisals means, by or to any party outside of. 2

3 8.1.2 Closing Loans Loan Performance Capitalization Licensure Ethics Experience Staffing Quality Control Prohibition of Duplicative Fees Ineligibility to Participate Noncompliance and Notification Sponsoring Lender Responsibilities Brokers Chapter 9 Appendix Mentor Program Checklist FHA Delegated Underwriting Authority Approval Form FHA Delegated TPO Authority Approval Form means, by or to any party outside of. 3

4 Introduction Goals and Objectives Chapter 1 Introduction is committed to the highest standards of federal consumer compliance and requires all management, employees, and third party vendors follow these policies and adhere to these standards. To strengthen the Federal Housing Administration (FHA) by improving the agency s management of risk, HUD issued a final rule in early 2010, which became effective on May 20, 2010, adopting changes regarding the approval of mortgage lenders. The rule increased the net worth requirements for FHA approved mortgagees, eliminated FHA approval of loan correspondents, codified requirements of the Helping Families Save Their Homes Act (HFSH) of 2009 (Public Law ), and made minor modifications to other aspects of FHA s regulations governing lender activities. This policy addresses s commitment to the requirements of the final rule including increases in net worth requirements for FHA approved mortgagees, elimination of the FHA approval process for loan correspondents, and implementing regulations to incorporate criteria specified in the Helping Families Save Their Homes Act of 2009 (HFSH Act). The rule eliminated the FHA approval process for loan correspondent direct participation in FHA programs. Loan correspondents will continue to be allowed to participate in the origination of FHA mortgage loans as third party originators (TPOs) through sponsorship by an FHA approved mortgagee or by directly becoming an FHA approved mortgagee. However, loan correspondents acting in the capacity of TPOs are no longer subject to the FHA lender approval process. As a result of the loan correspondent approval process changes in the final rule, FHA approved mortgagees, such as, assume full responsibility to ensure that their sponsored TPOs adhere to FHA origination and processing requirements. 1.1 Goals and Objectives The standards set out in this policy represent minimum requirements based on applicable legal and regulatory guidance and apply throughout s operations. intends to establish delegation policies and procedures for all FHA lending activities conducted by, its employees, correspondents, brokers, or thirdparty vendors with an overriding goal of improved risk management and integrity. means, by or to any party outside of. 4

5 Lender General Eligibility and Approval Standards Business Form Chapter 4 Lender General Eligibility and Approval Standards There are four types of FHA lender approval: 1. A Nonsupervised mortgagee may be a correspondent, TPO lender, or nondepository financial institution, but has as its principal activity the lending or investing of funds in real estate mortgages. Nonsupervised mortgagees must meet FHA s approval requirements as follows: a. Must derive at least 50% of its principal activities from real estate mortgages b. Have an acceptable business form c. Meet creditworthiness requirements d. Have an acceptable funding program 2. A Supervised mortgagee may be a bank, savings bank, thrift, or a credit union, but are members of the Federal Reserve System (FRS) or whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). As a supervised mortgagee, may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA insured mortgages. 3. A Government mortgagee would include a federal, state, or local government agency such as Fannie Mae, Freddie Mac, a Federal Reserve Bank, or a Federal Home Loan Bank. 4. An Investing mortgagee may be any entity that wishes to service, purchase, hold, or sell FHA mortgages but may not originate or fund FHA loans. is a [Nonsupervised][Supervised][Investing] mortgagee. To be approved by FHA to participate in the origination, servicing, acquisition, or selling of FHA insured mortgages, must fully comply with all approval and eligibility requirements of Handbook I.A.3 and further defined in the sections that follow: 4.1 Business Form To be approved as an FHA lender or mortgagee, shall be a corporation or other chartered institution, a permanent organization having succession, as a Limited Liability Company (LLC) or a Series LLC, a partnership, or a nonprofit. will submit its business formation documents to FHA using the online application process. means, by or to any party outside of. 11

6 Direct Endorsement (DE) Program Eligibility Requirements Underwriter Qualifications and Responsibilities o Appraisal review o Value conclusion assessment and/or determination o Mortgage credit analysis o Regulatory compliance o Risk assessment Participation in s Mentor Program with a recommendation from the underwriter s mentor that they are prepared for DE underwriting responsibilities. May not be subject to any actions or restrictions under the HFSH Act as outlined in the Ineligibility to Participate section of this policy DE Registration All underwriters must be fully registered with appropriate credentials within the FHA Connection system prior to exercising any DE Authority Prior DE Registration Underwriters who were previously registered under the DE Program while employed by another FHA approved lender or mortgagee may begin submitting test cases through upon successful completion of all other prerequisites listed above Mentor Program has established its Mentor Program to assist underwriters in professional development which may include the following: Learning and mastering underwriting philosophy Increasing knowledge of industry best practice Preparing for expanded underwriting responsibility as the underwriter progresses within Ensuring a working understanding and practical application of s underwriting policy and procedures Given that DE registration is granted to more senior level underwriters or underwriters with sufficient experience gained elsewhere, it is presumed that the underwriter has a substantial skill set at their disposal. As a means by which to learn and practice the skills required of an underwriter seeking DE registration for FHA lending programs on behalf of, the DE underwriter candidate s manager, supervisor, or a senior underwriter and candidate shall manage the following requirements: means, by or to any party outside of. 26

7 Appendix Mentor Program Checklist 9.1 Mentor Program Checklist Underwriter: Mentor: DE Authority Approving Manager: Target Authority Level: o Forward Mortgage FHA Products o Home Equity Conversion Mortgage Products (HECM) Start Date: Mentor Program FHA Delegated Underwriting Authority Current Experience Level: o Prior Delegated Authority o DE Forward Mortgage FHA Products o Other Projected Completion Date: Given that DE Authority is granted to more senior level underwriters or underwriters with sufficient experience gained elsewhere, it is presumed that the underwriter has a substantial skill set at their disposal. Has the underwriter demonstrated competency in the following prerequisites? Minimum three years mortgage underwriting experience. Minimum 12 months underwriting experience within unless prior registration with DE Authority can be confirmed within FHA Connection or by other acceptable means. Evidence of satisfactory manual underwriting skills assessing complex cases as determined by the candidate s underwriting manager. Complex cases shall include a diverse mix of the following: o Conventional loans o Jumbo loans o Self Employed borrower analysis o Rural, condo, and/or cooperative properties o Compliance and quality control reviews Evidence of satisfactory performance with the following knowledge or skills: o Appraisal review o Value conclusion assessment and/or determination o Mortgage credit analysis means, by or to any party outside of. 42