Supplemental Mortgagee Authorities

HUD Handbook 4000.1 >> Supplemental Mortgagee Authorities

Sub-sections in this section include:

a. Title II Direct Endorsement Authority
b. Title II Single Family Lender Insurance Authority
c. Title I Manufactured Housing Loan Direct Endorsement Authority
d. Title II Multifamily Accelerated Processing Authority

After a Mortgagee is approved, the Mortgagee can apply for additional supplemental Mortgagee authorities in accordance with the following requirements.

a. Title II Direct Endorsement Authority

i. Scope of Authority

Approval to participate in FHA’s Direct Endorsement (DE) Program permits a Mortgagee to underwrite Title II Single Family Mortgages without FHA’s prior review and submit them directly for FHA insurance endorsement.

The Mortgagee must obtain separate DE approval for forward mortgage and Home Equity Conversion Mortgage (HECM) programs.
(A) Definitions
(1) Conditional Authority Conditional Authority is the authority of a Mortgagee that has applied for and received basic FHA Mortgagee approval as a Supervised, Nonsupervised, or Government Mortgagee, and has not entered or completed the Test Case phase.
(2) Test Case Phase The Test Case Phase is when a Mortgagee with conditional authority is approved by an FHA Homeownership Center (HOC) to submit one or more cases for FHA underwriting review.
(3) Unconditional DE Authority Unconditional DE Authority permits a Mortgagee to underwrite and close Title II Single Family Mortgages prior to submitting them to FHA for FHA insurance endorsement.
(B) Standard To obtain Unconditional DE authority, the Mortgagee must successfully complete the Test Case phase, which permits FHA to evaluate the Mortgagee’s qualifications, experience, and expertise to underwrite Mortgages that satisfy FHA requirements.
(C) Exception Unconditional DE authority may be granted, without the need for the Test Case phase, to the following categories of Mortgagees created by merger, acquisition, or reorganization:

  • surviving FHA-approved Mortgagees; or
  • new Mortgagees resulting in new FHA Lender IDs.

ii. Eligibility Requirements

A Mortgagee must meet the following requirements in order to apply for and participate in FHA’s DE Program.
(A) Standard
(1) FHA Mortgagee Approval A Mortgagee must have FHA approval as a Title II Supervised, Nonsupervised, or Government Mortgagee to be eligible to participate in the DE Program. Mortgagees approved as Investing Mortgagees are not eligible to participate in the DE Program.
(2) Origination Experience The Mortgagee must have:

  • at least five years of experience in the origination of Single Family Mortgages; or
  • a Principal Officer with at least five years of managerial experience in the origination of Single Family Mortgages. For the purposes of this SF Handbook a Principal Officer is the same as a Corporate Officer.

(3) Personnel Requirements The Mortgagee must have an underwriter on its permanent staff.
(B) Exception for Certain Mortgagees Created by Merger, Acquisition, or Reorganization Unconditional DE authority may be granted without the need for the Test Case phase following a merger, acquisition, or reorganization, so long as the following criteria are met:

  • Either or both institutions, of the surviving FHA-Approved Mortgagee or the FHA-Approved Mortgagee resulting in a new FHA Lender ID, were unconditionally DE-approved prior to the merger, acquisition, or reorganization.
  • If both institutions are unconditionally DE-approved, then the management and staff of at least one of the Mortgagees involved with the Mortgagee’s Unconditional DE authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Mortgagee. If only one institution is unconditionally DE-approved, then the management and staff involved with that Mortgagee’s Unconditional DE authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Mortgagee.
  • Both Mortgagees have claim and default rates at or below the 150 percent national compare ratio. If only one institution is unconditionally DE-approved, then only that Mortgagee’s claim and default rate is to be considered.

iii. Application and Approval

(A) First-Time Applicants
(1) Application
(a) Request to Enter into the Test Case Phase The Mortgagee must submit a written application for Unconditional DE authority to the Jurisdictional HOC for the state where the Mortgagee’s home office is located.
(b) Required Documentation The Mortgagee’s DE application must contain a letter signed by a Corporate Officer requesting entry into the Test Case phase that contains the Mortgagee’s home office 10-digit FHA Lender ID and all underwriters’ names and the four-character FHA-assigned identification numbers issued to these underwriters.
(2) Notification and Entrance Conference If the Mortgagee meets the requirements for conditional authority and submits the required documentation, the Mortgagee will receive a Test Case phase approval letter from the HOC. The HOC will also provide reference materials and a list of the specific requirements that must be met for the Mortgagee to obtain Unconditional DE authority. The Mortgagee must participate in an in-person or telephone entrance conference with the HOC before it will be eligible to submit Test Cases.
(3) Test Case Phase The Mortgagee must submit Test Cases to FHA for review during the Test Case phase. FHA will review these cases for compliance with FHA’s origination and underwriting requirements.
(a) Case Binder Submission The Mortgagee must submit all Test Case files to the Jurisdictional HOC associated with the Mortgagee’s home office.
(i) Pre-closing Submission If the Mortgagee submitted the case binder before closing, the HOC will either issue a Firm Commitment (approval) or Firm Reject (denial). The Mortgagee may close and submit for insurance endorsement any Mortgage that has received a Firm Commitment.
(ii) Post-closing Submission If the Mortgagee first submitted the case binder to FHA after closing, the HOC will perform a Test Case review for compliance with FHA underwriting guidelines. The HOC will either insure the Mortgage, or reject the Mortgage and return it to the Mortgagee for correction. The Mortgagee must make any necessary corrections and provide any required documents to the HOC before the loan can be insured. If the Mortgagee did not comply with FHA requirements and has not corrected all errors, the HOC will reject the Mortgagee’s request for insurance.
(b) Test Case Underwriting Report The Mortgagee, or its underwriter, must review the Underwriting Report completed by the HOC available through FHAC on all Test Cases. Mortgagees may request a change in an unacceptable rating for a Mortgage by submitting a request to the HOC that processed the Test Case. The Mortgagee must include all relevant documentation to support its request.
(c) Test Case Closing Package The Mortgagee must ensure that all required certifications are executed and included with each complete case binder that is submitted to the HOC for endorsement processing.
(4) Approval Decision
(a) Approval of Unconditional DE Authority After the Mortgagee successfully completes the required Test Cases, FHA will grant the Mortgagee approval for Unconditional DE authority. The Mortgagee must receive a minimum of 15 Firm Commitments for forward mortgage authority or five Firm Commitments for HECM mortgage authority within a period of 12 consecutive months following the date of the entrance conference in order to be granted Unconditional DE authority. The Mortgagee will receive an approval letter and may then begin submitting Mortgages to FHA for endorsement without prior review by FHA.
(b) Denial of Unconditional DE Authority The Mortgagee will be denied approval for Unconditional DE authority if, at any time during the Test Case phase, FHA determines that the Mortgagee’s submissions demonstrate a lack of knowledge of FHA requirements, or if FHA identifies unacceptable practices.
(i) Denial Decision FHA will provide the Mortgagee with written notice of a denial of Unconditional DE authority that specifies the reason for the denial.
(ii) Denial Appeal The Mortgagee may appeal this denial by requesting an informal conference. The Mortgagee must submit its appeal in writing to the HOC that processed the Test Cases. The HOC must receive the appeal within 30 Days of the date of the notice of denial.
(iii) Informal Conference FHA will conduct an informal conference with the Mortgagee and its counsel, if any, no later than 60 Days from the date of the denial.
(iv) Determination FHA will issue a determination in writing following the informal conference stating whether Unconditional DE authority is approved or denied.
(v) Appeal Following Informal Conference The Mortgagee may appeal a denial following the informal conference by submitting a written request to the Deputy Assistant Secretary (DAS) for Single Family Housing, or his or her designee, within 30 Days of the date of the denial determination. The Mortgagee is not entitled to any meeting or informal conference with the DAS or the designee. The Mortgagee will be notified in writing of the decision of the DAS or the designee. The decision of the DAS or the designee constitutes final agency action.
(c) Reapplication Following Denial Any Mortgagee who is denied Unconditional DE authority will not be permitted to reapply until it has:

demonstrated appropriate remedial education or action;
supplied evidence to support such action; and
waited a minimum of 180 Days from the date of final agency action.

(B) Applications from Mortgagees Created by Merger, Acquisition or Reorganization
(1) Standard The Mortgagee must submit a written application for Unconditional DE authority to the Jurisdictional HOC for the state where the Mortgagee’s home office is located.
(2) Required Documentation The Mortgagee’s DE application must contain the following:

a letter signed by a Corporate Officer requesting Unconditional DE authority that specifies:

  • the FHA-approved and non-approved Entities involved in the merger, acquisition, or reorganization;
  • which Entity is the surviving Entity; and
  • the effective date of the merger, acquisition, or reorganization; and
    supporting documentation evidencing that the Mortgagee meets the exception criteria detailed above.

iv. Principal/Authorized Agent Relationship

(A) Definition A Principal/Authorized Agent Relationship is one in which a Mortgagee with Unconditional DE authority permits another DE-approved Mortgagee to underwrite Mortgages on its behalf.
(B) Standard A Mortgagee with Unconditional DE authority (acting as the “principal”) can designate another DE-approved Mortgagee to act as its “authorized agent” for the purpose of underwriting Mortgages. A sponsored Third-Party Originator (TPO) may not act as a principal or authorized agent.
(1) Required Authorities The authorized agent must have Unconditional DE authority to underwrite the type of Mortgage that is being underwritten. The Mortgagees must be approved as follows. To originate forward Mortgages:

  • the principal may have Unconditional DE authority for either forward Mortgages or HECM; and
  • the authorized agent must have Unconditional DE authority for forward Mortgages.

To originate HECM:

the principal may have Unconditional DE authority for either forward Mortgages or HECM; and
the authorized agent must have Unconditional DE authority for HECM.

(2) Process The principal must originate the Mortgage and the authorized agent must underwrite the Mortgage. The Mortgage may close in either Mortgagee’s name, and either may submit the Mortgage for insurance endorsement.
(C) Required Documentation The relationship must be documented in FHAC by the authorized agent, and the principal’s FHA Lender ID must be entered in the “Originator” field on the FHA case file and in FHAC.

v. Sponsor/Sponsored Third-Party Originator Relationship

(A) Definition A Sponsor/Sponsored Third-Party Originator (TPO) Relationship is one in which a Mortgagee (acting as the “sponsor”) permits another entity to act as an originator and originate Mortgages on behalf of the Mortgagee.
(B) Standard Only a Mortgagee with Direct Endorsement Authority may use sponsored TPOs. A Mortgagee must ensure its sponsored TPO meets all state license, registration, or equivalent approval requirements. A Mortgagee must ensure its sponsored TPO and the TPO’s officers, partners, directors, principals, managers, supervisors, loan processors, and loan originators are not ineligible under 24 CFR § 202.5(j). A Mortgagee must ensure its sponsored TPO does not purchase or hold FHA-insured Mortgages and may not close Mortgages in their own name. Exception for Mortgagees Acting as a Sponsored Third-Party Originator A Mortgagee may permit its sponsored TPO to purchase or hold FHA-insured Mortgages and close Mortgages
(C) Required Documentation A Mortgagee with Unconditional DE authority must register a sponsored TPO on the Sponsored Originator Maintenance screen in FHAC.

b. Title II Single Family Lender Insurance Authority

i. Scope of Authority

Approval to participate in FHA’s Title II Single Family Lender Insurance (LI) Program permits a Mortgagee to endorse Mortgages for insurance with no prior review by FHA.
(A) Definitions
(1) LI Authority LI Authority permits a Mortgagee with Title II Unconditional DE authority to endorse Single Family Mortgages for insurance without prior review by FHA.
(2) LI Compare Ratio The LI Compare Ratio is the percentage of Mortgages underwritten by the Mortgagee that are in claim or default status compared with the percentage of Mortgages in claim or default status for all Mortgagees operating in the same state(s) over the preceding two-year period.
(B) Standard To obtain Title II Single Family LI authority, the Mortgagee must meet the eligibility requirements as stated below and successfully complete the application and approval processes.

ii. Eligibility Requirements

(A) Standard To obtain LI approval, the Mortgagee must:

  • be an FHA-approved Mortgagee with Unconditional DE authority; and
  • have an LI Compare Ratio that is at or below 150 percent.

(1) Exception for New Mortgagees Created by Merger, Acquisition, or Reorganization Resulting in New FHA Lender Identification Number

If the Mortgagee lacks an LI Compare Ratio because it was recently created by a merger, acquisition, or reorganization that resulted in the issuance of a new FHA Lender ID, it must:

  • have Unconditional DE authority;
  • have had one or more Mortgagees with LI authority at the time of the merger, acquisition, or reorganization, participate in the merger, acquisition, or reorganization;
  • have had an acceptable LI Compare Ratio for all Mortgagees with LI authority participating in the merger, acquisition, or reorganization, at the time of the merger, acquisition, or reorganization;
  • have an LI Compare Ratio that is derived from aggregating the claims and defaults of all formerly FHA-approved Mortgagees participating in the merger, acquisition, or reorganization that is not more than 150 percent; and
  • ensure that the management and staff who were involved with LI processing for the FHA-approved Mortgagee prior to the merger, acquisition, or reorganization will continue to exercise those responsibilities for the new Mortgagee.

iii. Application and Approval

(A) First-Time Applicants
(1) Standard The Mortgagee must apply for LI authority through FHAC.
(2) Required Documentation Before applying, the Mortgagee must make a written determination that it will participate in the LI Program. The Mortgagee’s written determination to participate in the LI Program must be signed by a Principal Owner or Corporate Officer. The Mortgagee must retain a copy of such written determination and make it available to HUD upon request.
(3) Approval FHAC will automatically approve or deny the Mortgagee’s LI authority based on the Mortgagee’s DE approval status and LI Compare Ratio.
(B) Application from Mortgagee Created by Merger, Acquisition, or Reorganization Resulting in New FHA Lender Identification Number
(1) Standard Mortgagees created through mergers, acquisitions, or reorganizations that are issued a new FHA Lender ID must apply for LI authority through LEAP.
(2) Required Documentation The Mortgagee’s application must contain the following:

  • a copy of the “Acknowledgment of Terms and Conditions for LI” screen in FHAC, printed and signed by a Corporate Officer;
  • the name and contact information of the LI contact person and, at the discretion of the Mortgagee, the name and contact information for the back-up LI contact person;
  • the name and FHA Lender ID of the new Mortgagee;
  • the names and FHA Lender IDs of the Mortgagees participating in the merger, acquisition, or reorganization; and
  • information identifying the management and staff experienced with LI processing employed by the new Mortgagee or transferring from a Mortgagee that previously held LI approval, and describing how the management and staff will continue to exercise LI responsibilities for the new Mortgagee.

c. Title I Manufactured Housing Loan Direct Endorsement Authority

RESERVED FOR FUTURE USE

This section is reserved for future use, and until such time, FHA-Approved Mortgagees and Title I Manufactured Housing Mortgagees must continue to comply with all applicable law and existing Handbooks, Mortgagee Letters, Notices and outstanding guidance applicable to a Title I Manufactured Housing Mortgagee’s participation in FHA programs.

d. Title II Multifamily Accelerated Processing Authority

Title II Multifamily Accelerated Processing (MAP) authority permits Mortgagees to underwrite and close multifamily Mortgages for FHA insurance without FHA’s review prior to closing. The Office of Multifamily Housing grants this authority. Details on this authority are in the Multifamily Accelerated Processing (MAP) Guide 4430.G, which is available in HUD’s Client Information and Policy System (HUDCLIPS).