FHA Mortgagee Approval Clarification

Many lenders are still trying to understand the new FHA approval requirements. As an industry, we have ML 09-31, ML 10-03, ML 10-20 (the main mortgagee letter), ML 10-38 and ML 11-25, along with the FHA Handbook 4060.1 rev.2, FHA’s website and FAQ’s as reference documents to determine FHA approval policies. Over the last few months I have been fortunate to conduct training programs at HUD on behalf of Campus MBA. The lender approval process was a part of our most recent program and FHA staff offered some great clarification. Here’s the easiest way I know to summarize the details we discussed. Supervised and Non Supervised Mortgagees ONLY: The net worth requirements were changed with ML 10-20 however authorized activities for a mortgagee, as published in the 4060.1 Rev. 2, were not changed. Per the 4060.1 Rev. 2 “…these entities have the ability to originate, underwrite, purchase, hold, service, and sell FHA insured mortgages and submit applications for mortgage insurance. ” (This includes funding and closing in the name of the mortgagee.) Approved mortgagees have the ability to pursue Direct Endorsement (DE) underwriting authority. The key is that an approved mortgagee is not required to obtain DE authority. An approved mortgagee can be sponsored by a DE approved mortgagee and the DE mortgagee can conduct the underwriting. The originating approved mortgagee can still fund and close in their name, as permitted by the DE mortgagee. Essentially a mortgage without DE approval, can be a ‘sponsored originator’. Perhaps we change our definition of ‘mini eagle’ now. In the past a mini eagle meant you were a loan correspondent and able to originate and process FHA but could not obtain underwriting authority. Today, fully approved mortgagees can sit without underwriting wings through sponsors. Sponsors should keep in mind that they still have full liability for the quality of the mortgagee’s loan. If I read my FHA cards right, FHA has full authority to go after both entities if there was a problem. Sponsored Originators – entities without mortgagee approval: Companies that are sponsored originators and are not an approved mortgagee can take FHA applications and process the loans however they do not have authority to underwrite or close in their name. A sponsored originator without mortgagee approval is a broker in the true sense of the definition. Authorized Agents: ML 10-20 clearly changed how Principal-Authorized Agent Relationships work. The ML established that only unconditionally approved DE lenders were permitted to enter into principal agent relationships. Many companies used this avenue in the past to have another lender underwrite on their behalf. This was a great option for small to mid-sized companies who could not afford a full time DE underwriter. Under the new process, a company must obtain their mortgagee approval and pass the test case phase for DE approval before a Principal-Authorized Agent Relationship can be established. So the ultimate question is why would a lender need an agent? Why not just stay at the new mini eagle level? If your only goal is to get FHA loans closed, then the new mini eagle is right for you. However, many companies do earn DE authority and then need a solution in the event they become short staffed due to increases in volume or leave of absences. The fact remains that sponsored originator status and authorized agent relationships both serve a purpose and allow a fully approved mortgagee to serve customers based on their business model and circumstances.