www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 August 09, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 94-39 TO: ALL APPROVED MORTGAGEES SUBJECT: Clarification of HUD Handbook 4060.1 REV-1, Mortgagee Approval Handbook The Department issued a revised Mortgagee Approval Handbook (4060.1 REV-1) on September 30, 1993. This Mortgagee Letter will amend some of the requirements in that Handbook, and provide answers to frequently asked questions. The clarifications below are effective immediately. A. REPORTING BUSINESS CHANGES. The Approval Handbook, paragraph 2-21, requires mortgagees to report all corporate changes to the Department within 10 days. HUD is amending this requirement to add that when the change involves the addition or substitution of a principal (including the chairman of the board, president, vice presidents and any person or entity that owns more than 25 percent of the mortgagee's voting stock) the mortgagee must order a Residential Mortgage Credit Report on the person(s) or entity. The credit report must be sent directly to the Lender Approval Division from the Credit Bureau. The notification of change must be sent directly to: HUD, Lender Approval and Recertification Division, Room 9146, 451 Seventh Street S.W., Washington, D.C. 20410. B. SATELLITE OFFICE. The revised Approval Handbook dated September 30, 1993, does not permit mortgagees to operate satellite offices. Effective with this Mortgagee Letter, mortgagees may operate satellite offices, under the following conditions: 1. The satellite office must be located within the jurisdiction of a HUD field office where the mortgagee has an approved branch or home office. (For example: The mortgagee has its home office in Atlanta, Georgia and opens a satellite office in Albany, Georgia; this is acceptable. But the same mortgagee could not open a satellite office in Columbia, South Carolina since this is not within the jurisdiction of the Atlanta HUD Office.) Mortgagees are permitted to utilize a satellite office(s) for processing streamline refinance mortgages only without regard to this "location" requirement. _____________________________________________________________________ 2 2. The satellite office must be in a location conducive to performing mortgage lending business, and be clearly identified to the public. The office must be separate and apart from any other entity. 3. The satellite office must be staffed by an employee(s) of the mortgagee. 4. The office must not have direct contact with HUD (i.e. cannot order FHA case numbers and cannot submit loans for endorsement. These functions must be handled by the nearest approved branch or home office). 5. A review of the satellite office's loans and operation must be included in the Company's Quality Control Plan. 6. The mortgagee must pay all operating expenses of the satellite office. C. PART-TIME EMPLOYEES. (The Approval Handbook REV-1 paragraph 2-14.) HUD does permit a mortgagee to employ staff on a part-time basis (less than the normal 40 hour work week). The Department does not permit those part-time employees to have additional employment (including self-employment) in the mortgage or real estate industry. Direct Endorsement underwriters are included in this provision. HUD does not permit the underwriter to work on a part-time basis for other mortgagees, even if he/she is underwriting conventional mortgage loans. Additionally, the underwriter may not underwrite loans for a parent or subsidiary of their approved employer. The Direct Endorsement underwriter's approval is through their employer. It does not extend under any corporate "umbrella." The only exception to this rule is for underwriters employed at an approved, authorized agent under the provisions of the lender approval Handbook 4060.1 REV-1 paragraph 2-27. D. CONTRACT EMPLOYEES. The Department has been asked if it permits mortgagees to contract out, or lease, various processing functions, such as the preparation of Verifications of Deposit and Employment, Good Faith Estimate, etc. As stated in the Approval Handbook, paragraph 2-25, HUD expects mortgagees to originate, close and fund mortgages, and not perform only a part of the loan origination process. Therefore, it is not permissible to contract out portions of the origination process. The Department permits a mortgagee to hire clerical staff on a temporary basis, from a contract agency (temporary service). We would expect this to be the exception, to cover periods of high volume, and not the normal way of operating the business. As stated in the Handbook, this does not apply to the Loan Correspondent/Sponsor relationship where the sponsor completes the underwriting portion of the origination process. _____________________________________________________________________ 3 E. NUMBER OF STAFF PER OFFICE/BRANCH. The Approval Handbook, paragraph 2-12, requires that the mortgagee have at least three employees at its main or branch office. This requirement has been revised to two employees. The office/branch, whether employing part-time or full-time employees, must be open to the public during normal business hours, as noted in HUD Handbook 4060.1 REV-1 paragraph 2-12. F. FINANCIAL STATEMENTS. 1. When seeking mortgagee approval, the applicant is required to submit an audited financial statement, prepared by a Certified Public Accountant. If the financial statement is more than six months old, it must be accompanied by a current management certified financial statement. The Handbook incorrectly notes a management certified balance sheet. (HUD Handbook 4060.1 REV-1 paragraph 4-4 D.2.) 2. This is a reminder that the Department has eliminated the "type 2" Supervised mortgagee. This was typically a subsidiary or affiliate of a bank or savings and loan association, or an institution regulated solely by State officials. The Department converted this mortgagee type to a Non-supervised status on January 11, 1993. As a Non-supervised mortgagee you are required to submit audited financial statements within 90 days of the end of your fiscal year, as a part of the recertification process. Please note Mortgagee Letter 93-2 or the Federal Register Notice published 12/9/1992 under Section 202.13a. If you have questions concerning this Mortgagee Letter, please contact the Lender Approval and Recertification Division at (202) 708-3976. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner