www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 October 6, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 94-47 TO: All Approved Mortgagees SUBJECT: Changes to the Lender Approval Process The Department issued a revised Mortgagee Approval Handbook (4060.1 REV-1) on September 30, 1993. This Mortgagee Letter will revise a number of procedures in that Handbook. THE CHANGES IN THIS MORTGAGEE LETTER WILL BECOME EFFECTIVE WITH APPLICATIONS SUBMITTED TO HUD AFTER NOVEMBER 1, 1994. A.MORTGAGEES SEEKING INITIAL HUD/FHA APPROVED STATUS Mortgagees must submit the required documentation, as noted in HUD Handbook 4060.1 REV-1 paragraphs 4-7 through 4-11, depending upon the mortgagee type. (The Approval Handbook defines mortgagee types, and what functions each may perform in Chapter 3). The application and documentation must be submitted to: U.S. Department of Housing and Urban Development Lender Approval and Recertification Division Room 9146 451 Seventh Street, S.W. Washington, D. C. 20410 The Lender Approval Division is able to process most applications in approximately 45 days. Both HUD Headquarters and local HUD field offices will continue to maintain a supply of the Approval Handbook as well as all application forms for distribution upon request. The fee for initial application processing is $1,000. The fee must be mailed to a lock box at the following address: HUD, P.O. Box 198619, Atlanta, Georgia 30384. A copy of the check must accompany the application package sent to HUD Headquarters. The company's federal tax identification number should be indicated in the memo portion of the check. The Application Fee form, Exhibit #2, MUST accompany the check to the lock box. 2 Along with the documentation detailed in the Approval Handbook, the Department will now require the following additional documentation for all mortgagee types: 1. Quality Control Plan. Effective with new applications, mortgagees will now be required to submit evidence of their Quality Control Plan along with their application. To assure that all required aspects of the Quality Control Plan are included, exhibit #3 is being provided to assist applicants. This checklist covers all requirements contained in Chapter 6 of HUD Handbook 4060.1 REV-1. Applicants may submit either a copy of their full Quality Control Plan or the attached checklist, accompanied by a certification that their Quality Control Plan is complete and meets all required elements. 2. Residential Mortgage Credit Report. All mortgagees applying for approval as a Nonsupervised, Loan Correspondent or Investing Mortgagee will be required to order Residential Mortgage Credit Reports and have them submitted directly to HUD Headquarters in Washington, D.C. at the address noted above. (Other forms of credit reports will not be accepted.) The credit reports must be sent directly from the credit bureau to HUD, and must not pass through the hands of any interested party at the mortgagee. The credit reports are required for the principals of the mortgagee, including the chairman of the board, president, vice presidents and any person or entity that owns 25 percent or more of the mortgagee's voting stock. 3. Business Credit Report. All mortgagees applying for approval as a Nonsupervised, Loan Correspondent or Investing Mortgagee are required to order a business credit report and have it submitted directly to HUD Headquarters at the address noted above. Additionally, if the owner is a business entity, a commercial credit report must be ordered for the owner entity. As noted in 2. above, the credit reports must not pass through the hands of any interested party. 4. Evidence of Acceptable Office Facilities. Mortgagees must submit photographs of their facilities (including their entrance, with evidence of identification to the public), along with a floor plan (this may be hand-drawn) and a certification signed by a senior corporate officer that the facilities comply with HUD requirements as noted in HUD Handbook 4060.1 REV-1 paragraph 2-16. The provisions 2, 3 and 4 above do not apply to Supervised Mortgagees that apply for approval as a Loan Correspondent (see paragraph 3-2 D. of HUD Handbook 4060.1 REV-1). 3 5. Fictitious or "Doing Business As" Name HUD Handbook 4060.1 REV-1 paragraph 4-13 requires that mortgagees which utilize a fictitious or "doing business as" (dba) name must submit a copy of the dba statement or assumed name certificate which was filed and approved by the State where you are doing business. Mortgagees must use the HUD-FHA approved corporation name in all legal documents. The fictitious or dba name may be added after the corporate name, if desired. For example, a company named ABC, Corp. is approved with a dba of ABC Mortgage originators. The legal documents (Note, Deed of Trust, HUD-1 Settlement Statement etc.) must list ABC, Corp. If preferred, it may use ABC, Corp. dba ABC Mortgage Originators. B. BRANCH OFFICE APPROVAL, CONVERSION OF MORTGAGEE TYPE, EXTRA TERRITORIAL APPROVAL, DIRECT ENDORSEMENT APPROVAL, ADDITIONAL SPONSOR APPROVALS, AUTHORIZED AGENT APPROVALS 1. Branch Office Approval. Mortgagees that are presently HUD/FHA approved and wish to add branch offices, should forward the application (92001B) to HUD Headquarters in Washington. The required fee of $300 must be mailed to the Atlanta lock box, along with the form attached as exhibit #2. The mortgagee's 10 digit HUD/FHA lender identification number, must be inserted in the memo section of the check. A copy of the check must accompany the information submitted to Headquarters. Branch applications are completed within approximately three weeks from receipt. Loan Correspondents requesting Branch approval must show sufficient adjusted net worth (see the Approval Handbook paragraph 3-4D). Therefore, in addition to the 92001B form, the Loan Correspondent mortgagee must submit a copy of their last audited financial statement. If that does not show sufficient adjusted net worth, an updated balance sheet, prepared and signed by the CPA, and certified by management, may be submitted to show evidence of compliance. 2. Conversion of Mortgagee Type. Any mortgagee wishing to convert its status from one lender type to another (i.e. from a Loan Correspondent to Nonsupervised etc.), must submit this request directly to HUD Headquarters. Note HUD Handbook 4060.1 REV-1 paragraph 5-9. Along with a cover letter requesting the conversion, the mortgagee must submit the 92001D form, the application applicable to the type of mortgagee they are converting to (i.e. 92001E for Loan Correspondents, 92001 for Non-supervised etc.) and any additional documentation required by that new mortgagee type. Refer to HUD Handbook 4060.1 REV-1 paragraphs 4-7 through 4-9 for details. 4 The fee of $300 must be mailed to the Atlanta lock box, along with the Application Fee form attached as exhibit #2. The mortgagee's 10 digit HUD/FHA lender identification number must be inserted in the memo section of the check. A copy of the check must accompany the information submitted to Headquarters. Conversion requests are completed within approximately 30 days from receipt. 3. Extra Territorial Approval. Lenders seeking extra territorial approval must submit their written request to HUD Headquarters. Note HUD Handbook 4060.1 REV-1 paragraph 2-18 A. There is no form for this type of request; rather, the lender should prepare written notification requesting extra territorial authority, specifying the local HUD field office in whose jurisdiction it wishes to originate loans, the address of the approved branch or corporate office whose staff will be responsible for the new area and written evidence as to how face-to-face interviews will be conducted with mortgagors (when required). 4. Direct Endorsement Approval. Any HUD/FHA approved mortgagee seeking approval to participate in the Direct Endorsement program will continue to apply through the local HUD field office. The Headquarters Lender Approval and Recertification Division is not involved in this process. Please note HUD Handbook 4000.4 REV-1 for program and application requirements. 5. Additional Sponsor Requests. Loan Correspondents seeking to add additional sponsor(s) must forward their application (92001E form) and acceptable funding letter from the sponsor, directly to HUD Headquarters in Washington. These requests will take approximately 7-10 days to process from their receipt. The form 92001E must list the sponsor mortgagee's HUD/FHA 10 digit corporate/home office identification number in block 10 of the application. In the block at the bottom right, designated as Mortgagee's ID #, the Loan Correspondent mortgagee must enter their HUD/FHA 10 digit corporate/home office identification number. The fee of $300 must be mailed to the Atlanta lock box, along with the Application Fee form attached as exhibit #2. The Loan Correspondent's 10 digit HUD/FHA lender identification number, must be inserted in the memo section of the check. A copy of the check must accompany the information submitted to Headquarters. 6. Authorized Agent Requests. Mortgagees seeking approval for an authorized agent under the provisions of HUD Handbook 4060.1 REV-1 paragraph 2-27, must forward a written request, signed by a senior corporate officer to HUD Headquarters. 5 The fee of $300 must be mailed to the Atlanta lock box, along with the Application Fee form attached as exhibit #2. The mortgagee's 10 digit HUD/FHA lender identification number should be inserted in the memo section of the check. A copy of the check must accompany the information submitted to Headquarters. These requests generally are completed within three weeks of receipt. A checklist is attached as Exhibit 1, that will aid an applicant in assuring that the required documentation has been submitted. (This checklist covers those items noted in this Mortgagee Letter and the Handbook. Specific applications may require additional documentation after the initial review.) As previously noted, it is estimated that it will take the Lender Approval and Recertification Division approximately 45 days in which to process new applications. The office requests that applicants seeking information on their application please allow the office sufficient time to review it, before contacting the office. Status information may be obtained by contacting the office at: (202) 708-3976, 45 days after submission. 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 Attachments Checklist for New Application Exhibit #1 SUPERVISED MORTGAGEES ___ Copy of App. Fee(s) check ___ HUD form 92001 ___ HUD form 92001-D ___ Evidence of Fidelity Bond ___ Evidence of Errors & Omissions ___ Resume of Senior Corp. Officer ___ Letter re: operating License ___ Quality Control Plan *__ HUD 92001-B, if are seeking approval of a branch office *__ Letter requesting approval of Authorized Agent if desired NON-SUPERVISED MORTGAGEES ___ Copy of App. Fee(s) check ___ HUD form 92001 ___ HUD form 92001-C ___ HUD form 92001-D ___ Evidence of Fidelity Bond ___ Evidence of Errors & Omissions ___ Letter re: Line of Credit/Funding ___ Quality Control Plan ___ Pictures of facilities, floor plan & Certification ___ Certified Audit report (if more than 6 mos. old, include management certified financial statement) ___ Letter re: operating license ___ Credit Reports Ordered on Sr. Corp. Officers & 25% Owners *__ HUD form 92001-B if seeking approval of a branch office LOAN CORRESPONDENTS ___ Copy of App. Fee(s) check ___ HUD form 92001-E ___ HUD form 92001-C ___ HUD form 92001-D ___ Letter re: Line of Credit/Funding ___ Quality Control Plan ___ Letter re: operating license Pictures of facilities, floor plan & Certification ___ Certified Audit report (if more than 6 mos. old, include management certified financial statement) ___ Credit Reports Ordered on Sr. Corp. Officers & 25% Owners *__ HUD form 92001-B if seeking approval of a branch office Supervised Mortgagees seeking approval as a Loan Correspondent, please see HUD Handbook 4060.1 REV-1 paragraph 4-9 I. INVESTING MORTGAGEES ___ Copy of App. Fee check ___ HUD form 92001-A ___ HUD form 92001-D ___ Evidence of Fidelity Bond ___ Evidence of Errors & Omission ___ Certified Audit Report ___ Letter re: operating License ___ Resume of Sr. Corp. Officer ___ Credit Reports Ordered on Sr. Corp. Officers & 25% Owners GOVERNMENT INSTITUTIONS ___ HUD form 92001-A ___ HUD form 92001-D ___ Evidence of Fidelity Bond ___ Evidence of Errors & Omissions *__ Letter requesting approval of Authorized Agent if desired ___ Quality Control Plan All Application Fees must be mailed to: HUD, P.O. Box 198619, Atlanta, Georgia 30384. The applicant's federal tax identification number should be indicated in the memo portion of the check. A copy of this check must accompany the application. APPLICATION FEE for TITLE II MORTGAGEE APPROVAL Exhibit #2 This form MUST accompany all application fee payments. Mail this form and your check to: HUD, P. O. Box 198619, Atlanta, GA 30384. ___________________________ Mortgagee Name ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Federal Tax Identification Number ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ HUD/PHA Identification Number (if available) Type of application: (please check the appropriate box) ____ Initial Application ($1,000) ____ Branch Application ($300) ____ Additional Sponsor Requests ($300) ____ Authorized Agent Requests ($300) ____ Conversion Fee (Convert Mortgagee Type) ($300) Lenders seeking first time approval (initial applications) must enter their federal tax identification number in the memo portion of the check. Lenders filing all other types of applications should put their 10 digit HUD/FHA identification number in the memo portion of the check. QUALITY CONTROL PLAN CHECKLIST - LOAN ORIGINATION Exhibit #3 MORTGAGEE __________________________________ DATE _______ Reference: HUD Handbook 4060.1 REV-1 Chapter 6 DOES THE QUALITY CONTROL PLAN ASSURE THAT: 1. the mortgagee maintains compliance with HUD/FHA requirements? (6-1) Yes___ No___ * 2. personnel conducting the QC reviews have no direct loan processing or underwriting responsibilities? (6-1A) Yes___ No___ * 3. periodic reports which identify deficiencies are provided to senior management at least quarterly (6-1A & 6-1G) Yes___ No___ * 4. procedures are revised to reflect changes in FHA requirements; personnel are informed of the changes, employees are accountable for performance failures or errors (6-1B3) Yes___ No___ * 5. prompt, effective corrective measures are taken by senior management and documented when deficiencies are identified? (6-1B4 and 6-1G) Yes___ No___ * 6. procedures exist for expanding scope of the QC review when fraud/patterns of deficiencies exist (6-1B5 and 6-1D4) Yes___ No___ * 7. the mortgagee reviews EITHER 1) 10% of all loans closed on a monthly basis; OR 2) a random sample that provides 95% confidence level with 2% precision? (6-1C1) Yes___ No___ * - the selection includes loans from: all branches Yes___ No___ * - from all authorized agents, loan correspondents Yes___ No___ * - from all loan officers, underwriters, appraisers Yes___ No___ * 8. loans which go into default within the first 6 months are reviewed (6-1D3) Yes___ No___ * 9. **SPONSORS OF LOAN CORRESPONDENTS MUST: perform QC reviews on loan purchased from their correspondents (the LC MUST have it's own plan) (6-1D5) Yes___ No___ * 10. an on-site branch office review is completed at least once a year? (6-1D6) Yes___ No___ * 11. a review of alternative document loans is completed (6-1D6) Yes___ No___ * 12. reporting to HUD (or appropriate Fed. agency) under HMDA (6-1D8) Yes___ No___ * 13. the mortgagee reports any violation of law or regulation, false statement or program abuse to HUD regional office, area office or OIG (6-1H) Yes___ No___ * 14. loans are processed by its employees or Authorized agents? (6-2B) Yes___ No___ * 15. MIPs are remitted within 15 days from closing (6-2C) Yes___ No___ * 16. no one is employed who is debarred, suspended or subject to an LDP or otherwise restricted (6-2G) Yes___ No___ * 17. compliance with RESPA (6-2H) Yes___ No___ * 18. records of QC findings and actions taken are maintained (6-2J and 6-1F) Yes___ No___ * 19. the reviews will be performed within 90 days of loan closing (6-3A) Yes___ No___ * 20. a minimum of 10% of all rejected loans are reviewed and that senior staff concurred w/ the rejection (6-3B) Yes___ No___ * 21. a desk review of appraisals on ALL loans in the QC sampling is completed (6-3C) Yes___ No___ * - IF there is a STAFF appraiser, a 10% field review must be done (6-3C) Yes___ No___ * 22. a new credit report (using a 3-repository in-file report) is obtained with a full RMCR on at least 10% of all QC loans (6-3D) Yes___ No___ * 23. that a written reverification of the mortgagor's employment, deposits, gift letter or other source of funds is completed (6-3E) Yes___ No___ * 24. a face-to-face interview was performed with the mortgagor PRIOR to signing the HUD 92900 (unless otherwise exempt -i.e. in refinances) (6-5B) Yes___ No___ * 25. if relevant documents were signed in blank by the mortgagor or employee of lender that all corrections were initialed by mortgagor/employee (6-5C) Yes___ No___ * (OVER) 2 26. if more than 1 credit report was ordered, if all then submitted with the package to HUD (6-5E) Yes___ No___ * 27. that the preliminary loan application lists each outstanding debt & asset and was used to qualify the mortgagor (6-5F) Yes___ No___ * 28. any outstanding judgments on the Credit Report was on the HUD 92900 with an explanation (6-5G) Yes___ No___ * 29. the file has documentation on source of funds and if other than deposits, the source is verified (6-5H) Yes___ No___ * 30. if mortgagor is self-employed the file has a financial statement and business credit report (6-5I) Yes___ No___ * 31. if there is a gift letter, it has the relationship of donor and no repayment and funds are deposited into mortgagor's account (6-5J) Yes___ No___ * 32. the HUD-1 is accurate and certified (6-5K) Yes___ No___ * 33. the loan was current when submitted for endorsement (6-5L) Yes___ No___ * 34. it determine whether the mortgagor transferred the property possibly a "strawbuyer" (6-5M) Yes___ No___ * 35. all conflicting information is resolved prior to submission to HUD (6-5O) Yes___ No___ * 36. there was accurate & complete underwriting (6-5Q) Yes___ No___ * * ANY RESPONSE CHECKED WITH AN * (NO) INDICATES A DEFICIENCY IN THE QUALITY CONTROL PLAN Mortgagees are permitted to contract this function to an outside firm. See 6-1E.