www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 February 29, 1996 Mortgagee Letter 96-12 TO: ALL APPROVED MORTGAGEES SUBJECT: Changes in Mortgagee Requirements The purpose of this Mortgagee Letter is to announce the publication of the Interim Rule streamlining the Department's requirements for mortgagees participating in the FHA mortgage insurance programs. The Rule was published on January 26, 1996, and becomes effective on February 26, 1996. However, the following changes in mortgagee requirements are not effective until March 4, 1996. A copy of the Rule is attached to this Letter. The Rule implements several significant changes that will make substantive improvements in FHA's requirements for mortgagees to more effectively serve the needs of FHA's customers and clients. This Mortgagee Letter also contains information that clarifies questions raised by mortgagees concerning the changes to FHA lender approval requirements announced in Mortgagee Letter 95-36. l. Elimination of mortgagee Branch Office approval -- implementation of branch registry process. The requirement for FHA approval of mortgagees' branch offices from which loans are originated and submitted to FHA Field Offices for mortgage insurance endorsement has been eliminated. With the exception of Nonsupervised Loan Correspondents a new branch office registry process has been established for all mortgagees that utilizes electronic data transfer. Under this new process, approved mortgagees notify the Lender Approval and Recertification Division, HUD Headquarters, through CLAS (CHUMS Lender Access System, version 8.0) when they establish a branch office from which loans will be originated and submitted to FHA Field Offices for insurance endorsement. A new option will be available on the CLAS Add Request menu under, IMF Add Branch - Title II. The Lender Approval and Recertification Division will electronically assign the branch an identification number and transmit the number back to the mortgagee via CLAS, the following day. -2- The non-refundable $300 fee is still required to cover HUD's administrative costs (i.e. producing and mailing "starter kits", subsequent mailings and monitoring of those offices). This fee must continue to be sent to: HUD, P.O. Box 198619, Atlanta, Georgia 30384. The transmittal form, Attachment 3, must accompany the check sent to Atlanta. Because use of CLAS for the registry process will significantly reduce FHA internal processing steps, and provide faster and more efficient registry of branch offices, we encourage all Supervised and Nonsupervised mortgagee types to make use of this automated tool. Approved mortgagees are required to register at least one branch office within a lending area where they wish to originate and submit loans to FHA Field Offices for mortgage insurance endorsement. The lending areas are detailed in Mortgagee Letter 94-39. Mortgagees that are also approved to participate in the Title I Property Improvement and Manufactured Home Loan Program, may also register Title I branches using CLAS, under the Add option of IMF Add Branch - Title I. If the Title I branch operation is physically located at the same address as the Title II operation, only one fee must be paid in order for that office to participate in both programs. Mortgagees including Supervised Loan Correspondents that do not have access to CLAS may register their branch offices by completing and submitting Form HUD 9200l-B, Branch Office Notification to: U.S. Department of Housing and Urban Development Lender Approval and Recertification Division Room 9l46 45l Seventh Street, S.W. Washington, D.C. 204l0 Nonsupervised Loan Correspondents must register their branch offices by completing and submitting Form HUD 9200l-B, Branch Office Notification, together with their most recent audited financial statement, to the address shown above. The audit must contain evidence of compliance with FHA net worth requirements, including the increased net worth requirement for branch offices. Nonsupervised Loan Correspondents must have an adjusted net worth of not less than $50,000 with an additional net worth of $25,000 for each branch office, up to a combined maximum of $250,000. Because of the review that must be performed to determine that Nonsupervised Loan Correspondents meet the additional net worth requirement for establishing branch offices, electronic registry of branches is not available. -3- 2. Elimination of the requirement that loans must be closed in the name of the Loan Correspondent. As of March 4, 1996 (the effective date of this Letter), approved Sponsors and their FHA approved Loan Correspondents will have the option of closing a mortgage loan to be insured by FHA in either the name of the Sponsor or in the name of the Loan Correspondent. Mortgagees are cautioned that this change in FHA requirements does not permit non-approved mortgagees, real estate brokers or other third party loan originators to originate FHA insured mortgages. This change is effective for all loans with a closing date on or after March 4, 1996. When requesting the Mortgage Insurance Certificate (MIC), the mortgagee will be required to specify whether the MIC is to be prepared in the name of the Originator (Loan Correspondent) or in the name of the Sponsor. The name on the MIC must be the name which appears on the closing documents (HUD-1, Mortgage, Deed etc.) 3. Streamlined Sponsor and Loan Correspondent Processing Approved Loan Correspondent and Sponsoring mortgagees seeking to establish a new sponsor/correspondent relationship, may now utilize CLAS to complete this process. Under the Add option, the Sponsoring mortgagee will select IMF Sponsor Relations, to add an approved Loan Correspondent type mortgagee. As announced in Mortgagee Letter 95-36, mortgagees who utilize CLAS to add their sponsor/correspondent relationship, will not be required to pay the current $300 fee. The Sponsoring mortgagee will receive an approval message (or error message if appropriate) the following day, via CLAS. This process is available only for Sponsors and Loan Correspondents that have already been approved by FHA. Approved mortgagees who wish to establish Sponsor/Loan Correspondent relationships, but who do not have access to CLAS, must continue to submit Form HUD 92001-E, and evidence of a warehouse line of credit or other acceptable funding agreement, to the Lender Approval and Recertification Division, at the address noted above. Those applicants must continue to send the non-refundable $300 fee to: HUD, P.O. Box 198619, Atlanta, Georgia 30384, to cover administrative costs. The transmittal form contained in Mortgagee Letter 94-47 must accompany the check sent to Atlanta. -4- 4. Elimination of the compliance report and report on internal controls for Nonsupervised Loan Correspondents' annual audited financial statements Approved Nonsupervised Loan Correspondents that have a fiscal year end of November 1995 or after, are no longer required to submit the reports on compliance and internal controls to FHA as part of the required annual audited financial statements. However, an audited financial statement, with a computation of adjusted net worth, must still be submitted in accordance with the OIG Audit Guide HUD Handbook 2000.04. 5. Uniform Requirements for Authorized Agent relationships. The previous FHA limitations on the use of Authorized Agents by approved mortgagees have been eliminated. All approved Supervised mortgagees, Nonsupervised mortgagees, and Government Institutions are now authorized, with the prior approval of FHA, to designate another approved mortgagee as their Authorized Agent. The Agent may originate FHA loans in the name of the Principal, and on their behalf, and submit those loans to FHA Field Offices for insurance endorsement. Loan Correspondents may not utilize Authorized Agents. To obtain Principal/Authorized Agent approval, the Principal mortgagee may utilize CLAS, selecting under the Add option, IMF Authorized Agent Title II. The request is electronically processed, with an approval message returned to the Principal mortgagee the following day, via CLAS. Principal mortgagees who do not have access to CLAS must forward a letter to the Lender Approval and Recertification Division, at the address above, which contains the name of the Principal, HUD ID number, and the name and HUD ID number of the approved mortgagee that they wish to appoint as their agent. There is no fee for processing the Principal/Agent relationship either through CLAS or if processed by HUD. 6. Elimination of the requirement for FHA approval of mortgagees' Direct Endorsement underwriters. The Interim Rule eliminates the present FHA process of individually approving mortgagees' Direct Endorsement underwriters. A new process has been established under which mortgagees may register their underwriters with FHA through CLAS. Instructions announcing this new process will be issued in a separate Mortgagee Letter. Questions concerning this process should be directed to your local HUD Field Office or the Single Family Development Division in Headquarters at (202)708-2700. -5- Clarification of questions raised by mortgagees concerning previous changes to FHA mortgagee approval requirements announced in Mortgagee Letter 95-36. l. Mortgagee Letter 95-36 eliminated the "brick and mortar" requirements, and modified staffing requirements for the approval of mortgagees' branch offices. We have received a number of inquiries as to whether the elimination of these administrative requirements also applies to a mortgagee's home office. The modified requirements in Mortgagee Letter 95-36 apply only to a mortgagee's branch office. Home offices of mortgagees must comply with the requirements set forth in paragraph 2-l6 of HUD Handbook 4060.l REV-l. 2. Mortgagee Letter 95-36 implemented a streamlined initial Loan Correspondent approval process. We are continuing to receive a significant number of deficient approval application packages. To facilitate the processing of these approvals, we have developed a checklist for use by mortgagees, Attachment 2, to assure that all of the required documentation is submitted. 3. Mortgagee Letter 95-36 expanded the lending area in which a mortgagee may originate FHA insured mortgages. The Letter included an appendix which specified new "lending areas," and stated that for those instances where the new lending area did not cover a particular locality, mortgagees could continue to request extra territorial approval (note Mortgagee Letter 94-47). Below is further information on HUD's policy concerning extra territorial approval, in response to questions which have arisen. -Supervised and Nonsupervised mortgagees with Direct Endorsement approval do not request extra territorial approval. Rather, they must contact the local HUD field office and request Direct Endorsement origination authority. -Loan Correspondent type lender request extra territorial approval via a letter addressed to HUD Headquarters at the address above. The letter must include the address and ID number of the approved home or branch office whose staff will be traveling to the extended territory. The letter must contain a thorough explanation as to how the face-to-face interview will be conducted. The area which is being requested must be within 200 miles of the approved home or branch office. -6- Streamlined Processing for Address Changes In addition to the changes announced above, which serve to streamline the processing of mortgagee approval, this Letter will also serve to announce an additional service available through CLAS involving mortgagee address changes. Under the Add option, IMF Address Change, approved mortgagees may change the Mailing Address (where notices such as Mortgagee Letters are sent), the Endorsement Address (where Mortgage Insurance Certificates are mailed) or their office's CHUMS Address (where CHUMS reports are mailed). This option is available for both home and branch offices. CLAS cannot be utilized for the Premium, Payee or Geographic Address. Mortgagees that need to change those addresses, or those without access to CLAS, must send a letter to the Lender Approval and Recertification Division at the address above, specifying which address should be changed. This letter must be on the company's letterhead and must include the HUD ID number, specify which address is to be changed and must be signed by a corporate Vice President (or higher position). Mortgagees wishing to verify any of their company's addresses may utilize CLAS under the Add option called IMF Address Inquiry. This will contain a listing of the six address stored for a home office (Geographic, Mailing, Endorsement, Premium, Payee and CHUMS) or the three address stored for branch offices (Geographic, Mailing and Endorsement). If you have questions concerning the lender approval issues in this letter, please contact the Lender Approval and Recertification Division at (202) 708-3976. Questions concerning Direct Endorsement approval, or the registry of Direct Endorsement underwriters should be forwarded to the Production Branch of your local HUD field office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments