FACTS
1. In eliminating FHA's approval of loan correspondents, FHA--approved mortgagees assume full responsibility to ensure that a sponsored loan correspondent adheres to FHA's loan origination and processing requirements.
2. FHA-approved mortgagees net worth shall go from $250,000 to $2.5 million over the next three years (2013), 20% to be liquid.
3. The first year net worth is $1 million at least 20% is to be liquid for new mortgagees or existing mortgagees that are not defined as small businesses. Small business mortgagees must initially be $500,000. Currently approved mortgagees have one year from May 20, 2010 to comply with the new net worth requirements. As of May 20, 2013 every approved mortgagee will have a net worth of $1 million plus one percent of the total volume in excess of $25 million for the year up to $2.5 million with 20% liquid.
4. Loan correspondents maintain their approvals until the end of 2010. Thereafter they will all become third party originators (TPO's) if associated with an FHA approved mortgagee. TPO's will not be subject to the HUD lender approval process.
5. FHA approved mortgagees will assume full responsibility to ensure that their sponsored TPOs adhere to FHA origination and processing requirements. (Note there is no mention either way of whether the TPO's may use independent contractors or W-2 employees. Nor is there any mention of the TPO's doing both real estate and loans. However, the TPO's cannot double-dip on the FHA loans. So if the TPO sells or lists the property, the TPO cannot collect the real estate and the loan commission if it is an FHA loan.) Considering the way the control of commissions is going on loans I would think taking the real estate commission would be a better deal.
6. TPO's cannot be suspended, debarred, under limited denial of participation, under indictment for or have been convicted of an offense that reflects adversely upon the applicant's integrity, competence, or fitness to meet the responsibilities of an approved mortgagee. TPO's also cannot be subject to unresolved findings of a HUD investigation, or engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility. Additionally, TPO's cannot be convicted of, or have pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry in violation of the SAFE Mortgage Licensing Act.
7. HUD FHA-approved mortgagees may only use their HUD-registered business names in all advertisements and promotional material related to FHA programs. This includes an alias or --doing business as (DBA) on file with FHA. If FHA does not have the name listed, do not use it in conjunction with any FHA advertising or you will be disciplined.
8. Approved mortgagees with FHA are required and it is mandatory they notify FHA of any employees that are subject to any sanction or other administrative action.
9. All loans with TPO's will close in the name of the approved mortgagee.
10. All approved mortgagees may have a Principal-Authorized relationship and the loans may be closed in either party's name. Both must be Direct Endorsement lenders. The Principal originates the loan and the Authorized Agent must underwrite the loan and the action must be recorded as such in the FHA Connection (FHA Computer Home Underwriting Mortgage System.)
11. HUD will not establish FHA requirements related to sponsor approval of TPOs.
12. Sponsoring mortgagees have the authority to establish oversight requirements to monitor the ongoing performance and financial capacity of their TPOs.
13. Sponsoring mortgagees should develop and implement measures to verify TPO compliance with all federal, state and local requirements that govern the activities of the TPOs including compliance with the SAFE Act and that none of the TPO employees are subject to CAIVERS and are not on the exclusionary list of HUD in any form.
14. Sponsoring mortgagees must monitor the loan products which should already be in place and systematically check for discipline by and state agencies of any of the TPO employees.
15. Any TPOs that become noncompliant should be dropped by the Sponsoring Mortgagee if the noncompliance is of laws and regulations and HUD should be notified.
16. TPOs cannot close loans in their own name. Must be done in the Sponsoring Mortgagee name.
17. Sponsoring mortgagees can allow TPOs to enter data into their own internal loan processing system which the Sponsoring mortgagee can then download to FHA without re-keying the data into the FHA connection. This will alleviate the necessity of repetition.
18. There are approximately 4,426 Direct Endorsement lenders now nationwide. So if you are going to be or are a TPO now, start soliciting these lenders.
19. TPOs are allowed to state that they are "authorized to originate FHA products."
20. Sponsoring mortgagees must confirm that the TPO uses its legal name and must confirm the Tax ID number of the TPO both of which must be included in the FHA loan origination system record for the subject loan.
21. Annual certifications are required by HUD that the mortgagee has not been refused a license by any state and that it has not been sanctioned by any state.
22. Mortgagee must submit annual financial statements (audited or unaudited) where it has experienced an operating loss of 20% of its net worth and until it shows an operating profit for two consecutive quarters or until the next recertification whichever is longer. (75fr20718)
MORAL
This is not all. It is just a summary of some of the more interesting items in the new final rule for Direct Endorsement Lenders and Third Party Originators. It also means the Direct Endorsement Lenders need to update their Quality Control Plans starting now. Since Loan Originators will be gone by Dec. 31, 2010 and the lenders will be alone or using third party originators, the Quality Control Plans will then be out of date one way or another. This means an audit will file a negative as to the Quality Control Plan for not updating it knowing the change took effect May 20, 2010.
