Thursday, December 23, 2010

FHA: Extends Deadlines for DE Mortgagees & Loan Correspondents

By Jonathan Foxx

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.


On December 20, 2010, FHA Commissioner David H. Stevens announced an extension of deadlines for obtaining unconditional Direct Endorsement Approval to July 1, 2011 and a temporary and narrow extension (with conditions) of FHA-Approval for Loan Correspondents to March 31, 2011.

The deadlines were given in Mortgagee Letter 2010-20 (June 11, 2010), and the Final Rule published in the Federal Register, which set forth the following revisions affecting DE Mortgagees and Loan Correspondents:

  • Increased Net Worth Requirements
  • Elimination of Loan Correspondent Approval for Single Family Programs
  • Principal-Authorized Agent Relationships
  • Areas Approved for Business

The waivers provide the following applicability:

For DE Mortgagees: The effective date for the Code of Federal Regulations Title 24, Section 202.3(a)(3) (as amended by the April 20, 2010 Final Rule) requires that an FHA-approved mortgagee have unconditional Direct Endorsement approval under Section 203.3 in order to serve as the principal in a Principal-Authorized Agent origination is waived until July 1, 2011.

For Loan Correspondents: A loan correspondent will maintain its FHA approval past December 31, 2010, but in no event past March 31, 2011, solely for purposes of closing mortgage loans in its name for which, as of December 31, 2010, either: (1) HUD has issued a firm commitment for insurance; or (2) a DE underwriter has approved the mortgagor for such mortgage. The FHA approval of the loan correspondent will expire on December 31, 2010, for all other purposes.

In my nationally published article, entitled FHA Issues Guidance for Lender Approvals (July 2010), I discussed the many changes that would be required by implementation of Mortgagee Letter 2010-20. (Article)

We have also issued numerous Compliance Alerts and Mortgage Compliance Updates regarding these changes, including:

  • FHA: Net Worth and Lender Approval Final Rules To Be Issued (4/7/2010)
  • FHA: Net Worth and Lender Approval Advance Issuance Final Rule (4/14/2010)
  • FHA: Net Worth and Lender Approval Final Rule Published in Federal Register (4/20/2010)

Please visit our Archive for relevant posts.

It is critical that all DE mortgagees set forth and clearly delineate policies, procedures, approval guidelines, operational plans, quality control requirements, and many other features of FHA and regulatory compliance with respect to properly implementing Mortgagee Letter 2010-20.

Our clients now have their policies and procedures in place to support the Final Rule.

ACTION! If your organization has not drafted policies and procedures to comply with Mortgagee Letter 2010-20, we urge you to do so immediately.

On December 22, 2010, I participated in a conference call with FHA Single Family Housing staff to discuss these extensions. I will have more to discuss in a future notification.

Please don't wait for the last minute to prepare for and implement the requirements of Mortgagee Letter 2010-20!

Best regards,


Temporary Extension of Deadline for Obtaining
Unconditional Direct Endorsement Approval
Extended to July 1, 2011

FHA is extending the deadline for obtaining unconditional direct endorsement (DE) approval for those DE-eligible entities that wish to participate as a Principal in Principal-Authorized Agent originations.

  • A Principal-Authorized Agent origination is a type of FHA origination by two FHA-approved mortgagees, neither of which is a loan correspondent. The Principal-Authorized Agent relationship is used when the two FHA-approved lenders originate a loan together and both need access to the loan file in FHA Connection. In a Principal-Authorized Agent origination, the Principal must originate the loan, and the Authorized Agent must underwrite the loan.

NOTE: The Final Rule changed Principal-Authorized Agent relationship originations to require that both lenders (Principal and Authorized Agent) possess unconditional direct endorsement approval. This requirement was to take effect January 1, 2011.

Without this extension, these non-DE mortgagees will only be able to participate in the origination of single family loans on or after January 1, 2011 as sponsored originators until they have obtained unconditional DE approval.

All other changes to Principal-Authorized Agent requirements in the Final Rule will take effect January 1, 2011, as previously announced in Mortgagee Letter 2010-20.

FHA mortgagees that do not obtain unconditional direct endorsement approval by July 1, 2011, can no longer act as Principals. However, they may continue to pursue unconditional approval through the test case process and may participate in originations of FHA single family loans as sponsored Originators.


Temporary and Narrow Extension
of FHA-Approval for Loan Correspondents
Extended to March 31, 2011 (with conditions)

The final rule provided that FHA-approved Loan Correspondents may close FHA-insured mortgages in their names until December 31, 2010. However, a significant number of Loan Correspondents have mortgage loans that have been assigned FHA case numbers but are unlikely to close by December 31, 2010.

Since FHA will no longer be approving Loan Correspondents after December 31, 2010, they will be statutorily prohibited from closing FHA-insured mortgage loans in their own names. If FHA did not extend that deadline, the inability of currently approved Loan Correspondents to close mortgage loans in their names will likely disrupt the loan processes of a significant number of lenders.

Because of this, FHA is granting a temporary extension of FHA-approval for currently approved Loan Correspondents with pipeline loans that meet certain criteria for the narrow purpose of allowing these loans to close in the Loan Correspondents' names.

This extension will extend FHA-approval of currently approved Loan Correspondents for the narrow purpose of permitting existing loans in their pipelines to close in their names.

This extension will only apply to loans in which a case number has been assigned and the loan has been approved by a DE underwriter as of December 31, 2010. The extension will expire March 31, 2011.

  • The extension only applies to loans for which, as of December 31, 2010:
  1. HUD has issued a firm commitment for insurance; or
  2. A DE underwriter has approved the borrower for such loan (i.e., the lender has received and accepted approval via TOTAL Scorecard or has manually underwritten the loan).
  • This approval includes the DE underwriter review and approval of the appraisal. Loans eligible for this waiver must close by March 31, 2011.
  • The FHA approval of all Loan Correspondents for all other purposes will expire on December 31, 2010.

All other pipeline loans that do not meet these criteria and have not closed prior to January 1, 2011, must close in the name of an approved FHA Lender/Sponsoring Lender.


Visit Library for Issuance

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FHA: Waiver - Extension of Effective Date for the DE Mortgagee Approval Requirement for Principal Mortgagee in 24 CFR § 202.3 (a)(3)
December 20, 2010


LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.