Tuesday, December 21, 2010

FHA: Quality Control for TPOs

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.


Today, the Department of Housing and Urban Development (HUD) published a Comment Request, in a Notice entitled Quality Control Requirements for Direct Endorsement Lenders.

Mortgagee Letter 2010-20, issued on June 11, 2010, outlined some of the most important revisions that HUD-FHA has made to its single family loan origination program and contained the long-awaited guidance regarding the implementation of its Final Rule. That Final Rule adopted changes pertaining to the approval of lenders by the Federal Housing Administration (FHA). (Issuance)

In my article, entitled FHA Issues Guidance for Lender Approvals (July 2010, National Mortgage Professional Magazine), I discussed the many changes that would be required pursuant to Mortgagee Letter 2010-20. (Article)

Please visit our Archive for relevant posts.

As of January 1, 2011, mortgagees that were previously approved as Loan Correspondents will only be able to participate as Third Party Originators (TPOs) in FHA-insured mortgage transactions if the conditions outlined in 24 CFR 202.8 are met.

Per 24 CFR 202.8 (3), DE lenders which sponsor TPOs are responsible for the actions of third party originators or mortgagees in originating loans or mortgages, unless applicable law or regulation requires specific knowledge on the part of the party to be held responsible.

Consequently, DE lenders will be responsible for conducting quality control on TPO originations of FHA-insured mortgage loans, and ensuring that their QC plan is expanded to contain this oversight provision.

Comment Period Deadline: February 22, 2011
Contact Information in Federal Register.



On and after January 1, 2011, Loan Correspondents (i.e., Third-Party Originators, so-called "TPO"s) will only be permitted to continue participation in FHA programs by establishing a sponsorship relationship with an FHA-approved Direct Endorsement mortgagee.

HUD will hold the DE mortgagee responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the DE mortgagee or by its sponsored TPO (unless applicable law or regulation governing the violations in question require specific knowledge on the part of the party to be held responsible).

Quality control is a core feature of HUD's verification and validation procedures. It is a regulatory compliance requirement that must be implemented in accordance with specified guidelines.

It is, therefore, critical that a DE mortgagee set forth and clearly delineate policies, procedures, approval guidelines, quality control requirements, and many other features of FHA and regulatory compliance, with respect to their sponsored TPOs.

All our clients that have TPO relationships now have their policies and procedures in place to support these new FHA relationship requirements.

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



The Notice is soliciting comments from members of the public and affected agencies concerning the proposed collection of information to:

(1) Evaluate whether the proposed collection is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated collection techniques or other forms of information technology (i.e., permitting electronic submission of responses).


Visit Library for Issuance

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FHA: Quality Control Requirements for Direct Endorsement Lenders; Notice of Proposed Information Collection: Comment Request
Federal Register: 75/244
December 21, 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.