NOTICE TO ALL HOUSING COUNSELING AGENCIES:
Registration process for submitting the housing counseling grant application through Grants.gov:
This year, in all likelihood, HUD Housing Counseling Program grant applications will be submitted electronically via: http://www.grants.gov/ In order to apply for a grant, you and/or your organization must complete the Grants.gov registration process. The registration process can take between three to five business days or as long as four weeks if all steps are not completed in a timely manner. So please register early! NOTE: Applicants will not be eligible to apply for grant funds if not properly registered.
NEW APPLICANTS
New users will be required to complete a five-step Grants.gov registration process as outlined below.
STEP 1: OBTAIN DUNS NUMBER
The federal government has adopted the use of DUNS numbers to track how federal grant money is allocated. DUNS numbers identify your organization. It takes only one day to obtain a DUNS number. If your organization does not know its DUNS number or needs to register for one, visit Dun & Bradstreet at: http://fedgov.dnb.com/webform/displayHomePage.do During the registration process, the Dun and Bradstreet number (DUNS number) assigned to the applicant organization should match information previously provided by your organization which is also contained in Internal Revenue Service (IRS) records.
STEP 2: REGISTER WITH CCR (Central Contractor Registration)
Registering with the CCR is required for organizations to use Grants.gov. If your organization is not registered, you can apply online by going to: http://www.ccr.gov CCR has developed a handbook (https://www.bpn.gov/ccr/doc/UserAccount.pdf ) to help you with the process. If AFTER having registered in CCR, you experience any registration problems, you can get help by going to the Federal Service Desk at: https://www.fsd.gov When your organization registers with CCR, you must designate an E-Business Point of Contact (E-Biz POC). This person will identify a special password called an "M-PIN." This M-PIN gives the E-Biz POC authority to designate which staff member(s) from your organization are allowed to submit applications electronically through Grants.gov. Staff members from your organization designated to submit applications are called Authorized Organization Representatives (AORs).If your organization already has an Employment Identification Number (EIN) or Taxpayer Identification Number (TIN), then you should allow one – three business days to complete the entire CCR registration. If your organization does not have an EIN or TIN, then you should allow two weeks for obtaining the information from the IRS when requesting the EIN or TIN via phone or Internet.
STEP 3: USERNAME & PASSWORD
An AOR username and password serves as an "electronic signature" when submitting a Grants.gov application. To create a username and password, AORs must complete their profile on Grants.gov. AORs will need to know the DUNS number of the organization for which they will be submitting applications to complete the process. After your organization registers with the CCR, AORs must wait one business day before they can complete a profile and create their usernames and passwords on Grants.gov.
STEP 4: AOR AUTHORIZATION
Only the E-Biz POC can approve AORs. This allows the organization to authorize specific staff members or consultants/grant writers to submit grants. Only those who have been authorized by the E-Biz POC can submit applications on behalf of the organization.
STEP 5: TRACK AOR STATUS
AORs can login to track their AOR status using their username and password (obtained in Step 3) to check if they have been approved by the E-Biz POC. This step is important to verify that the organization’s E-Biz POC has approved the AOR. Applicants may click on this link to view the checklist in completing the registration process. http://www.grants.gov/assets/Organization_Steps_Complete_Registration.pdf
PREVIOUS APPLICANTS
Applicants that have previously completed the CCR registration process have to renew or update their registration in the CCR. When updating/renewing information, applicants should complete the following steps:
Go to the CCR Homepage: http://www.ccr.gov/
1. Enter your user ID and password, and then click the "Log In" button.
2. Select "Update/Renew" across from the DUNS number you are looking for.
3. Click on D&B Monitoring on the registration menu on the left side of the screen.
4. If the information is correct from D&B, click “yes”.
5. A warning box will appear. Select "yes" to transfer the information to the General Information page of your CCR.
6. Review the General Information page. Click on "Validate/Save Data" at the bottom of the page. If every mandatory field has been completed, you will receive a "Registration Complete" message.
After you receive the "Registration Complete" message, it will take 24 to 48 business hours to
process the CCR update.
If an organization is expired in CCR, it may need to contact the Federal Service Desk for help because CCR changed its login procedure last December. Organizations can no longer access their CCR profile by entering a DUNS + TPIN. They must create a user account, which is another user id/password combination attached to some personal information. For additional information, applicants may contact the CCR at 1-866-606-8220. The hours of operation are Monday through Friday, 9:00AM-5:00PM EST. Applicants may also contact HUD’s NOFA Information Center at 1-800-483-8929. The HUD NOFA Information Center accepts calls Monday through Friday 10:00 AM to 6:30 PM EST.
Please direct questions or comments to your HUD point of contact.
AND
New FHA Live Training for Appraisers and Lenders comes to Denver, CO and Birmingham, AL:
Register today, these live classroom sessions will fill up fast!
July 28 2010 - Denver, CO. FHA Back to Basics. This FREE Basic class will cover the Five C's to FHA: Credit, Capacity, Commitment, Capital & Collateral, including an overview on how to underwrite the appraisal. Additionally there will be an overview of the FHA Connection system to include: case number assignments, lender approval, approval lists, coordinator privileges, reports, case number queries & FAQs. This training course is geared toward underwriters, processors, & loan officers with less than one-year experience or those in the industry returning to FHA programs. Please bring a calculator to class. Registration required, no fee. Please check-in on the 25th floor prior to 8:30 AM MDT. For more info: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=542&update=N
July 29, 2010 - Denver, CO. A Day with FHA. This FREE one-day training will cover a wide spectrum of topics to include: Recent updates, Refinances, REO calculations & Transactions that affect the maximum LTV. Interactive scenarios/discussions covering Credit, Liabilities, Income & Assets will be facilitated along with case studies for Purchases, Refinances, & REOs. Please bring a calculator to the training course. Please check-in on the 25th floor prior to 8:30AM MDT. Registration required, no fee. For more info: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=543&update=N
August 17, 2010 - Denver, CO. The FHA Appraisal. FREE one-day class for appraisers & lenders will discuss FHA appraisal requirements including FHA Appraisal Protocol and the review of FHA property appraisals. Approved for seven (7) hours of Continuing Education Credit from the State of Colorado. Registration required, no fee. All times are mountain. More info at: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=540&update=N
August 18, 2010 - Birmingham, AL. FHA Basic Underwriting. This one-day course offers discussion of fundamental manual underwriting guidelines & documentation requirements for 203b purchase and refinance transactions. Registration required, no fee. More info at: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=547&update=N
August 19, 2010 - Birmingham, AL. FHA Appraiser Training. One-day course offers discussion of recent changes and updates to FHA procedures & guidelines for FHA Appraisers. Registration required, no fee. More info at: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=548&update=N
AND
Freddie Mac Symposium on Rebuilding the Purchase Market comes to Los Angeles, CA:
August 3, 2010 - Los Angeles, CA. Rebuilding the Purchase Market, Brought to you by Freddie Mac, the Symposium offers general & in-depth strategy discussions with prominent housing experts; representatives from our participating lender, Freddie Mac; and your peers. Together, we will discuss the challenges and opportunities of rebuilding the purchase market to achieve a new foundation for your mortgage business success. Registration required. More info at: http://guest.cvent.com/i.aspx?1Q%2cM3%2cb097f637-daef-48c0-8f15-175503135cb9
AND
FHA webinar for nonprofit agencies:
July 26, 2010 - Webinar: Net Development Costs training for nonprofit agencies by the Denver Homeownership Center. This FREE webinar will help you better understand how to calculate allowable Net Development Costs & properly upload the information into the Nonprofit Data Management System. This is a LIVE demonstration and participants must have internet access. 10:00 a.m.-11:30a.m. Mountain Time. Registration required, no fee. More info at: http://www.hud.gov/emarc/index.cfm?fuseaction=emar.registerEvent&eventId=549&update=N
This Final Rule will be published soon in the Federal Register. The date
of publication in the Federal Register determines the effective date of
this Final Rule, as well as other dates as identified in the Final Rule.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 202
[Docket No. FR 5356-F-02]
RIN 2502-AI81
Federal Housing Administration: Continuation of FHA Reform—
Strengthening Risk Management through Responsible FHA-Approved Lenders
AGENCY: Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
ACTION: Final rule.
SUMMARY: This final rule adopts changes pertaining to the approval of mortgage lenders by the
Federal Housing Administration (FHA), as proposed in a November 30, 2009 rule, that are designed to
strengthen FHA by improving its management of risk. As proposed in the November 30, 2009, rule,
this final rule increases the net worth requirement for FHA-approved mortgagees. The increase, the
first since 1993, is adopted to ensure that FHA-approved mortgagees are sufficiently capitalized for the
financial transactions occurring, and concomitant risks present, in today’s economy. As also proposed
in the November 30, 2009, rule, this final rule provides for elimination of the FHA approval process
for loan correspondents. Loan correspondents will no longer be approved participants in FHA
programs. Loan correspondents, however, will continue to have the opportunity to participate in FHA
programs as third-party originators (TPOs) through sponsorship by FHA-approved mortgagees, as is
currently the case, or through application to be approved as an FHA-approved mortgagee. 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. Finally, this final rule updates FHA’s regulations to incorporate criteria
specified in the Helping Families Save Their Homes Act of 2009 (HFSH Act) designed to ensure that
2
only entities of integrity are involved in the origination of FHA-insured loans.
This final rule takes into consideration the public comments received on the November 30,
2009, proposed rule and, as discussed in the Supplementary Information section of this rule, changes
have been made at this final rule stage in response to public comment and further consideration by
HUD of the proposals made in the November 30, 2009, rule.
DATES: Effective Date: [Insert date 30 days from the date of publication in the Federal
Register].
FOR FURTHER INFORMATION CONTACT: Office of Lender Activities and Program
Compliance, Department of Housing and Urban Development, 451 7th Street, SW, Washington, DC
20410-8000; telephone number 202-708-1515 (this is not a toll-free number). Persons with hearing or
speech impairments may access this number through TTY by calling the toll-free Federal Information
Relay Service at 800-877-8339.
SUPPLEMENTARY INFORMATION
I. Background – The Proposed Rule
In September 2009, FHA announced plans to implement a set of policy changes designed to
enhance FHA’s risk management functions. The announcement preceded completion of an
independent actuarial study to be submitted to Congress and which was expected to show FHA’s
capital reserve ratio dropping below the congressionally mandated threshold of 2 percent.1 The
changes announced in September 2009 were prompted by recognition of the need to put in place
measures that would immediately commence strengthening FHA's reserves and, for the long term,
1 HUD released its independent actuarial study on November 13, 2009. The study reported that FHA sustained significant
losses from loans insured prior to 2009, and that FHA’s capital reserve ratio had fallen below the congressionally mandated
level of 2 percent. The capital reserve ratio generally reflects the reserves available (after paying expected claims and
expenses) as a percentage of the current portfolio, to address unexpected losses. The report can be found at:
http://www.hud.gov/offices/hsg/fhafy09annualmanagementreport.pdf.
3
better manage risk. The changes that FHA announced in September 2009 included the policy changes
submitted for public comment in HUD’s proposed rule published in the Federal Register on November
30, 2009 (74 FR 62521).
HUD proposed the following policy changes in its November 30, 2009, proposed rule:
1. Increasing the Net Worth Requirements for FHA-Approved Mortgagees. HUD proposed to
increase the net worth requirements for current FHA-approved mortgagees, including investing
mortgagees, and applicants seeking FHA approval as mortgagees from $250,000 to $2.5 million over a
period of 3 years. The proposed rule provided that within one year of the effective date of the final
rule, which would follow the November 30, 2009, proposed rule, supervised and nonsupervised
mortgagees and investing mortgagees would be required to have a minimum net worth of $1 million,
of which at least 20 percent must be liquid assets consisting of cash or its equivalent acceptable to the
Secretary.2 Mortgagees would be required to comply with the minimum net worth requirement of $2.5
million within 3 years of the effective date of the final rule, with at least 20 percent of such net worth
consisting of liquid assets.
In proposing to increase the net worth requirements of approved mortgagees, the November 30,
2009, proposed rule noted that the net worth requirements of FHA-approved mortgagees had not been
increased since 1993. HUD advised that the increases were not only necessary adjustments for
inflation, but would help ensure that FHA-approved mortgage lenders, including investing mortgagees,
are sufficiently capitalized to meet the potential needs associated with the financial services they
provide.
2 Supervised mortgagees are financial institutions that are members of the Federal Reserve System, and financial institutions
whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration
(NCUA). Examples of supervised mortgagees are banks, savings associations, and credit unions. Nonsupervised mortgagees
are non-depository financial entities that have as their principal activity the lending or investment of funds in real estate
mortgages. Investing mortgagees are organizations, including charitable or not-for-profit institutions or pension funds, which
are not approved as another type of institution and that invest funds under their own control. (See definitions of these terms at
24 CFR 202.6(a), 202.7(a), and 202.9(a), respectively.)
4
2. Limiting Approval to Mortgagees. In the November 30, 2009, rule, HUD proposed to limit
FHA’s approval only to mortgagees that underwrite loans and can perform any origination and/or
servicing function and can also own FHA-insured loans. Loan correspondents, in contrast to
mortgagees, perform any origination function except underwriting, and cannot service or own FHAinsured
mortgage loans. HUD did not propose to alter the approval process of investing mortgagees
and governmental institutions, as addressed in 24 CFR 202.9 and 202.10.
In proposing to limit FHA’s approval to the mortgagee charged with underwriting, servicing, or
owning a loan, HUD advised that it is the mortgage lender with the greatest control over the mortgage
loan that should be subject to FHA’s rigorous lender approval and oversight processes, and bear the
greatest degree of responsibility and liability for the mortgage loan obtained by the mortgage borrower
and insured by FHA. In the November 30, 2009, proposed rule, HUD advised that loan correspondents
would continue to have the opportunity to participate in the origination of FHA mortgage loans as
third-party originators (TPOs) through association with an FHA-approved mortgagee, as is currently
the arrangement, but TPOs would no longer be subject to the FHA lender approval process. HUD also
advised that since HUD would no longer be approving loan correspondents, and in acknowledgement
and anticipation that loan correspondents would continue to be involved in the origination of FHAinsured
mortgage loans through sponsorship, FHA-approved mortgagees would assume full
responsibility to ensure that their sponsored TPOs adhere to FHA origination and processing
requirements.
Responsibility for actions of TPOs is not a new responsibility for FHA-approved mortgagees.
HUD’s current regulations in 24 CFR 202.8(b)(7) provide that: “Each sponsor shall be responsible to
the Secretary for the actions of its loan correspondent lenders or mortgagees in originating loans or
mortgages, unless applicable law or regulation requires specific knowledge on the part of the party to
5
be held responsible.” The present regulations in 24 CFR 202.8(b)(6) provide that: “Each sponsor must
obtain approval of its loan correspondent lenders or mortgagees from the Secretary.” It is the
obligation to obtain approval of loan correspondents/TPOs from FHA that, under this final rule,
mortgagees will no longer have to meet. However, in being relieved of the responsibility to obtain
prior approval from FHA of the TPOs that it would like to sponsor, the mortgagee assumes
responsibility that sponsored TPOs meet FHA’s requirements regarding loan origination and
processing as found in relevant statutes, regulations, HUD handbooks, and mortgagee letters. Failure
of the TPO to comply with these requirements may result in FHA seeking sanctions against the
sponsoring FHA-approved mortgagee.
The proposed rule provided that, upon promulgation of the final rule, entities that are already
approved by FHA as loan correspondents would not be permitted to renew their loan correspondent
status or automatically convert their approval to mortgagee, and only FHA-approved mortgagees
would be allowed to request FHA case numbers. However, a loan correspondent would be eligible to
apply to FHA to obtain approval as a mortgagee.
3. Ineligibility to Participate in Origination of FHA-Insured Loans. The November 30, 2009,
rule proposed to codify criteria specified in section 203 of the HFSH Act that precludes any lending
entity not approved or authorized by the Secretary from participating in FHA programs, and also
prohibits participation by an entity if the entity is currently: suspended, debarred, or under limited
denial of participation; under indictment for, or has been convicted of, an offense that reflects
adversely upon the applicant’s integrity, competence, or fitness to meet the responsibilities of an
approved mortgagee; 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; convicted of, or has pled guilty or nolo contendere to, a felony related to
6
participation in the real estate or mortgage loan industry; in violation of the Secure and Fair
Enforcement (SAFE) Mortgage Licensing Act (Title V of Division A of Public Law 110-289,
approved July 30, 2008) (SAFE Act); or in violation of any other requirement established by the
Secretary.
Implementation of the criteria in section 203 of the HFSH Act did not require rulemaking, and
the November 30, 2009, proposed rule noted that the statutory restrictions were in effect upon
enactment of the HFSH Act.3
4. Use of HUD Registered Business Name and Business Changes. The November 30, 2009,
rule also proposed to codify the statutory requirement presented in section 203 of the HFSH Act that
directs FHA-approved mortgagees to use their HUD-registered business names in all advertisements
and promotional materials related to FHA programs. HUD-registered business names include any alias
or “doing business as” (DBA) on file with FHA. In addition to codifying this statutory requirement,
the November 30, 2009, rule also proposed to codify the requirements specified in FHA’s
Strengthening Counterparty Risk Management Mortgagee Letter, issued September 18, 2009, and
found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm. This Mortgagee
Letter directed FHA-approved mortgagees to maintain copies of all advertisements and promotional
materials for a period of 2 years from the date that the materials are circulated or used for
advertisement purposes.
The November 30, 2009, rule also proposed to codify the requirement in section 203 of the
HFSH Act that requires mortgagees to notify FHA if individual employees of the lender are subject to
any sanction or other administrative action. In incorporating this requirement, the November 30,
3 These criteria were announced by the Mortgagee Letter entitled “Strengthening Counterparty Risk Management,” issued
September 18, 2009, and can be found as document number 09-31 at
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm.
7
2009, rule noted that HUD was also proposing to codify its existing requirements pertaining to
notification to FHA of business changes, such as changes in legal structure, which are currently found
in HUD Handbook 4060.1, REV-2, Chapters 2 and 6.
The amendments proposed by the November 30, 2009, proposed rule are discussed in more
detail in the November 30, 2009, Federal Register at 74 FR 62522 through 62528.
II. This Final Rule – Policies Adopted
In consideration of issues raised by the commenters and HUD’s own further consideration of
issues related to this final rule, HUD is making the following changes at the final rule stage:
Net Worth Requirements for Applicants for Approval to Participate in FHA Single
Family or Multifamily Programs and for FHA-Approved Mortgagees: 2010 to 2011
The following net worth requirements are effective on [insert effective date of final
rule], for new applicants for FHA approval to participate in FHA single-family or multifamily
programs, and effective on [insert date one year from effective date of final rule], for all
approved supervised and nonsupervised lenders and mortgagees, and all approved investing
lenders and mortgagees with FHA approval as of [insert effective date of final rule]:
• Applicants for FHA Approval and Existing Non-Small Business Approved Lenders and
Mortgagees. An applicant for FHA approval or an approved lender or mortgagee that exceeds
the size standards for its industry classification as established by the Small Business
Administration (SBA) at 13 CFR 121.201, Sector 52 (Finance and Insurance), Subsector 522
(Credit Intermediation and Related Activities) shall have a net worth of not less than
$1,000,000, of which no less than 20 percent must be liquid assets consisting of cash or its
equivalent acceptable to the Secretary.
• Existing Small Business Approved Lenders and Mortgagees. An approved lender or mortgagee
8
that meets the SBA size standards for its industry classification shall have a net worth of not
less than $500,000, of which no less than 20 percent must be liquid assets consisting of cash or
its equivalent acceptable to the Secretary. The net worth requirements for small business
lenders and mortgagees remain applicable as long as the mortgagee continues to meet the SBA
size standard for a small business. If, based on the audited financial statement prepared at the
end of its fiscal year and provided to HUD at the commencement of the new fiscal year, a small
business lender or mortgagee no longer meets the SBA size standard of a small business, the
mortgagee shall meet the net worth requirements for a non-small business mortgagee by the last
day of the fiscal year in which the audited financial statements were submitted.
Net Worth Requirements for Applicants for Approval to Participate in FHA Single Family or
Multifamily Programs and FHA-Approved Mortgagees: 2013 and After
The following net worth requirements are effective on [insert date three years from effective
date of final rule], for new applicants for FHA approval to participate in FHA single-family or
multifamily programs, for all approved supervised and nonsupervised lenders and mortgagees, and for
all FHA-approved investing lenders and mortgagees:
• Single Family Mortgagees. Irrespective of size, all FHA-approved mortgagees and applicants
for approval to participate in FHA single family programs shall have a net worth of $1 million,
plus an additional net worth of one percent of the total volume in excess of $25 million of FHA
single family insured mortgages originated, underwritten, purchased, or serviced during the
prior fiscal year, up to a maximum required net worth of $2.5 million. No less than 20 percent
of the mortgagee’s required net worth must be liquid assets consisting of cash or its equivalent
acceptable to the Secretary.
• Multifamily Mortgagees. Irrespective of size, all existing FHA-approved mortgagees and
9
applicants for approval to participate in FHA multifamily programs shall have a minimum net
worth of $1 million. For those multifamily mortgagees that also engage in multifamily
mortgage servicing, an additional net worth of one percent of the total volume in excess of $25
million of FHA multifamily mortgages originated, purchased, or serviced during the prior fiscal
year, up to a maximum required net worth of $2.5 million, is required. For multifamily
mortgagees that do not perform multifamily mortgage servicing, an additional net worth of one
half of one percent of the total volume in excess of $25 million of FHA multifamily mortgages
originated during the prior fiscal year, up to a maximum required net worth of $2.5 million, is
required. No less than 20 percent of the mortgagee’s required net worth must be liquid assets
consisting of cash or its equivalent acceptable to the Secretary.
• Single Family and Multifamily Mortgagees. Irrespective of size, all existing FHA-approved
mortgagees and applicants for approval to participate in both FHA single family and
multifamily programs must meet the net worth requirements for a single family mortgagee.
Therefore, if a mortgagee is a participant in both the multifamily and single family programs, it
is required to meet the greater net worth requirements for single family mortgagees.
Elimination of FHA Approval of Loan Correspondents
The final rule limits the FHA approval process to mortgagees, but provides that all loan
correspondents approved as of the date of the effective date of this final rule will maintain their
approval through December 31, 2010. Commencing 30 days following publication of this rule, FHA
will no longer approve new applicants for approval as loan correspondents.
Processing and Closing a Loan
The final rule clarifies that, as a result of HUD’s elimination of the FHA approval process for
loan correspondents, the requirements regarding Principal-Authorized Agent relationships will also
10
change. Mortgage loans originated through Principal-Authorized Agent relationships will be permitted
to close in either party’s name. However, to participate in such relationships, both the Principal and
Authorized Agent must be approved as Direct Endorsement lenders under 24 CFR 203.3. Further, for
mortgage loans originated under the relationship, the Principal must originate and the Authorized
Agent must underwrite, and their actions must be recorded as such in FHA Connection (FHA's
Computer Home Underwriting Mortgage System).
Nonsubstantive Technical Changes
In addition, HUD has taken the opportunity afforded by this final rule to make several
nonsubstantive changes to the proposed rule for purposes of clarity. For example, HUD has removed
paragraph (c) of the definition of “Lender or title I lender” at § 202.2 to remove a reference to loan
correspondents.
III. Two Issues under Consideration
As discussed in more detail later in this preamble, HUD is reviewing two issues for further
consideration, and taking public comment on one of the issues.
First, HUD will further consider the prohibition on a TPO closing a loan in its own name. This
final rule provides, as did the proposed rule, that a TPO may not close a loan in its name, and HUD is
not considering withdrawing this prohibition in this final rule. However, HUD will further examine
this issue. Until and unless HUD announces a change to this prohibition, the prohibition for currently
FHA-approved loan correspondents (that subsequently will come become TPOs) closing any FHAinsured
mortgages in their own names will be applicable commencing January 1, 2011. Currently
FHA-approved loan correspondents may continue to close FHA-insured mortgages in their own name
through December 31, 2010.
Second, HUD is considering requiring FHA-approved mortgagees that originate multifamily
11
mortgages of $25 million or more to retain as additional net worth 50 basis points (0.5%) of the fee
income resulting from such loans, in addition to their required net worth as set forth in this rule, up to a
maximum of $5 million. This provision is intended to ensure sufficient mortgagee capitalization to
compensate for the increased risk posed by such high cost projects. HUD is specifically taking public
comment on this issue for a period of 30 days, and asks commenters to follow the public comment
instructions in Section V of this preamble. This is the only issue for which HUD solicits comment.
IV. Discussion of Public Comments
By the close of the public comment period on the November 30, 2009, proposed rule, on
December 30, 2009, HUD had received 207 public comments. Comments were received from a
variety of industry participants, including large direct endorsement FHA lenders, FHA loan
correspondents, trade associations representing participants in the mortgage industry, and other
interested parties such as law firms, certified public accountants, and individuals. In addition, the
Office of Advocacy, of SBA, commented on the discussion of its impact on small businesses. All
public comments can be found in the preamble to the rule, at www.regulations.gov.
A. The Comments, Generally
The majority of the comments supported the goals of the November 30, 2009, rule, but differed
with or opposed HUD’s proposed methods of implementation of the rule. For instance, many
commenters supported the elimination of loan correspondent approval but expressed concerns about
the proposed means of implementing this provision and its possible impact on loan origination
activities, including concerns that borrowers would be affected by the absence of FHA approval and
oversight of loan correspondents. Similarly, commenters generally supported FHA’s intention to
increase net worth requirements for mortgagees, but were not in agreement with the level to which
HUD proposed to increase these requirements, or the timing of the increase. Other commenters sought
12
postponement of any changes to lender/loan correspondent requirements until the housing market
recovered. They stated this was not the time for HUD to make such “sweeping” changes to its
relationships with the industry. Other commenters requested changes to policies that were not
proposed in the November 30, 2009, proposed rule, such as changes to downpayment requirements,
yield spread premiums, and the Home Valuation Code of Conduct. These changes were not addressed
in the November 30, 2009, proposed rule and are therefore outside the scope of this rulemaking.
B. Specific Issues Raised by Commenters
The following presents the key issues raised by the public comments and HUD’s response to
these issues.
Timing of FHA’s Policy Changes
Comment: Commenters stated that this rule, combined with the new Real Estate Settlement
Procedures Act (RESPA) disclosures, will result in the demise of the mortgage lending industry, other
than big banks, and, by favoring large financial institutions, will limit the recovery of the housing
market through the growth engine of small business. Commenters stated that changes to the current
FHA system will further burden the weak housing market by adding more people to the ranks of the
unemployed and risking foreclosure of their homes. Commenters stated that the current market is
becoming stable and such sweeping action is unnecessary.
HUD Response: HUD recognizes that the housing market remains in stress and that the FHA
programs are a key element in sustaining economic recovery. However, the downturn in the housing
market has not been without consequences to FHA. Consistent with its proactive role in previous
economic crises, FHA once again positioned itself in this current crisis to quickly respond to the needs
of homeowners in distress and qualified homebuyers without access to credit. As a result, the volume
of FHA insurance increased as private sources of mortgage finance retreated from the market. The pace
13
of growth in FHA’s portfolio over such a short period of time, combined with continued housing price
declines, defaults by homeowners, and home foreclosures has had an adverse impact on FHA, as
evidenced by the reduction in FHA’s capital reserve ratio reported in the independent actuarial study
recently submitted to Congress.4 FHA cannot continue to be a stabilizing force in the mortgage market
if FHA’s own condition is not stable and strong. Although the timing of implementation of these
measures may not be ideal, they cannot and should not be delayed. Replenishing FHA’s capital
reserves as quickly as possible is essential to ensuring that FHA remains available to respond to needs
in the housing market. Additionally, as discussed below in HUD’s response to specific comments
raised about net worth requirements and the elimination of loan correspondents, the changes adopted
by this final rule are not as sweeping as some commenters declare.
FHA’s Role in the Housing Market
Comment: Commenters stated that the changes proposed to be implemented represent a major
redefinition of the way FHA monitors and sources its business. Commenters stated that the policy
changes would reduce the competency and selectivity of FHA originators precisely at such a time
when it is necessary to improve the quality of loan originators. Commenters stated that FHA’s
proposals are at odds with other of the Administration’s proposals pertaining to the financial/housing
markets, which would increase, not decrease, regulatory oversight. Commenters stated that a reduction
of regulatory oversight will make FHA-insured loans vulnerable to involvement by entities that do not
have the experience and competency that is traditionally found in FHA-insured mortgage loan
participants, experience and competency required by FHA regulations, which will create more
problems for FHA and borrowers of FHA-insured loans. Commenters stated that by favoring the
larger mortgage lenders, FHA’s changes in policies will result in less competition, less choice, and
harm to consumers.
4 See footnote 1.
14
HUD Response: Through the policy changes adopted in this final rule, FHA is not abandoning
its traditional role in the housing market. The changes adopted are designed to ensure that FHA
remains financially stable and strong, and that, as a result of the availability of FHA insurance,
mortgage lenders are able to offer more affordable mortgage loan terms as they always have through
FHA mortgage insurance programs.
FHA is not retreating from regulatory oversight. As further discussed below, the focus of
FHA-approval on mortgage lenders that underwrite and own mortgage loans reflects recognition that
these are the entities that control the decision to extend a mortgage loan to a borrower, including the
assessment of the mortgage borrower’s ability to repay the mortgage loan, and therefore, should be the
entities subject to FHA’s regulatory oversight and requirements for sufficient capitalization. It is
HUD’s position that the policy changes implemented by this rule promote better regulatory oversight
by focusing FHA’s resources on oversight of the entities with the greatest degree of control over an
FHA-insured mortgage loan. Furthermore, the SAFE Act and other recent initiatives have provided a
uniform and reliable method of tracking loan originator licensing and compliance. As noted earlier in
this preamble and further discussed below, FHA-approved mortgagees now have, and have always
had, responsibility and liability for the performance of sponsored loan correspondents. The final rule
merely shifts to a sponsoring mortgagee the threshold assessment of a loan correspondent’s
qualifications to participate in FHA-insured loan transactions as a component part of the eligibility of
the mortgage loan for FHA insurance.
Increase in Net Worth Requirements
Comment: The majority of those commenting on the proposed net worth increase expressed
the view that $1 million was an acceptable level of required net worth for lenders, although some
commenters requested a delay in the effective date of the increase beyond the one-year period
15
proposed by HUD and until such time as it could be said that the economy had sufficiently recovered.
Among those commenters supporting the increase to $1 million, the majority of them, however, stated
that the total increase in required net worth, to a level of $2.5 million, was excessive. Commenters
stated that a net worth of $2.5 million would favor only the largest financial institutions, and eliminate
the possibility of smaller mortgage lenders being able to obtain approval as FHA-approved
mortgagees. Commenters stated that the increase in net worth would only be passed on to the
borrowers by mortgage lenders charging higher fees.
Some commenters suggested that net worth requirements be increased by different amounts,
ranging from $500,000 to tiered requirements based on origination or lending volume, or by a
Consumer Price Index (CPI) indicator. Other commenters suggested that the proposed time frame of 3
years in which to comply with this new requirement was unrealistic. Other commenters stated that
there should be no need to align FHA with Fannie Mae and Freddie Mac, particularly given the serious
financial problems of those government-sponsored enterprises. A few commenters noted that the net
worth requirements imposed by Ginnie Mae have not been raised for some time, and that Ginnie Mae
was allegedly in better financial condition than either Fannie Mae or Freddie Mac.
Some commenters submitted that an increase in the net worth was not the appropriate solution
to enhance mortgage lender responsibility and performance. Commenters stated that no correlation
had been shown between higher net worth and mortgage lender performance. Other commenters
advised that net worth for FHA-approved mortgagees is actually higher than the $250,000 cited by
HUD, because HUD also requires lenders to maintain net worth of one percent of funded loans. Other
commenters suggested alternatives to increasing net worth such as establishing borrower FICO®
requirements (a credit scoring system developed by the Fair Isaac Corporation), instituting required
mortgagee internal controls, assessing a lender’s track record before raising net worth, increasing FHA
16
educational requirements, stepping up enforcement, and increased prosecution of fraud cases.
Commenters also expressed the view that mortgagees engaged solely in multifamily and Home Equity
Conversion Mortgage (“HECM” or reverse mortgage) lending should not be held to the same
requirements as single family mortgagees due to the differences in business models and products. One
commenter recommended grandfathering existing mortgagee’s/servicer’s multifamily portfolios and
making the net worth increase prospective for new insurance commitments applied for after the
effective date of the rule.
A few commenters stated that credit unions face unique problems in meeting increased capital
requirements, because credit unions do not have access to capital markets and can increase their net
worth only by cutting expenses or increasing their net income.
HUD Response: In proposing an increase in net worth requirements of FHA-approved
mortgagees, HUD strives to balance two components of FHA’s mission: (1) to operate with a high
degree of public and fiscal accountability, and (2) to stabilize housing credit markets in times of
economic disruption. HUD recognizes that raising net worth requirements in the midst of current
economic conditions may present some challenges for businesses in this sector. While the Nation’s
economy, and the mortgage and real estate industries in particular, currently face difficulties, it is just
these difficulties, and the potential risks that accompany them, that necessitate FHA taking prudent
action to protect its insurance funds. An increase in net worth is essential to ensure the stability of
FHA mortgagees, especially given how low the current net worth requirements are; net worth
requirements that were established in 1993 and not raised since that date.
Additionally, the increase in net worth requirements does not ignore the fact that small
mortgage lenders with lower capital reserves can and do originate quality loans. The fact remains,
however, that the net worth level required by FHA prior to this final rule was established almost 20
17
years ago, and that passage of time is significant. Ensuring appropriate capitalization of firms engaged
in lending activities is a fundamental principle of sound business regulation. Although many of FHA’s
program participants engage in responsible and diligent lending practices, effective underwriting and
quality control procedures alone do not guarantee the continued financial viability of a lending entity.
Therefore, requiring appropriate capitalization of FHA program participants is an essential baseline by
which FHA can measure the soundness of its program participants.
With respect to commenters’ statements about Ginnie Mae not having raised net worth
requirements, Ginnie Mae raised its net worth requirements for new applicant single family issuers in
2008. Additionally, the higher net worth requirements imposed by Fannie Mae and Freddie Mac were
not the business practices that were reported to contribute to their financial difficulties.
While HUD’s position remains that an increase in net worth requirements is essential, it has
revised the proposed rule to mitigate the potential economic burden on current participants in the FHA
single family and multifamily mortgage insurance programs and avoid disrupting their continued
ability to provide FHA mortgage insurance. Although new applicants for FHA approval that do not
currently participate in the single family or multifamily programs would be required to comply with
the new net worth requirements commencing on the effective date of this final rule, currently approved
program participants would have one year from the effective date of the rule to comply with the net
worth increase.
As already noted in Section II of this preamble, in response to commenters’ concerns and as a
result of further consideration of the net worth proposal by HUD, this final rule provides FHAapproved
mortgagees that meet SBA’s standards for classification as a small business an even more
gradual transition period to meet the new net worth requirements. While HUD believes that a net
worth of $1 million is prudent and appropriate for mortgagees, the Department very much values its
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existing relationships with FHA-approved small business mortgagees and realizes that the one year
time frame for compliance with the increase in required net worth may have proven prohibitive for
some of these firms. In recognition of this reality, FHA has determined that a more gradual increase in
the required net worth for small business mortgagees is appropriate. Unlike new applicants for FHA
approval, these mortgagees already possess unique knowledge and competency with regard to FHA
products and have demonstrated their responsibility and reliability in the exercise of FHA activities.
Therefore, due to the mutually beneficial relationships that exist between FHA and these small
business mortgagees, HUD believes it is appropriate to take measures to permit their continued
participation in FHA programs, while simultaneously taking steps to appropriately manage FHA’s
counterparty risks.
Additionally, as described in Section II of this preamble, this final rule recognizes the key
distinctions between the single family and multifamily business models, and this final rule provides net
worth requirements that HUD determined are appropriate for single family and multifamily
mortgagees. As noted in Section III of this preamble, HUD is considering requiring FHA-approved
mortgagees that process multifamily mortgages of $25 million or more to retain a portion of their fee
income from such transactions as additional net worth, and to increase the maximum required net
worth for these mortgage lenders. These mortgages present higher risk to the multifamily mortgagees,
and consequently to FHA, and the higher net worth better protects both the mortgagees and FHA
against such increased potential liability. HUD will take comments on this single issue for the next 30
days, as provided in Section V of this preamble.
With respect to credit unions, HUD believes that the changes made at this final rule stage
alleviate the concerns expressed by credit union commenters. Following the initial increase in required
net worth within one year following the effective date of this final rule, mortgagees will be granted an
19
additional 2 years (after the first-year increase) in which to accumulate the required incremental net
worth based on volume in excess of $25 million of FHA single family insured mortgages originated,
underwritten, purchased, and/or serviced during the prior fiscal year.
Elimination of FHA Approval of Loan Correspondents
Comment: Some commenters opposed FHA elimination of loan correspondent approval.
Commenters suggested that FHA continue to approve, set requirements for, and monitor loan
correspondents. Commenters suggested that in addition to continuing loan correspondent approval,
FHA should increase its approval requirements for loan correspondents as an alternate means of
strengthening its risk management. Commenters raised concerns about administrative difficulties that
would arise through elimination of loan correspondent approval and that such difficulties would hinder
effective program operations. Commenters stated that mortgagees will incur significant costs in
employing and training new staff to process and close additional loans from correspondents, because
mortgagees would not be able to handle correspondent functions on their own.
Other commenters stated that elimination of loan correspondent approval would cause undue
stress for mortgage lenders as they struggle to maintain compliance by their sponsored TPOs. Further,
commenters expressed concern that mortgage lenders will inconsistently enforce standards, and this
will ultimately be more costly than compliance with existing FHA requirements. In addition, a
commenter noted that eliminating loan correspondent approval and certification increases risk to the
insurance fund by opening the door to many new correspondents and the inherent conflict of interest
sponsors will have between monitoring compliance and closing loans.
HUD Response: HUD appreciates and carefully considered the issues raised by commenters,
but HUD maintains its position that the elimination of FHA approval of loan correspondents is prudent
for FHA and efficient for both FHA and mortgage lenders. Limiting approval to mortgagees reflects
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the recognition that the mortgagee, by underwriting, servicing, or owning a loan, is the most critical
lending party to a mortgage transaction. It is the mortgagee that determines whether a borrower
qualifies for the mortgage for which the borrower applied, and, therefore, determines the risk of
lending money to the borrower. This is the most critical determination of the mortgage process.
Accordingly, it is appropriate that FHA’s approval process and oversight be focused on mortgagees,
the parties to the loan transaction that pose the greatest risk to HUD.
As noted earlier in this preamble, FHA-approved mortgagees currently have, and have always
had, significant responsibility and liability for actions of sponsored loan correspondents. HUD’s
regulations have long provided that each sponsoring mortgagee shall be responsible for the actions of
its loan correspondent lenders 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 (see 24 CFR
202.8(b)(7)).
HUD further defined the quality control requirements of a sponsoring mortgagee in its
Mortgagee Approval Handbook (HB 4060.1 REV2 Ch. 7), by requiring sponsoring mortgagees to
provide for a review of mortgage loans originated and sold to it by each of its loan correspondents. As
part of this review, sponsors determine the appropriate percentage of mortgage loans to review based
on volume, past experience, and other factors. Sponsors are required to document their methodologies
and the results of these reviews. In addition, all mortgagees/sponsors must identify patterns of early
defaults by location, program, loan characteristic, loan correspondent, etc. Mortgagees/sponsors may
use HUD’s Neighborhood Watch Early Warning System to identify patterns. Mortgagees/sponsors
must identify commonalities among participants in the mortgage origination process to learn the extent
of their involvement in problem cases. Mortgages and loans involving appraisers, loan officers,
processors, underwriters, etc., who have been associated with problems must be included in the review
21
sample. Accordingly, HUD’s existing regulations reflect the responsibilities to be fulfilled by FHAapproved
mortgagees, which are responsibilities that should be assumed by any lender, given the
discretion and control that lenders have over the loans they underwrite.
The additional responsibility that HUD will require of sponsoring FHA-approved mortgagees
through this final rule is minimal. Since mortgagees are already responsible for ensuring that FHA
requirements are met for mortgage loans originated by loan correspondents, HUD believes it is
appropriate for mortgagees to continue doing so for TPOs. A mortgagee will be subject to sanctions
(e.g., civil money penalties) should it fail in its responsibility to ensure that mortgage loans presented
to FHA for endorsement, or those that the mortgagee endorses for insurance under the FHA Lender
Insurance process, comply with processing and origination requirements. HUD’s position is that,
given the existing sponsor relationships between mortgagees and loan correspondents, mortgagees will
continue to be able to undertake a threshold determination of a TPO’s qualifications. Moreover,
making sponsors responsible for this oversight actually relieves loan correspondents from the
administrative burden of FHA’s lender approval and recertification processes.
Commenters raised concerns that elimination of approval of loan correspondents will result in
mortgagees incurring significant costs in employing and training new staff to process and close
mortgage loans. It is HUD’s view, after careful consideration, that approved mortgagees will continue
to rely upon loan correspondents with whom they have worked for years and who have demonstrated
to sponsoring mortgagees their competency, compliance with applicable requirements, and integrity in
their participation in the origination of FHA-insured mortgage loans. HUD believes that it would be
contrary to current and financially sound business practices for approved mortgagees to sever ties with
experienced loan correspondents with whom they have had a positive relationship for years, and have
to hire and train new staff to perform correspondent functions.
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With respect to concerns that were raised about the integrity of TPOs without FHA approval,
and the possibility of borrowers being exposed to unscrupulous loan originators, HUD believes that
recent changes to mortgage lending licensing and regulatory requirements provide additional
safeguards that did not exist when FHA established its lender-approval requirements. Specifically, the
SAFE Act and the Nationwide Mortgage Licensing System have created standards that govern
mortgage lending activities for loan officers and loan origination entities, and systems for tracking
compliance with applicable mortgage lending laws. Further, recent changes in regulations for RESPA
and the Good Faith Estimate have strengthened requirements to combat fraud and have improved
disclosure of information to borrowers. These new or improved mechanisms to protect the public from
inappropriate lender practices are in addition to state and local regulations and requirements governing
mortgage lending practices. It should also be noted that the HFSH Act expanded HUD’s authority to
impose civil money penalties upon entities and individuals to include non-FHA-approved entities and
their employees or representatives. HUD will judiciously use this new authority in conjunction with
the changes enacted under this final rule.
While this final rule proceeds to adopt the proposal to eliminate approval of loan
correspondents, as provided in Section II of this preamble, HUD emphasizes that currently approved
loan correspondents as of the effective date of this final rule may continue to act as FHA-approved
loan correspondents through December 31, 2010, and loan correspondents are eligible to apply for
approval as an FHA-approved mortgagee.
FHA Approval of HECM Loan Correspondents Is Required by Law
Comment: Commenters stated that HUD’s November 30, 2009, proposed rule overlooked
changes in statutory language made to section 255 of the National Housing Act (NHA), by the
Housing and Economic Recovery Act of 2008 (HERA) (Public Law 110-289, approved July 30, 2008),
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which provide that only FHA-approved entities may participate in the home equity conversion
mortgage (HECM) program. The commenters state that section 2122 of the HERA provides that “All
parties that participate in the origination of a mortgage to be insured under this section shall be
approved by the Secretary.” The commenters state that section 203 of the HFSH Act provides: “Any
person or entity that is not approved by the Secretary to serve as a mortgagee, as such term is defined
in subsection (c)(7) of the NHA shall not participate in the origination of an FHA-insured loan except
as authorized by the Secretary.” The commenters state that the language amending section 255 of the
National Housing Act does not contain the phrase “except as authorized by the Secretary” that is
included in section 203 of the HFSH Act. The commenters state that to comply with the HERA
language, HUD must continue to approve and monitor loan correspondents engaged in HECM
originations.
HUD Response: The commenters identify a perceived contradiction between section 203(b) of
the HFSH Act and section 2122(a)(9) of HERA, both pertaining to approval by the Secretary of HUD
of parties engaged in the origination of FHA-insured mortgages. HUD appreciates the question posed
by the commenters but, for the following reasons, disagrees with their analysis of the two statutory
provisions in question.
As noted by the commenters, the HERA amendments to section 255 of the National Housing
Act require that mortgage lenders participating in the origination of HECM mortgages must be
“approved by the Secretary.” Subsequent to enactment of HERA in July 2008, the HFSH Act was
enacted on May 20, 2009. While the HERA changes to section 255 were limited to the origination of
HECM mortgages, the HSFH amendments to section 202 of the National Housing Act more broadly
encompass the origination of all single family mortgages insured by FHA, including those insured
under the HECM program. Section 203(b) of HFSH also requires HUD approval of mortgage lenders
24
participating in the origination of FHA-insured mortgages, “except as authorized by the Secretary.”
This statutory exception to the approval requirement signifies that Congress intended to provide FHA
with the authority to permit some limited participation by TPOs, which otherwise will not be FHAapproved
mortgagees in the FHA mortgage insurance programs (including the HECM program), as
provided for under this final rule.
Rather than putting forth contradictory instructions from Congress, as the commenters assert,
HUD views the statutory mortgagee approval requirements of sections 203 and 255 of the National
Housing Act as being reconcilable. The statutory change to section 255 recognizes that the
beneficiaries of the HECM program -- elderly homeowners -- are vulnerable to unscrupulous players in
the lending market that target the elderly with overpriced or unneeded financial products. By
specifying that mortgage lenders must be “approved by the Secretary,” Congress did not restrict the
Secretary’s ability to “authorize” TPO participation in the origination of HECM mortgages under
section 202 of the NHA. Instead, HUD has determined that Congress emphasized the need of FHA to
take steps to protect elderly borrowers, who may lack the sophistication of the mortgage marketplace.
FHA has addressed this need by allowing only mortgage lenders with professional and financial
competency and integrity to participate in the origination of HECM mortgages. The provisions of this
final rule regarding the relationship of sponsoring mortgagees and TPOs are consistent with the
congressional intent of safeguarding HECM borrowers underlying the HERA statutory language. As
discussed previously in this preamble, FHA-approved mortgagees have had, prior to this rulemaking,
significant responsibility for actions of sponsored TPOs. As a result of this ongoing relationship
between the sponsoring mortgagee and TPO, the sponsoring mortgagee is in a better position than
FHA to immediately detect deficiencies with TPO performance and to remedy those deficiencies.
Accordingly, HUD will look to FHA-approved sponsoring mortgagees to ensure that HECM mortgage
25
loans are properly originated, and each sponsor shall be responsible to FHA for the actions of its loan
correspondent lenders or mortgagees in originating HECM loans or mortgages.
Additional Guidance Requested Concerning Mortgagee Oversight of TPOs
Comment: Commenters requested additional guidance regarding requirements of FHAapproved
mortgagees for the approval, monitoring, and liability for actions of the TPOs they sponsor.
Some commenters requested that FHA establish minimum approval guidelines for TPO approval by a
sponsoring mortgagee. Others asked for clarification about the extent of monitoring required by
mortgagees for the TPOs they sponsor, and of the specific TPO actions or violations for which
mortgagees will be liable. Other commenters noted that lenders would be unable to perform the
regulatory function that HUD performs in monitoring TPOs. Commenters stated that FHA should
continue to monitor “mini-eagles” and others directly. Other commenters expressed concern about the
elimination of audits of loan correspondents, which serve an important function.
HUD Response: HUD will not establish FHA requirements related to sponsor approval of
TPOs. To do so defeats the aforementioned efficiency and improved risk management that HUD is
striving to achieve. By focusing approval solely on lenders that underwrite loans, HUD’s approval
process should yield improved results in ensuring that only responsible lenders of integrity and
competence are FHA-approved lenders. Such lenders will ensure that their employees and the TPOs
that they sponsor are individuals and entities of integrity and competence. While, as noted in the
response to a preceding comment, FHA-approved mortgagees will now make the initial determination
of TPO qualifications, and not FHA, this assessment should not differ significantly from the manner in
which FHA-approved mortgagees hire loan officers and appoint officials in their organizations.
Moreover, sponsoring mortgagees have the authority to establish oversight requirements to monitor the
ongoing performance and financial capacity of their TPOs, as the mortgagees may determine
26
appropriate, including the submission of audited financial statements from sponsored TPOs.
To the extent that mortgagees seek guidance from HUD on how best to determine if TPOs
adhere to FHA’s processing and origination requirements and are eligible to participate in the
origination of FHA-insured mortgage loans, HUD recommends that mortgagees develop and
implement measures such as the following: (1) procedures to verify TPO compliance with all federal,
state, and local requirements that govern their activities; (2) procedures to verify TPO compliance with
the requirements of the SAFE Act; (3) procedures to ensure that TPOs are not suspended, debarred, or
under a limited denial of participation (LDP), in HUD’s Credit Alert Interactive Voice Response
System, or on the Federal Government’s Excluded Parties list; (4) institutional guidelines and systems
for establishing and maintaining relationships with TPOs; (5) procedures that govern the performance
of due diligence; (6) systems for monitoring loan quality and performance for each sponsored TPO; (7)
procedures for addressing potential problems with TPO operations, business practices, or customer
service, and clearly articulated remedial processes for instances when such problems occur; (8)
enhanced quality control plans and procedures that ensure appropriate evaluation of TPO originations;
(9) ongoing renewal processes to ensure that TPOs continue to meet the mortgagee’s approval
standards; and (10) procedures for evaluating the financial capacity of TPOs. These are only
recommendations on HUD’s part, and no doubt many mortgagees already have such procedures,
protocols, and systems in place.
Although not a change from existing requirements, it is nevertheless important to reiterate that
mortgagees may not knowingly or willingly conduct business with TPOs that are not in compliance
with all laws and regulations that govern their practices. If a mortgagee becomes aware of TPO
noncompliance with any provision of law or regulation, FHA requires that the mortgagee cease
sponsoring FHA loans on behalf of the TPO in question and proceed accordingly with regard to
27
notifying HUD of such occurrences. Mortgagees that continue to engage with such entities will be
held responsible for such activities by HUD. Moreover, HUD will hold mortgagees accountable for
FHA loan origination and processing violations committed by TPOs.
Processing a Loan in Name of FHA-Approved Mortgagee
Comment: Some commenters requested that HUD permit non-FHA-approved TPOs to process
a loan and close it in the entity’s own name, and not that of the FHA-approved mortgagee. The
commenters stated that the removal of this authority would yield a number of adverse impacts for
TPOs, including impacts on state licensing and regulatory matters and TPO funding arrangements.
Some commenters expressed concern that the elimination of processing authority would limit TPO
revenues, and would present a significant administrative burden for mortgagees.
HUD Response: HUD has not revised the rule in response to these comments, but as noted
earlier in this preamble and discussed at the end of this response, HUD is further considering this issue.
Section 203(b)(1) of the National Housing Act (12 U.S.C. 1709(b)(1)) requires that a mortgage “[h]ave
been made to, and be held by, a mortgagee approved by the Secretary” in order to be eligible for FHA
mortgage insurance. Accordingly, only FHA-approved mortgagees may close mortgage loans in their
names (that is, using the statutory terminology, have the mortgage “made to” the FHA-approved
mortgagee). Since FHA will no longer be approving loan correspondents, TPOs will be statutorily
prohibited from closing FHA-insured mortgage loans in their own names; however, TPOs may
continue to close such mortgages in the name of their sponsoring FHA-approved mortgagees. Further,
only the sponsoring FHA-approved mortgagee may submit the loan to FHA for insurance
endorsement.
HUD emphasizes that currently approved TPOs (loan correspondents) as of the effective date
of this final rule may continue to act as FHA-approved TPOs and close FHA-insured mortgages in
28
their name through December 31, 2010. Loan correspondents are also eligible to apply for approval as
an FHA-approved mortgagee.
As noted earlier in this preamble, HUD will further consider this issue, but unless such change
is made, currently FHA-approved loan correspondents (that subsequently will become TPOs),
commencing on January 1, 2011, may no longer close FHA-insured mortgages in their own names,
although they may continue to do so through December 31, 2010.
Third-Party Originators Should Be Permitted to Access and Utilize FHA Connection
Comment: Commenters expressed concern about the inability of TPOs to access and utilize
the FHA Connection system for loans they originate. These commenters advised that the data input
and other tasks performed by TPOs in FHA Connection were an important part of the services they
provide to mortgagees.
HUD Response: HUD information technology security requirements do not permit non-FHAapproved
entities to access or utilize FHA Connection. Therefore, only FHA-approved mortgagees
will be authorized to utilize this system to carry out necessary processes associated with a loan
transaction. However, as explained in Mortgagee Letter 2004-31, which remains applicable, FHA
Connection’s Business-to-Government (FHAC B2G) Specification “allows lenders to transmit data
directly from their own internal loan processing systems to FHA without re-keying data into the FHA
Connection or functional equivalent.” This functionality allows TPOs to input data into a sponsoring
mortgagee’s loan origination system, as may be permitted by the sponsoring mortgagee, which will
then carry out FHA Connection tasks via an automated process. Such practices will enable TPOs to
continue to provide important loan processing services to mortgagees. Additional information
regarding FHAC B2G can be found in the “FHA Connection Business to Government User’s Guide”
at http://www.hud.gov/offices/hsg/sfh/f17c/b2g.pdf.
29
Tracking TPO Performance through Single Family Neighborhood Watch
Comment: Commenters suggested that HUD continue to track TPO performance through the
Single Family Neighborhood Watch (Neighborhood Watch) system. The commenters were concerned
that with the removal of loan correspondent approval, the ability to analyze performance data for
sponsored TPOs would be eliminated. These commenters requested that TPO tracking in
Neighborhood Watch continue.
HUD Response: FHA will make available to sponsoring mortgagees aggregate comparison
TPO performance data at a national level. HUD anticipates that mortgagees will use this data in
carrying out their responsibilities under this final rule to monitor the performance of their TPOs on an
ongoing basis. The information will be available to FHA-approved mortgagees by accessing
Neighborhood Watch through their FHA Connection account.
Geographic Limitations on Originations
Comment: Commenters requested clarification regarding the impact of this rule on FHA’s
“Areas Approved for Business.” The commenters expressed concern that the rule would result in
geographic limitations on originations.
HUD Response: When conducting retail and direct lending originations, FHA-approved
mortgagees must continue to comply with the existing Single Family Origination Lending Areas
(Areas Approved for Business or AAFB), as outlined in HUD Handbook 4155.2, Section12.E.2. FHAapproved
mortgagees must also continue to be licensed to perform loan origination in each state in
which they desi
Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program,
and subsequent guidance
A. Basic Program Guidelines
1) FHA-HAMP does not solve for homeowners who are current on their mortgage, but
claim imminent default, correct? FHA-HAMP requires that a homeowner be past
due at least 1 installment, due to a valid reason for default (and not intentional
default).
No. Mortgagee Letter 10-04, dated 01/22/2010, states in part, “…In order
for an FHA-insured loan that is at risk of imminent default to qualify for
modification under FHA-HAMP, the borrower must first successfully
participate in a four-month trial modification period….”
2) Can you advise the effective date, and where to find online training?
Per ML 2009-23, it is August 15, 2009. Please register and take online
training at https://eclass.hud-nsctraining.com .
3) GNMA recently updated their buy-out procedures, but is still only allowing buy-out
at the 91st day of delinquency. If a homeowner is not 91 days delinquent or greater
after the trial period, how can we complete the modification/partial claim piece if the
loan is in a GNMA pool?
GNMA All Participants Memo 09-14 states in part , “…Issuers will be
permitted to repurchase FHA loans from Ginnie Mae pools if a borrower
has been approved to participate in FHA’s trial modification program and
the loan has been in a state of continuous default for more than 90 days, as
of the date of repurchase.” If the mortgage is in default, and three trial
modification payments - which are less than the full unmodified mortgage
payment - are made successfully, then the mortgage will have been in a state
of continuous default for more than 90 days. If the mortgage is not
delinquent, the trial period must be 4 months, as stated in ML 10-04.
Therefore, any loan approved to participate in the HAMP program where
any portion of any single payment is delinquent for 90 days meets the Ginnie
Mae requirement and can be repurchased on the 91 day to execute the
modification.
4) In general, when an issue is not addressed, can we follow HMP rules?
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No. FHA-HAMP applies only to FHA insured mortgages. Consequently,
when an issue is not specifically addressed, ML 09-23 refers servicers to
other mortgagee letters for FHA modification and FHA Partial Claim
guidance.
5) Are servicers required to specifically reference the FHA-HAMP in the FHA
homeownership counseling letter or can the letter just reference modifications
generally as being an alternative to foreclosure?
FHA-HAMP does not make changes to the Housing Counseling Notification
requirement as set out in Mortgagee Letter 02-12. The lender may choose to
send out additional solicitations to the borrowers advising them of FHAHAMP.
B. Debt to Income Ratios
No questions at this time. Refer to sections Z and AA
C. Calculation of Maximum Partial Claim Amount Under FHA-HAMP
1) From what I'm reading it looks like we are just combining the Partial Claim and
Loan Modification options in order to do a Principal Balance reduction. When we
are preparing the figures for the customer are we basically doing loan modification
figures to calculate the total due (including interest, overdrawn escrow, escrow
replenishment and attorney fees) and then do we just do a Partial Claim for the total
debt + principal balance forbearance in order to reduce the amount owed on the first
lien by the customer?
See the example in the ML 09-23 on page 2. The borrower is limited to 12
months PITI for delinquent payments. If a buy down is needed to meet the
31% front end DTI ratio requirement, the amount up to 30% of the
outstanding principal balance as of the date of default is deferred using a
Partial Claim (inclusive of delinquent payments and legal costs), then a loan
modification of the remaining principal balance amortized over 30 years
and an interest rate reduction, as applicable, is executed.
D. Requirements to Use FHA-HAMP
1) What if the homeowner fails the trial payment, but does not complete the
modification/PC piece of FHA-HAMP - can they be re-evaluated at a later date?
If the borrower fails the trial modification, they should be considered for
standard loss mitigation options, excluding FHA-HAMP.
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2) What if the homeowner fails to send documents back, and never enters the trial
period - can they be re-evaluated for FHA-HAMP at a later date?
Yes.
3) Do we have to have to launch a separate HAMP Spoliation Campaign As of right
now we solicit all borrowers for LM Assistance at the 50, 95, 105, 125 date of
delinquency. Our collections department tries to call the customer up until the date
of foreclosure sale.
No, FHA is not prescribing each lender’s HAMP solicitation campaign.
4) If a customer has ignored all LM Spoliations and Collection Attempts does this
imply that the customer is not interested in LM Assistance and we can start
Foreclosure? If a customer has applied for LM Assistance we should not be starting
foreclosure until we have reviewed the financial package in order to determine if the
customer would qualify for assistance, correct?
Loss Mitigation is based on the borrower cooperating and providing the
requested information. If a lender is in the Loss Mitigation review process
they should be aware of the first legal deadline (FLD).If the lender needs
additional time to complete the review, they should submit an extension of
time request through EVARS (FHA’s online extensions and variances
submission system) prior to the FLD. Under ML 2000-05, General Program
Requirements, Section L, if the lender approves a borrower for a loss
mitigation option, documents it in their servicing notes and reports it to
Single Family Default Monitoring System (SFDMS) but is unable to compete
it prior to the expiration of the FLD date, the lender is entitled to a 90 day
extension of the FLD. Enter the expiration date of this automatic extension
to Form HUD-27011, Part A, block 19, when filing a disposition claim (e.g.,
conveyance, preforeclosure, etc.).
5) Based on the questions asked in #4, should the same logic be applied to customers
who are currently facing a Foreclosure Sale?
It depends on whether or not the borrower has provided information to the
lender to review for Loss Mitigation. Lenders are required to review for
Loss Mitigation through the whole default cycle including foreclosure.
Likewise, they must take into consideration FLD and request an extension -
if needed -- through EVARS, especially in start/stop states.
6) Should we foreclose on a borrower who has not responded to LM Solicitations and
avoided collection attempts?
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The borrower must cooperate and provide the requested financial
information needed to perform a review for Loss Mitigation.
7) Do we need to mail a separate HAMP Solicitation to the customers facing a
foreclosure sale?
The lender must determine if the borrower is eligible for a FHA HAMP prior
to foreclosure. It is up to the lender to determine how it best meets this
requirement.
8) Will HUD allow private investors (such as FNMA RMIC, Truman Capital, CalHFA,
etc) to "trump" HUD rules and avoid participation in FHA-HAMP? Currently, some
investors prohibit term extensions (required by FHA-HAMP), or wish to provide
approval prior to loss mitigation execution. Others, such as CalHFA do not allow
modifications on their FHA loan types.
No. Lenders must follow FHA loss mitigation guidelines. FHA will monitor
program participants and take administrative actions for non-compliance
when required.
9) Will HUD utilize any standard documentation for the modification/partial claim
portion of FHA-HAMP? I saw that HUD requires the use of the standard Reason
for Default affidavit, but was not sure whether any standardized loss mitigation docs
were to be utilized.
No, HUD does not require standard documentation for modifications and
Partial Claims. Lenders should continue to use the documents they use now
for modifications and Partial Claims.
10) Can you validate the ‘waterfall’ review under FHA-HAMP? This would be utilized
only after the homeowner was deemed not to qualify for the HUD standard loss
mitigation waterfall of SFB > Modification > Partial Claim.
Yes, that is correct. ML 09-23 defines the priority order for loss mitigation
home retention options under Requirements to Use FHA-HAMP.
11) Do we need to review all loans in our pre-sale inventory that have already been
declined for a workout (Referred but the property has not yet been taken to sale). Or
is HUD going to establish a cutoff period to determine what, if any loans, will need
to be reviewed for FHA-HAMP and what will that cutoff period be?
The ML goes into effect 8/15/09 and requires lenders to review everything
for the FHA-HAMP prior to foreclosure sale. Lenders can submit an
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extension of time request to FHA through EVARS and request additional
time to review for FHA-HAMP.
12) Does the FHA-HAMP list delinquency requirements? I saw that loans with
delinquency of 91 days or greater must be run through the standard HUD waterfall
(SFB, Mod, PC). Does this mean that if we can complete one of those options, we
cannot review for FHA-HAMP?
Yes, the borrower has to be one full payment past due and placed in a 3-
month trial plan, or if current, placed in a 4-month trial modification for the
modified mortgage payment.
Borrowers who do not qualify for standard loss mitigation options must be
reviewed for FHA-HAMP.
13) What if we can solve for the delinquency using one of the "standard" options, but
this does not solve for 31% payment-to-income ratio? Do we proceed with FHAHAMP
review, or solve using a "standard" HUD option?
Lenders are required to use standard loss mitigation first.
14) Are the borrowers eligible for the HAMP program at day 31? Traditional
modifications are at 61 days and partial claims are at 91 days for eligibility, which
makes me think that anything less than 60 days delinquent would either be looked
at for a Special Forbearance or the HAMP program. Is that correct?
Yes, the borrower has to be one full payment past due or placed in a trial
modification for the modified mortgage payment.
15) Is this program mandatory? Are we required to solicit borrowers who may
qualify?
Yes. The evaluation of FHA borrowers for loss mitigation is mandatory.
The loss mitigation priority order, as defined on page 3 of the attachment
to ML 09-23 states that FHA-HAMP can be utilized only if the
mortgagor(s) does not qualify for current home retention options.
E. Mortgagee Incentives
1) From my understanding the customer will have to sign a loan modification
agreement and a Partial Claim Subordinate Note and Mortgage?
Yes.
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2) Do we use the traditional documents or are there new specific documents that HUD
would require?
Lender would continue to use the same documents as they are currently
using.
3) If we are to use the traditional documents do the same rules apply for the Partial
Claim and Loan Mod, from the way I am reading the guidelines it says we are to
follow the current mortgagee letters, but I just wanted to clarify?
Yes, that is correct.
F. Partial Claim Filing and Document Delivery
1) Confirm that the Partial Claim amount would be set up as a 0% 2nd lien that
would be assigned to FHA. Investor/Chase would be paid claim amount at time of
mod. Also confirm that the loans so modified can be re-delivered.
Yes, the subordinate lien is non-interest bearing and there is no lien priority.
Mortgagees will file insurance benefits for this Partial Claim in the same
manner as a traditional partial claim; See GNMA APM 09-14 (referenced
above) for more information about re-pooling.
2) Are there any special claims instructions?
In addition to the requirement that the Partial Claim be filed and paid prior
to the filing of the loan modification claim (see Page 3, Mortgagee
Incentives), Mortgagee Letter 09-39 includes claims instructions.
3) Regarding the repayment of the Partial Claim - what is the responsibility of the
Servicer to FHA when a payoff is requested on the first lien? Is the Servicer
responsible for notifying the Held Assets Servicing Contractor?
The requirements of ML 03-19, section K, are not changed by ML 09-23.
4) Is the Servicer responsible for maintaining the amount of the non interest bearing
partial claim and including it with any payoff statements?
No, see ML 2003-19
G. Monitoring
No questions at this time.
H. Remittance
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No questions at this time.
I. SFDMS Reporting
1) Will HUD have special coding (for month-end delinquency reporting) for FHAHAMP?
If not, should we use the existing codes for partial payments,
modifications, partial claims, etc?
Additional codes were announced October 9, 2009 via Mortgagee Letter 09-39.
J. Eligibility – Mortgagors
1) Under FHA - HAMP is the homeowner is disqualified if they have moved out of the
residence and are leasing it out because they can’t sell it?
If the property is non- owner occupied, it is not eligible. If the owner moves
back into the property and provides documentation it is now their primary
residence, the borrower would be eligible provided they met all other
requirements.
2) Can an FHA-HAMP be offered to a borrower in active bankruptcy? A borrower
previously discharged?
Yes, lender would need to check with their legal counsel and may also need to
obtain Bankruptcy Court approval.
K. Eligibility – Existing Mortgage
No questions at this time.
L. Eligibility – Maximum Mortgage Amounts
No questions at this time.
M. Eligibility –Modified Mortgage
1) The existing FHA-insured mortgage must be re-amortized to a 30-year fixed rate
mortgage, and must be modified in compliance with all FHA Mortgage
Modification requirements, except those specifically modified under the FHAHAMP
program.
a. We appreciate this tool but wish that a 40 year fixed rate mortgage could be
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made available to provide more relief for our at-risk borrowers.
The program was designed to align with GNMA pooling requirements.
Consequently, at this time, only 30 year terms are allowed.
b. As a state housing finance agency using mortgage revenue bond financing,
we can't change the term of our loans to extend beyond the term originally
stated in the bond offering.
If state bond requirements prohibit re-amortization to 30 years, lender needs
to document their servicing file with the reason borrower was not approved
for FHA-HAMP.
c. If re-amortizing the loan to 30 years extends the new maturity date by more
than 10 years, can the loan still be modified under the FHA-HAMP?
Yes, ML 09-23 requires all loans be re-amortized to 30 years.
2) A servicer must comply with all FHA Mortgage Modification requirements –
previous and new requirements for the FHA-HAMP. In previous requirements the
borrower needed to be seriously delinquent before certain treatments could be
provided. For example, a borrower must be 120 days delinquent or > before a
Partial Claim can be used. Also – incentives are not paid to the servicer if the
borrower is not at least 90 days delinquent at the time of modification. Given the
current housing market and economic environment, we believe these two
requirements should be removed and allow servicers to be incented to work with
borrowers earlier in the delinquency and provide relief sooner. Our analysis would
prove the earlier the intervention the more often a solution can be found and the
more successful the customer is at maintaining the new payment.
Yes, the borrower has to be one full payment past due and placed in a 3
month trial plan, or current and placed in a 4-month trial modification for
the modified mortgage payment. The purpose of the evaluation for other
loss mitigation options is that a lender may determine that a borrower has a
temporary disruption of income, which may be overcome by standard loss
mitigation retention tools. In those situations, the lender may choose to
utilize a formal forbearance or repayment plan until the borrower is eligible
for formal loss mitigation tools.
N. Property Eligibility
1) The FHA-insured property must be the mortgagor’s primary residence. This is fully
understandable – but the statement goes on to say that it must be their ONLY
residence. Are we to interpret the borrower cannot own a second home to qualify?
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No. The purpose of that statement was that the borrower is eligible for loss
mitigation assistance on only one owner-occupied house subject to FHA
insurance.
O. Interest Rate – Modified New Mortgage
1) To determine the rate do we just use the GNMA Coupon rate for the month the Trial
Period is approved and then once they complete the trial we just finalize the loan
mod?
HUD does not set interest rates; the same rules apply the FHA-HAMP
modifications as on standard Loan Modifications (see ML 08-21 and 09-35).
P. Current Loan to Value Requirements Mortgage
No questions at this time.
Q. Loan Purpose
1) If a customer has had a previous Partial Claim and have used the 12 month PITI
allowance are they ineligible for an HAMP or is this amount just capitalized in with
a loan mod and would have to be paid back during the life if the first lien modified
mortgage?
A lifetime of 12 months PITI is the maximum allowance. If they have
already used it then they would not be eligible for the FHA-HAMP.
2) Clarify whether there is a minimum requirement for lowering of monthly
payment.
HUD has not set a minimum reduction; however, the new mortgage
payment must be reduced to be as close as possible to 31% of the gross
monthly income.
3) Guidelines state that all existing subordinate financing must be subordinated again to
maintain the first lien priority of the HAMP mortgage. We would suggest that a new
subordination agreement would not be needed if the capitalization/partial claim is <
$15,000.
First-lien status must be maintained. See Mortgagee Letter 2000-05, Page
22, Section G. Lien Status – these requirements have not changed.
R. Credit History
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No questions at this time.
S. Seasoning Requirements on the Existing Mortgage
1) If the mortgage under review for FHA-HAMP is an FHA Streamline refinance, does
the 12 month age and 4 payment requirement apply?
No, however, HUD’s automated claim processing system (A43C) will
suspend the claim in order to determine the age of the prior FHA mortgage.
We strongly recommend that the prior FHA case number be entered into the
Comments section of the claim.
2) Does seasoning include the trial period?
No
T. Property Valuation
No questions at this time.
U. Trial Modification
1) During the Trial Period when we are collecting the estimated mortgage payment,
does the due date have to move three times on the mortgage or do the funds just
have to post to suspense? If this is allowed does this rule apply to the traditional
Loan Modification requests where the customer is being required to demonstrate the
ability to make the new estimated payment.
Since the trial modification payments are to be in the amount of the modified
mortgage payment (see attachment page 2), the lender would post them to a
suspense account tied to the borrower and track that 3 payments (or 4
payments for current loans) were made. This does not constitute a change to
a Type II SFB that is referred to in the last part of the question.
2) During the Trial Period do we following the Forbearance Default Guidelines that
were described in ML 02-17: the customer has missed two installments and has not
made contact with us, the home was abandoned, and the borrower informs us they
are not going to fulfill the terms of the plan.
Yes, this would constitute option failure as described in ML 02-17.
3) To clarify, no matter what circumstances that occurred, if a borrower breaks the
Trial Plan Arrangements they are not eligible for another HAMP?
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Correct.
4) Does the trial payment plan end at the time of the first untimely payment? Is there a
grace period for these payments?
The trial modification payments must be made within 15 days of the
installment due date.
5) Clarify how to determine that the trial mod payments have been made on time.”
Each of the three (or 4, if applicable) trial modification payments must be
made within 15 days of the installment due date.
V. Documentation Requirements
1) When collecting the Home Affordable Affidavit can we send this document with the
Trial Plan Forbearance or do we have to send this in a separate LM Solicitation?
The borrower must complete and return this document with the financial
information since it explains the reason for the hardship. The lender would
not be able to approve a borrower without this document. Trial modification
is then sent out after approval.
2) Will HUD require that we validate the homeowner's proof of income prior to
sending FHA-HAMP documents to the homeowner? This pertains to the issue that
we solved recently, where HUD does not recognize a "pre-qualified" modification,
and we changed our process to ensure that the homeowner is financially approved
prior to sending documents.
Yes, although the lender can take information verbally as most do now, they
still have the requirement to verify the information before FHA-HAMP or
any loss mitigation option can be approved, and before sending the FHAHAMP
documents to the homeowner.
W. Underwriting Requirements – General
1) What is the GSA exclusion list and HUD’s LDP - where are they published?
The GSA exclusion list provides information on parties that are excluded
from receiving Federal contracts, certain subcontracts, and certain Federal
financial and nonfinancial assistance and benefits – see
https://www.epls.gov/ ,HUD’s Limited Denial of Participation (LDP) is an
action taken by HUD which excludes a party from further participation in a
HUD program - see http://www.hud.gov/offices/enforce/ecldp.cfm
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X. Loss Mitigation – Priority Order
No questions at this time.
Y. Underwriting – Monthly Gross Income
1) Are customers who unemployed but are collecting unemployment benefits and meet
the other requirements for the HMP Eligible for this workout? If so is there a time
restriction to the time when this workout is approved to the day when the benefits
would run out? For example, the customer is unemployed but will receive
unemployment benefits for the next 12 months and can provide proof of this? If this
is allowed are we allowed to approve traditional loan modifications and partial
claims using the same logic?
See ML 09-23’s Attachment for income guidelines and ML 2000-05 for the
financial analysis guidelines.
2) Does PITI include HOA fees as in HMP program?
Yes.
3) How long must unemployment benefits last to be considered income?
Unemployment income must be documented with reasonable assurance of
its continuance for at least 12 months.
4) What is acceptable documentation to support alimony, child support or
unemployment income?
If the borrower elects to use alimony or child support income to qualify,
acceptable documentation includes photocopies of the divorce decree,
separation agreement or other type of legal written agreement or court
decree that provides for the payment of alimony or child support and states
the amount of the award and the period of time over which it will be
received. Servicers must determine that the income will continue for at
least 12 months. The borrower must present proof of full, regular and
timely payment, such as deposit slips, bank statements or signed federal
income tax returns.
If the borrower has other income such as unemployment, acceptable
documentation includes letters, exhibits, or benefits statement from the
provider that states the amount, frequency and duration of the benefit. The
servicer must obtain copies of signed federal income tax returns, IRS W-2
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forms, or copies of the two most recent bank statements.
Z. Underwriting – Front End Debt to Income Ratio
1) Does the target 31% DTI pertain to the payment calculation at the time of the
qualification for the trial plan OR the final calculation of the HAMP plan following
the accrual of additional past due amounts?
The lender should try to get as close to the 31% DTI as possible at both the
trial modification period and the final HAMP, understanding that there will
be some variance due to rounding and since the trial payment is an estimate.
AA. Underwriting - Back End Debt to Income Ratio
1) When calculating the back end ratio, what does HUD consider incremental monthly
obligations? Does this mean all monthly obligations including Food and Housing
Costs?
No, food housing, and utilities are excluded. Obligations to be included in
the ratio are the credit report trade line items, and other items as stated on
page 3 of the attachment to the HAMP ML.
2) For debt-to-income requirements, does FHA-HAMP require that we utilize only
what is on the credit report to calculate the homeowner's back-end ratio? Or will
HUD require that we use the standard financial calculation and review all
homeowner monthly expenses? The FNMA/FHLMC MHA program utilizes only
the debts that are listed on the credit report.
Trade lines on the credit report can be used for verification, however, the
servicer must also consider information obtained from the mortgagor orally
or in writing concerning incremental monthly obligations (see the
attachment to ML 09-23).
Per HUD Handbook 4155.1, Paragraph 2-12, The borrower's liabilities
include all installment loans, revolving charge accounts, real estate loans,
alimony, child support, and all other continuing obligations. In computing
the debt-to-income ratios, the lender must include the monthly housing
expense and all other additional recurring charges extending ten months or
more, including payments on installment accounts, child support or separate
maintenance payments, revolving accounts and alimony, etc. Debts lasting
less than ten months must be counted if the amount of the debt affects the
borrower's ability to make the mortgage payment during the months
immediately after loan closing; this is especially true if the borrower will
have limited or no cash assets after loan closing.
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The following additional information deals with revolving accounts and
alimony payments:
Revolving Accounts. If the account shown on the credit report has an
outstanding balance, monthly payments for qualifying purposes must be
calculated at the greater of 5 percent of the balance or $10 (unless the
account shows a specific minimum monthly payment).
Alimony. Because of the tax consequences of alimony payments, the
lender may choose to treat the monthly alimony obligation as a
reduction from the borrower's gross income in calculating qualifying
ratios, rather than as a monthly obligation.
3) The backend ratio cannot exceed 55%. Our interpretation is the FHA-HAMP will
not be given if this condition exists. We would agree a backend ratio of 55% or
greater does add risk to the sustainability of the modification but would also suggest
we work with the borrower to get support in restructuring all of their debt through a
HUD-approved counselor. The borrower could be given the opportunity to
complete their trial modification payments while seeking counseling and
restructuring of their other debt. This allows the borrower time and supplemental
cash assistance during the three months.
As specified in ML 09-23, the Back End Ratio must not exceed 55%. If the
Back End Ratio exceeds 55%, the FHA-HAMP cannot be offered to the
mortgagor. The Department encourages mortgagees to work with
borrowers to seek counseling to get support in restructuring their entire
debt. However, when the mortgagee evaluates the borrower’s eligibility for
the FHA-HAMP, the Back End Ratio must not exceed 55%.
4) If a borrower eliminates debt in Chapter 7 to meet the 55 ratio requirement, would
they be eligible for servicing (post discharge) alternatives including HAMP whether
or not they reaffirmed the mortgage?
Yes, please refer to Mortgagee Letter 08-32 and consult with your legal
counsel.
BB. Underwriting – Subordinate Financing
No questions at this time.
CC. Underwriting – Upfront Mortgage Insurance Premium
1) Does the first mortgage principal reduction provided the borrower under HAMP
trigger the 78% threshold under which MIP could be terminated?
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No, because the borrower has simply bifurcated their total mortgage debt
into two instruments. See also Section J of ML 2000-05, which states in part
that monthly MIP payments must be calculated on the original insurance
amount.
DD. Underwriting – Annual Premium
No questions at this time.
EE. Underwriting - Calculation of Maximum Partial Claim Amount
1) Are we allowed to include all escrow shortages and amounts to fund escrow in the
HAMP?
Yes.
2) If so, should we run an updated escrow analysis prior to preparing the final
modifications?
Yes.
3) If we do this, what happens if the customer does not meet the required ratios to
complete the loan modification. (This would occur in a case where the customer had
Forced Placed Taxes or Insurance during the trial period)
The borrower has to meet the 31/55 ratios. If not, , the borrower would have
to be evaluated for standard loss mitigation options.
4) We fully understand the Partial Claim may not exceed the equivalent of 12 months
PITI and allowable foreclosure costs, but need further clarification if we would be
allowed to capitalize any remaining arrearage if this limit was hit and the borrower
needed to capitalize the remaining to become current.
The FHA-HAMP Partial Claim is the sum of three amounts, not to exceed
30% of the outstanding principal balance.
1. Arrearages not to exceed 12 months PITI; this includes existing
partial claims
a. A partial claim(including under FHA-HAMP) would be
limited to 4 months PITI today if a previous partial claim had
already been granted for 8 months PITI.
2. Allowable Legal Fees and Foreclosure Costs related to the
cancelled, incomplete foreclosure action.
3. Remaining Amounts to Principal Reduction (up to an amount
Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program,
and subsequent guidance
The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.
http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 16 of 18 as of January 28, 2010 (rev 4)
necessary to achieve the 31% front-end debt to income ratio),
Just as for the regular partial claim, no additional arrearage exceeding the
maximum of 12 months PITI can be included in that portion of the FHAHAMP
Partial Claim total.
FF. Partial Claim Guidelines
No questions at this time.
GG. 90 days Past Due or In Foreclosure
1) For loans in the foreclosure process - PRIOR to first legal being filed - will there be
an automatic 90-day extension to review these loans for FHA-HAMP? Does this
include loans in the foreclosure process prior to 8/15/09?
Lenders would be granted an automatic 90 day extension under 24 CFR
203.355 for owner occupied properties to review for HAMP. As
appropriate, enter the expiration date of this automatic extension to Form
HUD-27011, Part A, block 19, when filing a disposition claim (e.g.,
conveyance, preforeclosure, etc.).
2) For loans currently in our foreclosure process - AFTER the first legal has been filed
- will HUD give servicers an extension for reasonable diligence to postpone sales
and review files again for FHA-HAMP?
Yes, when lenders exceed the reasonable diligence time frames they are
required to document their servicing files and explain on their claim the
reason for exceeding time frames.
3) Can the loan be in foreclosure at the time of the loss mitigation review or does
Foreclosure have to be put on hold?
It is the same process as standard loss mitigation- complete the loss
mitigation review and, if approved, cancel the foreclosure.
4) If the loan is put on hold for review and ultimately foreclosure resumes, what
percentage of the original foreclosure fees and costs are claimable?
It is the standard percentage of up to 75% of foreclosure costs.
HH. Escrows
No questions at this time.
Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program,
and subsequent guidance
The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.
http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 17 of 18 as of January 28, 2010 (rev 4)
II. Unpaid Late Fees Waived
No questions at this time.
JJ. Credit Report
1) For current borrowers who have eminent default, are we suppose to block credit and
report them current during the trial plan?
No, report them as usual.
2) When the homeowner enters the 3 month Trial period should credit reporting be
blocked?
No, report them based on compliance with the contractual due date.
KK. Mortgagee Incentives
No questions at this time.
LL. Mortgagor Cash Contribution
1) The mortgage is 14 months delinquent. Could we capitalize the extra 2 months into
the modification so that we comply with the 12 month PITI delinquency cap?
No, the extra 2 months delinquency can neither be capitalized into the
modification, nor can it be a different component in the Partial Claim
mortgage. The borrower would need to pay down the delinquency on the
first mortgage to be within the 12 month cap –a mortgage payment is not a
cash contribution.
2) If the borrower does not contribute for costs associated with the Loan Modification,
are we allowed to include those in the Partial Claim?
Per ML 08-21, HUD allows for certain costs such as attorney fees and costs
to be included in a PC, late charges are not allowed.
MM. Disclosure
No questions at this time.
NN. Fair Lending
No questions at this time.
Questions and Answers: ML 09-23 / FHA-Home Affordable Modification Program,
and subsequent guidance
The following questions were received via hsg-lossmit@hud.gov and will be posted as submitted.
http://www.hud.gov/offices/hsg/sfh/nsc/ml0923qa.pdf Page 18 of 18 as of January 28, 2010 (rev 4)
OO. Consumer Inquiries and Complaints
No questions at this time.
PP. Case/Mortgage Documentation
No questions at this time.
QQ. Anti-Fraud Measures
No questions at this time.
RR. Data Collection
No questions at this time.
Revision History
08/12/2009 Initial Publication
08/14/2009 New sections J and K added, all subsequent sections re-lettered.
New questions/answers: F2, J1, S1, S2, Y4, Z1, CC1, JJ2, LL1,
Revisions to answers: AA1 and AA2
10/28/2009 New questions/answers: A5, F3, F4, J2, J3, W1, LL2
Modified questions/answers: A2, D15, EE4(1)(a)
Revisions to answers: A1, F2, I1, O1, V2
Reorganization: Z1 moved to AA4, M1 became M1a, b &c
01/22/2010 Revision to answer: A1
01/28/2010 Revision to answers: A3, D12, M2, U1, U5
Modified question/answer: U5
