FHA Revises Procedures for Direct Endorsement Approval
December 14, 2016 FHA issued Mortgagee Letter 2016-21, Direct Endorsement Program—Timeframe for Conducting Pre-Endorsement Mortgage Reviews for Unconditional Direct Endorsement Authority. The purpose of the letter was to notify Mortgagees of the change in timeframe for pre-endorsement mortgage review during the test case phase of the Direct Endorsement Unconditional Authority process from pre-closing to post-closing, and update related guidance to associated policy and processes.
This guidance is effective for Mortgagees approved by HUD’s Homeownership Centers to enter the Direct Endorsement Unconditional Authority Test Case process on or after April 1, 2017. This guidance applies to all FHA Approved Title II Mortgagees applying for Direct Endorsement Unconditional Authority.
Background
FHA grants Mortgagees Unconditional Direct Endorsement (DE) authority to close mortgages without prior FHA approval in accordance with the terms and conditions of HUD’s regulations in 24 CFR § 203.3. Under the DE program, the Mortgagee underwrites and closes the mortgage without prior FHA review or approval. To obtain Unconditional DE authority, the Mortgagee must successfully complete the Test Case phase, which permits FHA to evaluate the Mortgagee’s qualifications, experience, and expertise to underwrite and close mortgages that satisfy FHA requirements.
At present, FHA generally conducts this review of the test case files prior to closing and, if acceptable, issues a commitment to the Mortgagee at that time. After closing, the closing package is then submitted to FHA for review of the closing documents and endorsement for insurance. While this is the general procedure utilized by Mortgagees seeking Unconditional DE approval, FHA currently allows Mortgagees to close the mortgages before submission for Test Case review. A Mortgagee is eligible for Unconditional DE authority once FHA has reviewed and found acceptable the requisite number of test case files, at either pre-closing or post-closing pre-endorsement review provided that the Mortgagee has met the other requirements for DE approval under 24 CFR § 203.3.
Federal Register Notice FR-5658-N-01, issued March 21, 2013, proposed moving the timeframe that FHA conducts its pre-endorsement review of mortgages originated by DE Mortgagees during the Test Case phase from pre-closing to post-closing. This Mortgagee Letter, in conjunction with Federal Register Notice FR-5658-N-02, issued December 14, 2016, implements the change in the pre-endorsement review timeframe from pre-closing to post-closing for mortgages originated by Mortgagees who receive a DE program Test Case phase approval letter from HUD’s Homeownership Center dated on or after April 1, 2017.
Please refer to additional important information published in Mortgagee Letter 2016-11 found here.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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