HUD Publishes Final Rule on FHA Single Family Lender Insurer Process

Posted on January 26th, 2012 in Federal Issues, Mortgages By BuckleySandler

On January 24, the Department of Housing and Urban Development (HUD) published a final rule to enhance the Federal Housing Administration (FHA) Lender Insurance process. Under the final rule, (i) Lender Insurance mortgagees (mortgagees who have authority to insure mortgages on HUD’s behalf) must meet stricter performance standards to gain and maintain their approval status as an entity that can insure mortgages on HUD’s behalf; (ii) HUD may require indemnification for “serious and material” violations of FHA origination requirements and for fraud and misrepresentation; (iii) Lender Insurance mortgagees must demonstrate a two-year seriously delinquent and claim rate at or below 150 percent of the aggregate rate for the states in which they operate; (iv) FHA may monitor lender performance on an ongoing basis, and (v) HUD-approved lenders created through corporate restructuring have a new process for seeking Lender Insurance authority. The final rule follows an October 2010 proposed rule (see InfoBytes, October 15, 2010), and makes certain changes to the proposal including to (i) clarify that HUD reviews of Lender Insurance mortgagee performance will be “ongoing”, as opposed to “continual”; (ii) require indemnification of HUD when the mortgagee “knew or should have known” that fraud or misrepresentation occurred; (iii) clarify that automatic termination of Lender Insurance authority can result only from institutional and not branch activity; and (iv) provide a reinstatement process closely modeled on the existing reinstatement process regarding origination approval agreements or Direct Endorsement authority.