*The following email was sent to all FHA-approved Loan Correspondents confirming that the 2009 audits are not required to recertify:

Beginning January 1, 2011:

§       ALL loan correspondents will be considered third party originators (TPOs) and must be sponsored by FHA-approved mortgagees to participate in FHA programs.

II.    Net Worth Requirements

Effective May 20, 2010:

§       All new mortgagee applicants (considered non-small business approved lenders) for FHA approval 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; and

§       All new mortgagee applicants (considered small business approved lenders) for FHA approval shall have a net worth not less than $500,000, of which no less than 20 percent must be liquid assets consisting of cash or its equivalent.

Effective May 20, 2011:

§         All current FHA-approved mortgagees (considered non-small business approved lenders) 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; and

§         All current FHA-approved mortgagees (considered small business approved lenders) shall have a net worth not less than $500,000, of which no less than 20 percent must be liquid assets consisting of cash or its equivalent.

III. Access to FHA Connection

TPO’s may have indirect access to FHA Connection through the access permitted to their FHA-approved mortgagee.  Explained further 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,” click here.

IV.  Loan Correspondents Closing Mortgage Loans in Their Name

TPO’s 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.  Currently FHA-approved loan correspondents may continue to close FHA-insured mortgages in their own name through December 31, 2010.

V.     TPO’s and Origination of HECM

TPO’s are permitted to originate HECM loans or mortgages, and considered by HUD to be completely under the responsibility of their FHA-approved mortgagee sponsor.  HUD will look to FHA-approved sponsoring mortgagees to ensure that HECM mortgage 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.

VI.  FHA-approved Mortgagee Oversight of Sponsored TPOs

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.

(11) The Final Rule does not require FHA-approved mortgagees to hold audited financials for TPOs.