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c. Title I Programs (11/07/2023)
i. Title I Insurance Authority
(A) Sponsor/Sponsored Third-Party Originator Relationship
(1) Definition
A Sponsor/Sponsored Third-Party Originator (TPO) Relationship is one in which a Title I Lender (acting as the “sponsor”) permits another entity to act as an originator and originate Title I-insured Direct Loans on behalf of the Lender.
(2) Standard
A Title I Lender may sponsor a TPO only in connection with the Direct Loan process.
The TPO may not be a Title I Manufactured Home Dealer or Title I Property Improvement Dealer, who are subject to requirements for supervision and monitoring.
A Title I Lender must ensure its sponsored TPO meets all state license, registration, or equivalent approval requirements.
A Title I Lender must ensure its sponsored TPO and the TPO’s officers, partners, directors, principals, managers, supervisors, loan processors, and loan originators are not ineligible under 24 CFR § 202.5(j).
A sponsored TPO is authorized to originate Loans for sale or transfer to a Title I approved Lender. A Title I approved Lender must ensure its sponsored TPO does not close Loans in their own name.
Exception for Title I Lenders Acting as a Sponsored Third-Party Originator
A Title I Lender may permit its sponsored TPO to close Loans in their own name if the TPO is also a Title I Lender.
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(3) Required Documentation
The Title I Lender reporting the Loan for insurance in FHAC must document the following information in the case binder:
• Employer Identification Number (EIN)
• Name of Sponsored TPO
• Loan Officer Name
• FHA Lender ID Number for TPO if also FHA Approved
(B) Direct Endorsement Authority for Property Improvement Loan
FHA’s Direct Endorsement delegated authority does not apply to the Title I Property Improvement Loan program.
Lenders originate Property Improvement Loans, and underwrite, close and disburse before reporting the Loan for Title I case number assignment and insurance. HUD does not require the Lender to submit loan documents to HUD prior to or at the time of reporting the Loan. Lenders submit loan documents only for claim filing or any Post-Endorsement Technical Review (PETR).
(1) FHA Lender Approval
A Lender must have FHA approval as a Title I Supervised, Nonsupervised, or Government Lender to be eligible to participate in the Title I program.
(2) Underwriter Qualifications
(a) Standard
The underwriter must be a full-time employee of the Lender.
The underwriter must be a reliable and responsible professional who is skilled in loan evaluation and is able to demonstrate knowledge and experience regarding principles of retail installment sales and loan underwriting.
(b) Required Documentation
The Lender is not required to register the underwriter for Title I Property Improvement Loans.
(C) Direct Endorsement Authority for Manufactured Home Loan
(1) Scope of Authority
Approval to participate in FHA’s Direct Endorsement Program permits a Lender to underwrite Title I Single Family Loans without FHA’s prior review and submit them directly for FHA insurance endorsement.
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(a) Definitions
(i) Conditional Direct Endorsement Authority
Conditional Direct Endorsement Authority is the authority of a Lender that has applied for and received basic FHA Lender approval as a Supervised, Nonsupervised, or Government Lender, and has not entered or completed the Test Case Phase.
Test Case Phase
The Test Case Phase is when a Lender must submit each case binder to HUD for a pre-closing review. If the Loan passes the review, HUD will issue permission to close the Loan. Once HUD determines that the Lender has sufficient competence, HUD will grant the Lender permission to close Loans without a pre-closing review. However, a minimum of 10 Loans must go through the pre-closing review process before HUD will waive the pre-closing review process.
(ii) Unconditional Direct Endorsement Authority
Unconditional Direct Endorsement Authority permits a Lender to underwrite and close Title I Loans prior to submitting them to FHA for FHA insurance endorsement.
(b) Standard
To obtain Unconditional Direct Endorsement authority, the Lender must successfully complete the Test Case Phase, which permits FHA to evaluate the Lender’s qualifications, experience, and expertise to underwrite Loans that satisfy FHA requirements.
(2) FHA Lender Approval
A Lender must have FHA approval as a Title I Supervised, Nonsupervised, or Government Lender to be eligible to participate in the DE Program.
Lenders approved as investing Lenders are not eligible to participate in the DE Program.
(3) Underwriter Qualifications
(a) Standard
The underwriter must be a full-time employee of the Lender.
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The underwriter must be a reliable and responsible professional who is skilled in loan evaluation and is able to demonstrate knowledge and experience regarding principles of retail installment sales and loan underwriting.
(b) Required Documentation
The Lender must register each underwriter in FHA Connection (FHAC). By registering the underwriter in FHAC, the Lender certifies that the underwriter meets the necessary qualifications to underwrite Title I Manufactured Home Loans.
(4) Exception for Certain Lenders Created by Merger, Acquisition, or
Reorganization
Unconditional Direct Endorsement authority may be granted without the need for the Test Case Phase to surviving FHA-approved Lenders or to new Lenders resulting in new FHA Lender IDs, so long as the following criteria are met:
• either or both institutions were unconditionally Direct Endorsement- approved prior to the merger, acquisition, or reorganization; and
• if both institutions are unconditionally Direct Endorsement-approved, then the management and staff of at least one of the Lenders involved with the Lender’s Unconditional Direct Endorsement authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Lender. If only one institution is unconditionally Direct Endorsement-approved, then the management and staff involved with that Lender’s Unconditional Direct Endorsement authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Lender.
(D) Application and Approval for Direct Endorsement Authority for
Manufactured Home Loans
(1) First-Time Applicants
(a) Application
(i) Request to Enter into the Test Case Phase
The Lender must submit a written application for Unconditional Direct Endorsement authority to the Financial Operations Center (FOC), Attention: Premiums (Title I Insurance Processing) Branch. To be approved to participate in FHA’s Title I Direct Endorsement Program, each Lender must satisfactorily underwrite sufficient pre-closing Test Cases, as prescribed by HUD.
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(ii) Required Documentation
To apply for Direct Endorsement Title I authority, the Lender must submit a letter to the FOC requesting entry into the Test Case Phase. The letter must contain the Lender’s home office address and 10-digit Lender ID and be signed by a Corporate Officer.
Test Case Phase
The Lender must submit at least 10 Title I Test Cases to the FOC for review and final approval before closing and disbursing loan funds.
The Lender must submit loan documentation to the attention of MH Pre- Closing Review at the FOC.
(b) Approval Decision
(i) Approval of Unconditional Direct Endorsement Authority
The FOC will review these cases for compliance with origination and underwriting requirements and issue a written approval or denial to the Lender.
The Lender may only close and submit for insurance endorsement any Loan that receives written approval.
HUD will approve the Lender for Unconditional Direct Endorsement when HUD determines that the Lender is consistently submitting Loans that satisfactorily meet Title I program requirements.
HUD will advise the Lender in writing when Unconditional Direct Endorsement approval is granted.
Direct Endorsement Processing
An Unconditional Direct Endorsement-approved Lender must continue to report each Loan to HUD by obtaining a Title I case number through FHAC. The Lender must also comply with HUD’s post-closing requirements, including completing the insurance application and submitting the case binder for pre-endorsement review.
Approval Limitations
HUD may revoke a Lender’s Unconditional Direct Endorsement approval, or limit the approval to certain types of Loans. (HUD may extend or revoke DE approval in whole or in part at any time.)
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(ii) Denial of Unconditional Direct Endorsement Authority
The Lender will be denied approval for Unconditional Direct Endorsement authority if, at any time during the Test Case Phase, FHA determines that the Lender’s submissions demonstrate a lack of knowledge of FHA requirements, or if FHA identifies unacceptable practices.
Denial Decision
FHA will provide the Lender with written notice of a denial of Unconditional Direct Endorsement authority that specifies the reason for the denial.
Denial Appeal
The Lender may appeal this denial by requesting an informal conference. The Lender must submit its appeal in writing to the FOC. The FOC must receive the appeal within 30 Days of the date of the notice of denial.
Informal Conference
FHA will conduct an informal conference with the Lender and its counsel, if any, no later than 60 Days from the date of the denial.
Determination
FHA will issue a determination in writing following the informal conference stating whether Unconditional Direct Endorsement authority is approved or denied. The decision after the conference constitutes final agency action.
(iii) Reapplication following Denial
Any Lender who is denied Unconditional Direct Endorsement authority will not be permitted to re-apply until it has:
• demonstrated appropriate remedial education or action;
• supplied evidence to support such action; and
• waited a minimum of 180 Days from the date of final agency action.
(2) Applications from Lenders Created by Merger, Acquisition, or
Reorganization
(a) Standard
The Lender must submit a written application for Unconditional Direct Endorsement authority to the FOC.
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(b) Required Documentation
The Lender’s Direct Endorsement application must contain the following:
• a letter signed by a Corporate Officer requesting Unconditional Direct Endorsement authority that specifies:
o the FHA-approved and non-approved entities involved in the
merger, acquisition, or reorganization;
o which entity is the surviving entity; and
o the effective date of the merger, acquisition, or reorganization; and
• supporting documentation evidencing that the Lender meets the exception criteria detailed above.