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                                           FHA Issues Extended Procedures:
                                         Terminating Underwriting Authority
                                                               and
                                  Our Solution to Excessive Defaults and Claims

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Overview

At present, HUD exercises its authority to terminate only the loan origination approval authority of a mortgagee. Effective immediately, HUD will systematically review all Direct Endorsement (DE) underwriting mortgagees' defaults (loans 90 or more days' delinquent) and claim rates on loans during the initial 24 months from the date of the commencement of the amortization. HUD, at its option, will exercise its authority to terminate the underwriting authority (Authority) of DE mortgagees with excessive default and claim rates.

HUD will notify the mortgagee, before terminating its Authority. The effect of termination of the Authority precludes the mortgagee from underwriting FHA-insured single family loans within the area of the HUD field office(s) listed in the notice. A terminated mortgagee may request to have its Authority reinstated no earlier than six (6) months after the effective date of the termination.

HUD will allow Loan Correspondents affected by the termination of a sponsoring mortgagee's Authority to have thirty (30) days to establish a new relationship with another FHA-approved mortgagee before terminating the Loan Correspondent's FHA Approval.
Highlights
 
Frequency and Scope of Reviews: Every three months, HUD will review the rate of defaults and claims on all FHA-insured single family loans. The review is limited to loans with an amortization commencement date within the preceding 24 months.

Unacceptable Results: HUD may terminate the Authority of any mortgage with compare ratios that exceed 200% within the preceding 24 months within the geographic area served by a HUD field office and also exceed the national default and claim rate.

Thresholds: HUD is now using specific thresholds, and a timetable, to implement the termination of Authority of any mortgagee whose default and claim rate exceeds both the national rate and 300% of the field office rate, with the first review period applying a threshold of 300% compare ratio. For evaluations after December 31, 2010, the threshold will remain constant at 200 percent.


   Threshold Timetable Chart

Our Solution to Reduce Compare Ratios
Excessive Defaults and Claims


Our "Task Force" operational unit is designed to reduce high
 Compare Ratios caused by excessive defaults and claims.


Task Force Description
  • Staffed with subject matter experts and skilled auditors
  • Specially designed checklists and automated file screening systems
  • State-of-the-art quality control, compliance, forensics, and modern research facility
  • Scalable up to virtually any size default and claims experience
  • Upload/download large file formats for prompt reviews
  • Located in a secured and safe audit location
Our Remedy
  • Comprehensive review of existing defaults and claims for loss mitigation  and loan modification eligibility
  • HUD-FHA and regulatory compliance guidance for the mortgagee
  • Notification to mortgagee of borrower's loss mitigation eligibility
  • Notification of loss mitigation eligibility to the borrower
  • Referrals to expert, nationwide legal counsel to handle loss mitigation and loan modification strategies
  • Monitoring of loss mitigation applications in process
  • Follow-up with servicers to assure proper and timely resolution and notification to HUD-FHA
  • On-going review and loss mitigation of new defaults and claims

Call Today: 516-442-3456
Ext: 204 "Task Force"

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Mortgagee Approval for Single Family Programs - Extended Procedures for Terminating Underwriting Authority - Mortgagee Letter 2010-03 (1/21/10)

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