[Federal Register Volume 78, Number 55 (Thursday, March 21, 2013)]
[Proposed Rules]
[Pages 17303-17304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06110]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-5658-N-01]


Federal Housing Administration (FHA): Direct Endorsement Program 
Solicitation of Comment on Timeframe for Conducting Pre-Endorsement 
Review

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Request for comments.

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SUMMARY: HUD is seeking comment on moving the timeframe that FHA 
conducts its pre-endorsement review of loans originated by Direct 
Endorsement lenders from a time that is prior to the lender closing 
each loan and before FHA's endorsement of the mortgage for insurance to 
a period after the loan has been closed. Comment is sought on whether 
this shift in time, as further described in this document, would reduce 
the processing time before the loans may be closed, and facilitate loan 
closing.

DATES: Comment Due Date. April 22, 2013.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 451 
7th Street SW., Room 10276, Department of Housing and Urban 
Development, Washington, DC 20410-0500. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
notice.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m., Eastern Time, 
weekdays at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled by calling the Regulations Division at 202-
708-3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number through TTY by calling the 
Federal Relay Service at 800-877-8339 (this is a toll-free number). 
Copies of all comments submitted are available for inspection and 
downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Joy Hadley, Director, Office of Lender 
Activities and Program Compliance, Office of Housing, U.S. Department 
of Housing and Urban Development, 490 L'Enfant Plaza East SW., Room 
P3214, Washington, DC 20024-8000; telephone number 202-708-1515 (this 
is not a toll-free number). Persons with hearing or speech impairments 
may access this number through TTY by calling the toll-free Federal 
Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    FHA grants lenders unconditional Direct Endorsement authority to 
close loans without prior FHA approval in accordance with the terms and 
conditions of HUD's regulations in 24 CFR 203.3. Under the Direct 
Endorsement program, the lender underwrites and closes the mortgage 
loan without prior FHA review or approval. Before being granted 
unconditional Direct Endorsement authority, the lender must submit a 
specified number of loan files for review and approval by FHA as 
described in 24 CFR 203.3(b)(4). The regulations provide for the review 
of each loan file to be conducted by FHA, and the lender to be notified 
of the acceptability of the mortgage, prior to FHA endorsement of the 
mortgage for insurance. The Direct Endorsement program has been 
designed to give the lender sufficient certainty of FHA endorsement 
requirements to justify the assumption of the responsibilities involved 
in originating and closing mortgage loans without prior FHA review.
    At present, FHA generally conducts this review of the loan files 
required under 24 CFR 203.3(b)(4) prior to closing and, if acceptable, 
issues a commitment to the lender at that time. After closing, the 
mortgage is then submitted to FHA for endorsement for insurance. While 
this is the general procedure utilized by lenders seeking unconditional 
Direct Endorsement approval, FHA currently allows lenders to close the 
loans before submission for review. A lender is eligible for 
unconditional Direct Endorsement authority once FHA has reviewed and 
found acceptable the requisite number of loan files, at either pre-
closing or pre-endorsement review, provided that the lender has met the 
other requirements for Direct Endorsement approval under 24 CFR 203.3.

II. This Request for Comments

Proposed Transition of FHA's Review to Post-Closing, Pre-Endorsement

    Through this document FHA proposes for consideration and public 
comment shifting the timeframe for FHA's review of loans prior to 
endorsement from pre-closing to post-closing. FHA proposes that a 
lender applying for unconditional Direct Endorsement authority submit 
the loan files required under 24 CFR 203.3(b)(4) only after closing. 
After determining that the mortgage is acceptable and meets all FHA 
requirements, FHA will notify the lender that the loan has been 
endorsed.
    Feedback is sought on whether the proposed change in review time 
would benefit the lender by reducing the amount of time between loan 
origination and closing, and would result in operational savings of 
time and costs associated with approval timeframes, which FHA 
recognizes can be lengthy at times. Feedback is also sought on whether 
the proposed change in review time would benefit the borrower; that is, 
would the borrower be able to take advantage of shorter interest rate 
lock-in periods, which could help to ensure that the borrower receives 
the

[[Page 17304]]

best interest rate available at the lowest possible cost to the 
borrower.
    The proposed change in review time should not alter the current 
quality of review of the loan file or the quality of the Direct 
Endorsement lender approval process. FHA guidance, issued in accordance 
with 24 CFR 203.3(b)(2), already requires the lender to certify that 
their underwriter(s) have the qualifications, expertise, and experience 
to underwrite mortgage loans in accordance with FHA requirements. Given 
the certification required of lenders, the shift in the timeframe for 
review may in fact result in enhanced lender accountability; that is, 
the lender will place more emphasis on ensuring that their underwriting 
staff is sufficiently trained prior to requesting Direct Endorsement 
authority. Properly trained underwriters will help to increase the 
number of loans that are found to be acceptable, resulting in an even 
higher percentage of loan files that meet FHA policies and guidelines.
    FHA analyzed data for mortgage loans that were submitted for review 
during the period beginning October 1, 2009 through June 30, 2012. The 
data demonstrated that 86.7 percent of all loans reviewed during this 
time period, and 90.5 percent of all loans reviewed year to date in FY 
2012, were found to meet FHA policies and guidelines and were 
subsequently endorsed. In addition, of the lenders entering the Direct 
Endorsement review process during the October 1, 2009 through June 30, 
2012 timeframe, 48.6 percent did not receive an unacceptable rating on 
any loan submitted for review, while 28 percent of lenders had only one 
loan rated unacceptable and 10.9 percent of lenders had two loans rated 
unacceptable. Overall, 87.4 percent of lenders had two or fewer loans 
rated unacceptable. Currently, in FY 2012, the percentage of lenders 
with two or fewer loans rated unacceptable has increased to 93.3 
percent and is expected to continue to improve.
    When material violations of FHA policies and procedures are 
uncovered during the loan file review, FHA will notify the lender that 
a preliminary assessment, based on file documentation, indicates that 
the loan contains material findings such that FHA is exposed to an 
unacceptable level of risk. FHA will provide the lender with an 
opportunity to present missing information or documentation to address 
the review findings and permit subsequent submission for endorsement. 
As is the current practice, if the lender is unable to adequately 
respond (or fails to respond) to the material findings, FHA will notify 
the lender that the loan is not eligible for endorsement.
    The lender will have satisfied the pre-endorsement review 
requirements necessary to be approved for unconditional Direct 
Endorsement authority once FHA has reviewed and found acceptable the 
requisite number of loan files pursuant to 24 CFR 203.3(b)(4).

III. Solicitation of Comment

    Comment is solicited on the proposed shift in the timeframe for 
conducting its pre-endorsement review of the loans originated by 
prospective Direct Endorsement lenders from prior to the lender closing 
each loan to before FHA's endorsement of the mortgage for insurance. 
Comment is also solicited on other proposals that would reduce the 
processing time and facilitate loan closing.

    Dated: March 12, 2013.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2013-06110 Filed 3-20-13; 8:45 am]
BILLING CODE 4210-67-P