FHA Licensing Frequently Asked Questions

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The FHA lender approval regulations don’t list LLCs as an eligible business type, but does allow for the approval of “permanent organizations with succession.” FHA’s legal staff decided that an LLC could meet that requirement if the LLC’s Articles of Organization and/or Operating Agreement contained the following:

. Specify that the LLC consist of two or more members. A single member LLC is acceptable only if the member is a corporation consisting of two
. Specify a minimum term of existence of at least ten years in its Operating Agreement (can be a new LLC);
. Provide for succession;
. Authorize continuance in the event of the withdrawal or death of a member; and
. Specify that the LLC will not terminate until all FHA-insured mortgages have been transferred to another approved mortgagee.

See paragraph 2-2.C in Chapter 2 of the Title II Mortgagee Approval Handbook 4060.1, Rev-2 here for additional details.

A mortgagee seeking approval must be a corporation (including Subchapter S), partnership, other chartered institution, or a permanent organization having succession (typically LLCs who meet some additional criteria)

A sole proprietorship is not an acceptable business form for approval as a FHA mortgagee.

See paragraph 2-1 in Chapter 2 of the Title II Mortgagee Approval Handbook 4060.1, Rev-2 download here for additional details.

 

Supervised Loan Correspondent

Mortgage Brokers are no longer required to obtain approval directly from FHA. Contact an FHA Approved Lender for sponsorship.

Supervised Mortgagee Application Package Checklist

Chapter and Paragraph references in this checklist are to parts of the Title II Mortgagee Approval Handbook 4060.1, Rev-2

✔️ FHA Lender Approval Application Form 11701 completed online.

Common Errors in Mortgagee Application Form for Supervised Mortgagee Approval

Section A
✔️ Items 7, 8, 12 and/or 13 not filled in.
✔️ Item 14: Did not include SSN and TAX ID numbers which FHA uses to verify no officer or owner is debarred or suspended by any Federal government agency or has defaulted on any government assisted loan (includes FHA, VA and student loans) Paragraph 2 10
✔️ Item 14: Checked more than one officer in charge of day-to-day operations. Please check only one officer.

Section C
✔️ Item 5: Did not check box for supervised (not loan correspondent)
✔️ Items 9: or 11 not filled in
✔️ Item 10: If you only want to originate, only check boxes for Title I originations and/or Title II 1-4 Family Mortgages. If you want to also underwrite, service and/or own, check the service boxes. You can also check the multifamily boxes.

If only applying for Title I approval, please see the Title I Lender Approval Handbook 4700.2, Title I Letters 469, 478 and 2003-01

✔️ $1,000 Application Fee: Pay Online. Paragraph 2-7

✔️ State DBA Approval, If applicable (include copy of State certificate for use of the DBA, Fictitious or Assumed Name) Paragraphs 2-4 and 3-2(A)8

✔️ Copy of Fidelity Bond: $300,000 minimum covering applicant’s employees and agents. HUD does not have to be the beneficiary. Paragraph 3-2(A)10

✔️ Copy of Errors & Omissions Insurance: $300,000 minimum covering applicant’s employees and agents. HUD does not have to be the beneficiary. Paragraph 3-2(A)11

✔️ Quality Control Plan: Must be plan of applicant, tailored to applicant’s duties with regard to FHA loans. Detailed requirements are in Chapter 7 but it cannot be a copy of this chapter since it explains what the Quality Control Plan must cover and is a guide. Paragraphs 7-1 through 7-12, as appropriate

Submit the application online

The processing time for a complete application is 45-60 days depending on the number of other applications in the processing pipeline.

Nonsupervised Mortgagee (Full-Eagle) Application Package Checklist

Chapter and Paragraph references in this checklist are to parts of the Title II Mortgagee Approval Handbook 4060.1, Rev-2 Download Here

✔️ FHA Lender Approval Application Form 11701 to be completed online.

Section A
✔️ Items 7, 8, 12 and/or 13 not filled in.
✔️ Item 11: Did not check Mortgage Co./Finance Co. Box
✔️ Item 14: Did not include SSN and TAX ID numbers which FHA uses to verify no officer or owner is debarred or suspended by any Federal government agency or has defaulted on any government assisted loan (includes FHA, VA and student loans) Paragraph 2 10
✔️ Item 14: Checked more than one officer in charge of day-to-day operations. Please check only one officer.

Section C
✔️ Item 5: Did not check box for non-supervised (not loan correspondent)
✔️ Item 6: Did not check box for Mortgage Co./Finance Co.
✔️ Items 9: or 11 not filled in
✔️ Item 10: If you only want to originate, only check boxes for Title I originations and/or Title II 1-4 Family Mortgages.. If you want to also underwrite, service and/or own, check the service boxes. You can also check the multifamily boxes.

If only applying for Title I approval, please see the Title I Lender Approval Handbook 4700.2, Title I Letters 469, 478 and 2003-01 Download Here. For Title I there is no liquidity requirement.

✔️ $1,000 Application Fee: Pay Online

✔️ Copy of LLC Articles of Organization and Operating Agreement, if applicable: Must have 2 members, minimum 10 year term and provide for succession. Paragraphs 2-2(C) and 3-3(B)

✔️ Partnership Agreement Information, if applicable: Must include names and TAX IDs of general partners, names and SSNs of managing general partner’s officers and directors, evidence that principal business activity of managing general partner meets FHA requirements and minimum of 10 year term. Paragraphs 2-2(B) and 3-3(A)

✔️ State DBA Approval, If applicable: Include copy of State certificate for use of the DBA, Fictitious or Assumed Name. Paragraphs 2-4 and 3-2(A)8

✔️ Copy of State License or Registration or documentation that applicant is exempt from State license or registration. Paragraphs 2-3 and 3 2(A)7

✔️ Copy of Fidelity Bond : $300,000 minimum covering applicant’s employees and agents. HUD does not have to be the beneficiary. Paragraph 3-2(A)10

✔️ Copy of Errors & Omissions Insurance: $300,000 minimum covering applicant’s employees and agents. HUD does not have to be the beneficiary. Paragraph 3-2(A)11

✔️ Funding Program: Provide evidence of a minimum of $1 million of funding (a letter of credit is acceptable). Paragraphs 3-2(A)13a

✔️ Sanctions Letter: A certification by senior officer of applicant that neither the applicant, nor any of its officers or owners have been denied licensing nor been sanctioned, suspended or debarred by any Government or Regulatory Agency. Paragraphs 2-10 & 3-2(A)14

✔️ Commercial Credit or Dun & Bradstreet Business Report on Applicant: Include explanation of all negative items. Paragraph 3-2(A)4

✔️ Resume(s): Must show that one or more of the senior officer(s) of the applicant has at least 3 years experience in the mortgage operations that the applicant wishes to participate in. Paragraph 3-2(A)5

✔️ Credit Reports on Principals: Provide Tri-Merged or Residential Mortgage Credit Reports on all officers Vice President and above and any owners with 25% or more ownership. Provide written explanations for all negative items. Paragraph 3-2(A)4

✔️ Audited Financial Report: CPA issued GAAS audit less than 12 months old with net worth calculation of at least $1,000,000 with a minimum of 20% liquid assets) Paragraphs 2-5, 2-6 and 3-2(A)6

✔️ Office Facilities: Paragraphs 2-11(A) and 3-2(A)9

✔️ Pictures of office facilities (internal, external and signage)

✔️ A floor plan (may be hand drawn)

✔️ Certification by applicant that its facilities meet FHA requirements. Office must be in separate commercial space.

✔️ Quality Control Plan: Must be plan of applicant, tailored to applicant’s duties with regard to FHA loans. Detailed requirements are in Chapter 7 but it cannot be a copy of this chapter since it explains what the Quality Control Plan must cover and is a guide. Paragraphs 7-1 through 7-12, as appropriate

Submit the application form and its required exhibits online.

See FHA Title II Mortgagee Approval Handbook 4060.1, Rev-2 at:

The processing time for a complete application is 45-60 days depending on the number of other applications in the processing pipeline.

Nonsupervised Loan Correspondent (Mini-Eagle)

Mortgage Brokers are no longer required to be approved directly with FHA. Obtain sponsorship from an FHA Approved Lender (Full-Eagle)

Any company that wants to originate, underwrite, fund, service or own FHA loans must have its own approval. It cannot use another company’s approval including any related companies.

Types of Approved Mortgagees: FHA classifies approved mortgagees based on the functions they will perform, type of organization, type of supervisory agency, and net worth.

Supervised Mortgagee: Financial institutions that are members of the Federal Reserve System, and financial institutions whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC), or the National Credit Union Administration (NCUA). Examples of supervised mortgagees are banks, savings associations, and credit unions. These mortgagees can originate, underwrite, fund, service and/or hold FHA insured loans.

Nonsupervised Mortgagee: Nondepository financial entities that have as their principal activity the origination, underwriting, funding, servicing and/or holding of real estate mortgages. They are commonly known as mortgage bankers, correspondent lenders or mortgage lenders in the industry.

Investing Mortgagee: An organization, including a charitable or not-for-profit institution or pension fund, which only wants to own FHA insured mortgages that it purchases with its own funds.

Governmental Mortgagee: A governmental agency may be approved as a mortgagee and do any of the lender functions of a FHA approved mortgagee.

Please see paragraph 1-2 in Chapter 1 of the FHA Title II Mortgagee Approval Handbook 4060.1, Rev-2

Mortgage Brokers do not need to be approved.
Obtain Sponsorship from an FHA Approved Lender

Mortgage Lenders, Mortgage Bankers and Correspondent Lenders can apply to be a:
Nonsupervised Mortgagee
Investing Mortgagee

Banks, Savings & Loans can apply to be a:
Supervised Mortgagee
Investing Mortgagee

Local, State and Federal Agencies can apply to be a:
Government Mortgagee
Investing Mortgagee

All Mortgagee approvals (except Investing) allow the lender to originate, underwrite, service and holds Title II Single Family, Title II Multifamily and/or Title I loans.

If you want to apply for both Title II and Title I loan programs, you will receive two FHA Lender ID numbers, one for Title II and a second for Title I

FHA Loan Programs:
Title II Single Family (203b, 203k Rehab, 234c Condo, HECM Reverse Mortgage)
Title II Multifamily (Rental Housing, Nursing Homes and Hospitals.)
Title I (Manufactured Home and Property Improvement Loans

Yes as long as the meet the “principal activity” part of the definition of a nonsupervised lender and their loan officers who plan to originate FHA loans do not have outside employment in the real estate industry.

Principal Activity: The FHA definitions of nonsupervised lenders are as follows:

Nonsupervised Mortgagee: Nondepository financial entities that have as their principal activity the origination, underwriting, funding, servicing and/or holding of real estate mortgages. They are commonly known as mortgage bankers, correspondent lenders or mortgage lenders in the industry

Nonsupervised Loan Correspondent: Nondepository financial entities that have as their principal activity the origination of real estate mortgages. They are commonly known as mortgage brokers in the industry. They must sale or transfer their FHA originations to the FHA approved mortgagee who underwrote the loan and can have multiple mortgagees that underwrite their loans. These underwriting mortgagees are referred to as “sponsors” in the FHA loan programs and are also known as DE mortgagees.
These definitions are in paragraph 1-2 in Chapter 1 of the FHA Title II Mortgagee Approval Handbook 4060.1, Rev-2.

Compliance with the principal activity requirement is determined by gross income. At least 50% of a company’s gross income comes from its mortgage business. This includes any type of mortgages. When a company is new, this calculation can’t be made, but it is made for all nonsupervised lenders as part of the FHA lender annual renewal process.

Please see FAQ #21 below on employment restrictions on staff of a FHA approved lender.

Mortgage Lenders must hold an FHA Lender Approval in order to underwrite, close, or fund a mortgage loan. The FHA loan origination process has 5 components: (1) taking a FHA loan application, (2) processing it, (3) underwriting it, (4) closing it and (5) funding the mortgage.

Mortgage Brokers do not need an FHA Lender Approval. A mortgage broker can take an application and process it, but an FHA Approved Lender must underwrite, close, and fund the mortgage.

There are two recently issued mortgagee letters concerning non-FHA approved mortgage brokers. They are ML 08-14 and 08-17.

Any company that wants to originate, underwrite, fund, service or own FHA loans must have its own approval. It cannot use another company’s approval including any related companies.

Originations: Any lender approved by FHA to originate FHA Insured Title II Single Family loans can originate any type of FHA Title II Single Family Loan, including HECMs and 203Ks.

Underwriting: A mortgagee must obtain specific DE approval from their appropriate Single Family Homeownership Center to underwrite FHA Single Family loans and an additional approval to underwrite HECM and/or 203k loans.

Servicing: Any FHA approved mortgagee can service FHA Insured Single Family loans (including HECM and/or 203k loans) see paragraph 2-20 of paragraph 1-2 B. of HUD Handbook 4060.1, Rev-2 Title II Mortgagee Approval Handbook 4060.1, Rev-2

The FHA Resource Center helps consumers and industry members with their questions. You can email the Resource Center at hud@custhelp.com or call them Monday-Friday, 8 am to 8 pm ET at 800-CALLFHA or 800-225-5342.

A supervised lender is a financial institution that is a member of the Federal Reserve System, or a financial institution whose accounts are insured by the Federal Deposit Insurance Corporation (FDIC), or the National Credit Union Administration (NCUA). Examples of supervised mortgagees are banks, savings associations, and credit unions. FHA approval only applies to the legal entity that is the actual applicant and does not cover any subsidiaries or affiliates.
A non-supervised lender is a company which does not qualify as supervised lender and whose principal activity is mortgage brokering or lending. Principal activity means more than half of the company’s gross income is from their mortgage operations. Mortgage brokers apply for non-supervised loan correspondent approval. Correspondent lenders and mortgage lenders apply for non-supervised mortgagee approval.

A mortgagee can originate, underwrite, fund, service and/or own FHA insured loans. In addition, mortgagees can obtain supplemental approval as a Direct Endorsement (DE) mortgagee and Lender Insurance (LI) mortgagee for FHA single family loans and a Mutifamily Accelerated Processing (MAP) mortgagee for FHA multifamily loans. Mortgagees are also known as Full-Eagles because they can do any lender function on a FHA loans. States typically license non-supervised mortgagees as mortgage lenders. Some States have a correspondent lender’s license which allows a non-supervised mortgagee to originate, underwrite and fund mortgages but not service or own them. FHA mortgagees who are banks are considered supervised mortgagees.

HUD no longer approves loan correspondents (mini-eagles). Mortgage Brokers no longer need an approval from HUD. Mortgage Brokers can only originate loans that are underwritten by their sponsoring DE mortgagee. They can’t underwrite, own, close in their name, or service FHA insured loans.

Please see paragraph 1-2 in Chapter 1 of the FHA Title II Mortgagee Approval Handbook 4060.1, Rev-2

Title II approved lenders can participate as a lender in the FHA Title II loan programs, such as 203(b), 203(k), HEMCs, Condos and Multifamily. Title I approved lenders can participate as a lender in the two FHA Title I loan programs, — the property improvement loan program (2nd mortgages) and the manufactured housing (mobile) home program (where the home is classified as personal property).

Click Here for descriptions of the various Title II Single Family and Title I loan programs.