What types of business forms can be FHA approved as a mortgagee?

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.