[Code of Federal Regulations]

[Title 24, Volume 2]

[Revised as of April 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR203.5]



[Page 148-149]

 

                 TITLE 24--HOUSING AND URBAN DEVELOPMENT

 

 CHAPTER II--OFFICE OF ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING 

        COMMISSIONER, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

 

PART 203_SINGLE FAMILY MORTGAGE INSURANCE--Table of Contents

 

     Subpart A_Eligibility Requirements and Underwriting Procedures

 

Sec.  203.5  Direct Endorsement process.



    (a) General. Under the Direct Endorsement program, the Secretary 

does not review applications for mortgage insurance before the mortgage 

is executed or issue conditional or firm commitments, except to the 

extent required by Sec.  203.3(b)(4), Sec.  203.3(d)(1), or as 

determined by the Secretary. Under this program, the mortgagee 

determines that the proposed mortgage is eligible for insurance under 

the applicable program regulations, and submits the required documents 

to the Secretary in accordance with the procedures set forth in Sec.  

203.255. This subpart provides that certain functions shall be performed 

by the Secretary (or Commissioner), but the Secretary may specify that a 

Direct Endorsement mortgagee shall perform such an action without 

specific involvement or approval by the Secretary, subject to statutory 

limitations. In each case, the Direct Endorsement mortgagee's 

performance is subject to pre-endorsement and post-endorsement review by 

the Secretary under Sec.  203.255 (c) and (e).

    (b) Eligible programs. (1) All single family mortgages authorized 

for insurance under the National Housing Act must be originated through 

the Direct Endorsement program, except the following:

    (i) Mortgages underwritten for insurance by mortgagees that have 

applied for participation in, and have been approved for, the Lender 

Insurance program;

    (ii) Mortgages authorized under sections 203(n), 203(p), 213(d), 

221(h), 221(i), 225, 233, 237, 809, or 810 of the National Housing Act, 

or any other insurance programs announced by Federal Register notice; or

    (iii) As provided in Sec.  203.1.



[[Page 149]]



    (2) The provision contained in Sec.  221.55 of this chapter 

regarding deferred sales to displaced families is not available in the 

Direct Endorsement program.

    (c) Underwriter due diligence. A Direct Endorsement mortgagee shall 

exercise the same level of care which it would exercise in obtaining and 

verifying information for a loan in which the mortgagee would be 

entirely dependent on the property as security to protect its 

investment. Mortgagee procedures that evidence such due diligence shall 

be incorporated as part of the quality control plan required under Sec.  

202.5(h) of this chapter. The Secretary shall publish guidelines for 

Direct Endorsement underwriting procedures in a handbook, which shall be 

provided to all mortgagees approved for the Direct Endorsement 

procedure. Compliance with these guidelines is deemed to be the minimum 

standard of due diligence in underwriting mortgages.

    (d) Mortgagor's income. The mortgagee shall evaluate the mortgagor's 

credit characteristics, adequacy and stability of income to meet the 

periodic payments under the mortgage and all other obligations, and the 

adequacy of the mortgagor's available assets to close the transaction, 

and render an underwriting decision in accordance with applicable 

regulations, policies and procedures.

    (e) Appraisal. (1) A mortgagee shall have the property appraised in 

accordance with such standards and requirements as the Secretary may 

prescribe. A mortgagee must select an appraiser whose name is on the FHA 

Appraiser Roster, in accordance with 24 CFR part 200, subpart G.

    (2) The mortgagee shall not discriminate on the basis of race, 

color, religion, national origin, sex, age, or disability in the 

selection of an appraiser.

    (3) A mortgagee and an appraiser must ensure that an appraisal and 

related documentation satisfy FHA appraisal requirements and both bear 

responsibility for the quality of the appraisal in satisfying such 

requirements. A Direct Endorsement Mortgagee (and any of its loan 

correspondent lenders) that submits, or causes to be submitted, an 

appraisal or related documentation that does not satisfy FHA 

requirements is subject to administrative sanction by the Mortgagee 

Review Board pursuant to 24 CFR part 25 and part 30.



[57 FR 58346, Dec. 9, 1992; 58 FR 13537, Mar. 12, 1993, as amended at 59 

FR 50463, Oct. 3, 1994; 60 FR 42759, Aug. 16, 1995; 61 FR 36263, July 9, 

1996; 62 FR 20088, Apr. 24, 1997; 62 FR 30226, June 2, 1997; 69 FR 

43509, July 20, 2004]