The Federal Housing Administration (FHA)'s work volume has increased significantly since the sub-prime mortgage market collapse in 2007. FHA insurance programs help a similar demographic -- borrowers with low to moderate incomes, credit challenges and minimal down-payment funds. To meet the increased demand for FHA-insured loans and expedite underwriting, FHA designates certain participants as direct endorsement lenders.
FHA is an agency within the Department of Housing and Urban Development that insures loans made to borrowers who often have difficulty getting financing with conventional lenders. FHA insurance costs the borrower an additional annual fee, and it ensures the lender that HUD will reimburse its losses in the event of borrower default or foreclosure. A borrower may only obtain an FHA loan from a mortgage broker or lending institution previously approved by HUD to participate in its insurance programs.
FHA-approved lenders fund or originate a mortgage; then, HUD endorses it for FHA insurance soon afterward, if it meets all eligibility requirements. Direct endorsement authority is an additional approval that allows the lender to underwrite loans for one- to four-unit single-family homes and close it without prior review by HUD. Bypassing HUD's review simplifies the process, allowing a loan to close more quickly and efficiently. Unconditional DE authority is granted to the lender by a regional FHA Single-Family Homeownership Center (HOC).
The process for determining whether a loan qualifies for FHA insurance involves analysis of borrower credit, income and assets as well as the property that acts as security for the loan. The underwriter must review the appraisal inspection report completed by an FHA-approved appraiser, to ensure the home meets HUD's minimum standards for constructions, health, safety and marketability. The direct endorsement underwriter reviews the complete file for adherence to HUD guidelines as outlined in the appropriate lender handbook for the program.
Lenders seeking direct endorsement privileges must have demonstrated "qualifications, experience and expertise," HUD says. A direct endorsement lender meets and maintains credibility standards by approving only loans that fit HUD's guidelines. The lender's underwriter must successfully complete a direct endorsement training program, be employed by the lender full-time, and have at least three years of recent full-time experience reviewing credit applications and property appraisals. In general, the underwriter must be reliable, responsible, skilled and professional, HUD notes.
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