Module 2C2: FHA Condo Approval Mortgagee DELRAP Authority - - PowerPoint PPT Presentation

Module 2C2: FHA Condo Approval – Mortgagee DELRAP Authority Requirements

Presenter: Dorian Humphrey

As of the most recent update: August 14, 2019

Single Family Housing Policy Handbook 4000.1

The information in this document is current as of the most recent update noted on this cover page. This document does not establish or modify the policy contained in FHA’s Handbooks or Mortgagee Letters in any way. .

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• The purpose of this presentation is to provide an overview and summary of recent

changes to the Federal Housing Administration (FHA) policy. It introduces and explains official policy issued in Department of Housing and Urban Development (HUD) Handbooks and Mortgagee Letters. If you find a discrepancy between the presentation and Handbooks, Mortgagee Letters, etc., the official policies prevail. Please note, the information provided in this training is subject to change.

• Please consult HUD Handbooks and Mortgagee Letters through HUDCLIPS for

the most recent updates and current policy.

Disclaimer

Learning Agenda

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Part 2: Quality Control, Oversight and Compliance Overview of Changes Part 1: Mortgagee DELRAP Authority Requirements

Overview of Changes

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• On July 29, 2016, President Obama signed into law the Housing Opportunity

Through Modernization Act of 2016 (HOTMA). HOTMA amends the United States Housing Act of 1937 (1937 Act) and other housing laws to modify multiple HUD programs, along with the Department of Agriculture’s Single Family Housing Guaranteed Loan Program.

Housing Opportunity Through Modernization Act

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• Section 301 mandates several changes to FHA’s mortgage insurance for

condominiums, including changes to:

– Requirements on project recertification; – Exceptions to the percentage of floor space that may be used for nonresidential or commercial purposes; – Private transfer fee covenants; and – The minimum required percentage of units that must be owner occupied.

HOTMA – Section 301

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ML 09-46A & 09-46B ML 11-03 ML 11-22 ML 12-18 ML 15-27 ML 16-13 ML 16-15 ML 17-13 4000.1 II.C Condominium Project Approval

HUD Policy

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• The structure follows the logical process flow for

stakeholders.

• The five major sections are:

I. Doing Business with FHA II. Origination through Post-Closing/Endorsement III. Servicing and Loss Mitigation IV. Claims and Disposition V. Quality Control, Oversight, and Compliance

Single Family Housing Policy Handbook 4000.1 Overview

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Glossary Terms

Capitalized words in this module can be found in the SF Handbook glossary.

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Handbook Topics

• I. Doing Business with FHA
• A. FHA Lenders and Mortgagees
• V. Quality Control and Oversight
• A. Quality Control of Lenders and Mortgagees
• C. Mortgagee Monitoring
• E. Enforcement

Part 1: Mortgagee DELRAP Authority Requirements

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Approval to participate in the Direct Endorsement Lender Review and Approval Process (DELRAP) gives a Mortgagee the authority to review, approve, and submit Condominium Projects for listing on FHA’s Approved Condominium Project list. Types of DELRAP authority:

DELRAP Mortgagee Authority Requirements

Conditional Authority Unconditional Authority

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Conditional DELRAP Authority refers to the authority of a Mortgagee that has provided notice to FHA of its intent to participate in DELRAP and requires the Mortgagee to submit all Condominium Project Approvals to FHA for review. Unconditional DELRAP Authority refers to the authority of a Mortgagee to approve Condominium Projects in accordance with HUD requirements and submit the Condominium Projects for listing on FHA’s Approved Condominium Project list without any prior Condominium Project review by FHA.

DELRAP Mortgagee Authority Requirements (cont.)

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DELRAP Test Case Phase

The DELRAP Test Case Phase refers to the time period in which a Mortgagee with Conditional DELRAP Authority is required to submit Condominium Project Approvals to FHA for review.

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A Mortgagee must meet the following requirements to apply for and participate in FHA's DELRAP.

DELRAP Mortgagee Authority Requirements (cont.)

FHA Title II Unconditional Direct Endorsement (DE) Approved Mortgagee Experience Quality Control Plan Personnel Requirements

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DELRAP Mortgagee Authority Requirements (cont.)

The Mortgagee must currently be a Title II Direct Endorsement (DE) approved Lender.

FHA Title II Unconditional Direct Endorsement (DE) Approved:

The Mortgagee’s experience must include loan originations of not less than 10 FHA Mortgages in Condominium Projects that have been approved by the Commissioner.

Mortgagee Experience:

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DELRAP Mortgagee Authority Requirements (cont.)

• The Mortgagee must document they have at least one staff member with a minimum of
• ne year of experience underwriting Mortgages on Condominium Units and/or

reviewing Condominium Projects for FHA approval:

• Must ensure staff members participating in the approval of Condominium Projects

either:

▪ Meet the Experience requirement; or ▪ Are supervised by staff that meet the one-year experience requirement. ▪ Exceptions apply to certain Mortgagees created by merger, acquisition, or reorganization.

Personnel Requirements:

The Mortgagee’s Quality Control Plan must include specific provisions related to DELRAP.

Quality Control Plan:

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Unconditional DELRAP Authority may be granted without the need for the DELRAP Test Case Phase following a merger, acquisition, or reorganization, provided that:

Exceptions for Certain Mortgagees

The surviving FHA-approved Mortgagee or the FHA-approved Mortgagee resulting in a new FHA Lender ID was granted Unconditional DELRAP Authority prior to the merger, acquisition, or reorganization.

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Second Condition:

Exceptions for Certain Mortgagees (cont.)

If both institutions have Unconditional DELRAP Authority, then the management and staff of at least one of the Mortgagees involved with the Mortgagee’s Unconditional DELRAP Authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Mortgagee.

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Third Condition:

Exceptions for Certain Mortgagees (cont.)

If only one institution has Unconditional DELRAP Authority, then the management and staff involved with that Mortgagee’s Unconditional DELRAP Authority prior to the merger, acquisition, or reorganization must continue to exercise those responsibilities for the new Mortgagee.

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First-time Mortgagee applicants must apply for Unconditional DELRAP Authority to the Jurisdictional Homeownership Center (HOC) for the state where the Mortgagee’s home office is located.

DELRAP Application and Approval

HUD Homeownership Centers (HOCs)

HOCs Areas Served

Atlanta Alabama Caribbean Florida Georgia Illinois Indiana Kentucky Mississippi North Carolina South Carolina Tennessee Denver Arkansas Colorado Iowa Kansas Louisiana Minnesota Missouri Montana New Mexico Nebraska North Dakota Oklahoma South Dakota Texas Utah Wisconsin Wyoming Philadelphia Connecticut Delaware District of Columbia Maine Maryland Massachusetts Michigan New Hampshire New Jersey New York Ohio Pennsylvania Rhode Island Vermont Virginia West Virginia Santa Ana Alaska Arizona California Hawaii Idaho Nevada Oregon Washington

DELRAP Application and Approval (cont.)

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DELRAP Application and Approval (cont.)

Required Documentation

The Mortgagee must submit a letter signed by a Corporate Officer requesting entry into the DELRAP Test Case Phase that:

• Specifies the Mortgagee’s home office 10-digit FHA Lender ID; and
• Certifies that the staff has met the eligibility requirements prior to Conditional or

Unconditional DELRAP Authority being granted.

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Test Case Process: Mortgagees with Conditional DELRAP Authority must review the Condominium Project in accordance with the Condominium Project Approval requirements to determine if the Condominium Project meets FHA approval requirements.

DELRAP Application and Approval (cont.)

T e s t C a s e S u b m i s s i

• n

R e q u i r e m e n t s :

The Mortgagee must submit all Test Cases to the Jurisdictional HOC. FHA will review these Test Cases for compliance with FHA’s Condominium Project Approval requirements.

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Approval of Unconditional DELRAP Authority

The Mortgagee must satisfactorily complete a minimum

• f five (5) DELRAP

reviews with no more than one review being rated unacceptable. The Jurisdictional HOC may require less than five DELRAP reviews and will consider previous experience. Test Cases must be submitted within a period of 12 consecutive months following the date of application.

DELRAP Reviews Previous Experience Test Cases

The Mortgagee will be denied approval for Unconditional DELRAP Authority if, at any time during the DELRAP Test Case Phase, FHA determines that the Mortgagee’s submissions demonstrate a lack of knowledge of FHA requirements, or FHA identifies unacceptable practices.

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Denial of Unconditional DELRAP Authority

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Denial Decision Denial Appeal Informal Conference Determination

Denial of Unconditional DELRAP Authority (cont.)

Denial of Unconditional DELRAP Authority Process

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Reapplication Following Denial

If Unconditional DELRAP Authority is denied, the applicant is ineligible to apply for DELRAP authority for a period of 12 months after the date of the

• riginal denial decision or the date of the informal

conference sustaining the denial decision.

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The Mortgagee must submit a letter signed by a Corporate Officer requesting Unconditional DELRAP Authority that specifies:

Applications from Mortgagees Created by Merger, Acquisition, or Reorganization

The FHA-approved and non-approved Entities involved in the merger, acquisition, or reorganization; Which Entity is the surviving Entity; The effective date of the merger, acquisition, or reorganization; and Supporting documentation evidencing that the Mortgagee meets the exception criteria.

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• A Mortgagee approved for Conditional DELRAP

Authority or Unconditional DELRAP Authority must register and maintain all Mortgagee employees designated to review/approve Condominium Projects in the Condominium Reviewer Registry function in FHAC.

Post-Approval Requirements: FHAC Authorization

FHAC Authorization

• Mortgagee may use their Unconditional DELRAP Authority for:

Unconditional DELRAP Authority Provisions

Full Review Recertification Review Phasing Review

• Refers to the verification

and analysis of all required Condominium Project Approval documentation.

• Never approved by FHA
• r condominium project

approval expired for over 6 months.

• Refers to the verification

and analysis of updated Condominium Project Approval documentation.

• Performed no earlier than

6 months from expiration up to 6 months after expiration of condominium approval.

• Refers to the review of

an additional Legal Phase of a previously Approved Condominium Project.

• Must be completed by

the Same Mortgagee that previously approved the Condominium Project.

* The Recertification Review or Phasing Review must be completed by the same Mortgagee that previously approved the Condominium Project.*

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DELRAP Authority Options

A Mortgagee with DELRAP authority may submit a Condominium Project for approval under HUD Review and Approval Process (HRAP). However, if the Mortgagee starts a review for a Condominium Project, the Mortgagee must complete the review.

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HUD Review and Approval Process

HRAP may be used for Full Review, Recertification Review,

• r Phasing Review.

HRAP must be used for newly converted Condominium Projects, Manufactured Home Condominium Projects

• r any projects that have

completed a Resolution

• f Financial Distress

Event within the past 36 months.

MAY be used MUST be used

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HUD Review and Approval Process (cont.)

Requests for Condominium Project Approval 
 can only come from:

Mortgagee; Builder or developer; The Condominium Association (HOA); A management company; A project consultant; or An attorney acting as an agent for the developer/builder, Condominium Association or a management company.

Part 2: Quality Control, Oversight and Compliance

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Definition:

• Loan Administration refers to all aspects of the FHA mortgage lifecycle, including
• rigination, underwriting, closing, endorsement, and servicing of FHA-insured

Mortgages that are governed by FHA policies and procedures. Loan Administration includes the approval of a Condominium Project.

Loan Administration

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Who May Perform Quality Control

The Mortgagee may use employees and/or contractors to perform Quality Control (QC) functions.

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Employees

The Mortgagee is responsible for providing proper training of DELRAP requirements to its staff members. The Mortgagee must ensure that employees who perform QC Program functions on behalf of the Mortgagee do not participate in any of the Loan Administration or Condominium Project Approval processes represented in the QC Plan; and The Mortgagee must ensure QC employees are not within any chain of reporting or management that is directly connected to Loan Administration staff.

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The Mortgagee may contract with outside vendors to perform QC functions if:

Contractors

The Mortgagee assumes full responsibility for the contractor’s conduct of QC reviews in compliance with FHA requirements; and The Mortgagee and the contractor have a valid contractual agreement in place that specifies the roles and responsibilities

• f each party.

The Mortgagee is also accountable for ensuring that contracted employees who perform QC functions do not participate in any of the Loan Administration or Condominium Project Approval processes that are represented in the Mortgagee’s QC plan.

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In addition:

Contractors (cont.)

The Mortgagee acknowledges that the existence of such contract for the provision of QC services does not satisfy the Mortgagee’s obligation to have a written QC Plan that fully complies with FHA requirements.

• Loan Administration and Quality Control Processes

– The Mortgagee must train all staff involved in FHA Loan Administration and QC processes to ensure that staff know all current requirements for the FHA Loan Administration practices for which the Mortgagee is responsible. – The Mortgagee must maintain a list of all training provided to

• staff. For each training, the Mortgagee must include a

summary of the content covered.

Operational Compliance - Training

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To ensure FHA requirements are being met, FHA will conduct Mortgagee compliance reviews.

• Periodic Reviews: Monitoring of the work

performed by DELRAP Mortgagees to ensure compliance with FHA requirements.

• Post-Action Reviews: Evaluation of

submitted Unconditional DELRAP Authority packages.

DELRAP Mortgagee Monitoring

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FHA reserves the right to take appropriate action, including termination, of any DELRAP Mortgagee that does not abide by HUD’s requirements.

Enforcement and Adverse Actions

Adverse Actions:

The loss of Unconditional Direct Endorsement (DE) Authority.

Reinstatement:

A Mortgagee may request reinstatement of the Mortgagee’s DELRAP authority.

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Notice Appeal Informal Conference Determination

Loss of Unconditional DELRAP Authority

Loss of Unconditional DELRAP Authority Process

Waiting Period

A Mortgagee may request reinstatement of the Mortgagee’s DELRAP authority no earlier than six months after the date of the termination notice.

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Reinstatement of DELRAP authority

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The application for reinstatement is submitted to the appropriate HOC using the DELRAP authority Application and Approval Process. The Mortgagee must:

Reinstatement of DELRAP authority (cont.)

Meet the eligibility requirements for DELRAP authority; Submit a corrective action plan; and Provide evidence that the Mortgagee has implemented the 
 corrective action plan and that the underlying causes for 
 termination have been satisfactorily remedied.

• The Mortgagee Review Board (MRB) is authorized to impose

civil money penalties and take administrative action against any FHA-approved Mortgagee that does not comply with HUD and FHA statutory, regulatory, and any Handbook requirements, the Real Estate Settlement Procedures Act (RESPA), or the non- discrimination requirements of the ECOA, the Fair Housing Act,

• r Executive Order 11063 on Equal Opportunity in Housing.

Mortgagee Review Board Actions and Sanctions

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During this module, we reviewed:

• Participation Requirements for DELRAP

Mortgagee Authority

• Test Case Phase Requirements
• Post Approval Requirements
• Reapplication Requirements
• Overview of FHA Quality Control Requirements

Summary

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• SF Handbook Information:

https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1

• FHA Webinar Archive:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/events/sfh_webinars

• Subscribe to FHA INFO:

https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/FHA_INFO_subscribe

Helpful Links

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Option Point of Contact Hours Available Comments

FHA Knowledge Base – FAQs www.hud.gov/answers 24/7/365 Knowledge Base web page includes option to email questions. Email answers@hud.gov 24/7/365 Telephone 1-800-CALL-FHA (1-800-225-5342)

Persons with hearing or speech impairments may reach this number by calling the Federal Relay Service at 1-800-877-8339.

8:00 AM to 8:00 PM Eastern M-F Voicemail is available after hours or during extended wait periods.

FHA INFO emails: Frequent email notifications of new policies and training opportunities for anyone who signs up. Subscribe at: https://portal.hud.gov/hudportal/ HUD?src=/program_offices/housing/sfh/FHA_INFO_subscribe

FHA Resource Center

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