Friday, March 7, 2008

FHA does not securitize mortgage loans. They Endorse (Insure) them.

Today's FHA Tip: FHA doe not purchase (securitize) mortgage loans. They only insure (endorse) them. A closed FHA loan must receive a Mortgage Insurance Crertificate (MIC).

The process for this goes as follows, an FHA loan must be originate, underwritten and closed and funded meeting FHA guidelines as outlined in the Handbooks, guides and mortgagee letters for a Title II lender.
When the lender closed the loan they will collect the upfront MI and submit the funds to HUD, now days this is usually done as a wire. Lenders have only 10 days to get the funds to HUD or incur a late fee. A lender may have to send the original FHA loan file (aka the case binder) to the HOC (Home Ownership Center, in our case Denver) for review many lenders are authorized to insure their own loans (this privilege is based on default rate). In both case if requirements are meet in the originating, processing, underwriting, closing and funding areas the MIC can be issued. Only at this point is the loan considered an endorsed FHA loan and the loan is officially insured. If a loan does not receive a MIC it is not considered an endorsed FHA loan regardless of how it is closed. Everyone has a problem when this happens.

When doing a refinances from an FHA loan to an FHA, before determining you can do a streamline loan or giving any MIP Refunds (we will talk about Stream line loans and MIP Refund later) make sure the loan is insured (aka endorsed). You can find this information in FHA Connection by using the old FHA case number. FHA Connection will also show if they have an up front MIP refund which can be applied towards their new upfront MIP.

If FHA receives a case binder that is incomplete the lender will receive a NOR (Notice of Return). If a lender receives an NOR they may contact the broker for help to get the problem resolved.

Why do I bring this up? 1- This will give you the heads up to always check the old case number in FHA Connection to make sure the previous loan was endorsed if your doing an FHA refinance. You may find the loan amount on the NOTE is not the loan amount that was endorsed, if a mistaken was made in calculating the original loan amount the lender may have had to pay this down and this could impact your numbers on the new loan. Unfortunately I have seen my share of FHA loans that were not endorsed or the loan amount was adjusted, even though it doesn't happen that often.

2-IF you are contacted by a Lender because they have received a NOR please give them as much help as you can to get the loan endorsed. Lenders will usually try to resolve this themselves before contacting the broker. This is in the best interest of everyone.

Keep in mind the review for endorsement its not a complete audit of the file only a cursory review in most cases.