24 C.F.R. § 203.5

Direct Endorsement process

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(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 § 203.3(b)(4), § 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 § 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 § 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 § 203.1.

(2) The provision contained in § 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 § 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 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 parts 25 and 30 of this title.

[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; 77 FR 51469, Aug. 24, 2012]

Notes of Decisions

Cited in 7 cases, 2005–2019 · leading case: Consum. Prot. Div. v. Morgan, 874 A.2d 919 (Md. 2005).

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Consum. Prot. Div. v. Morgan, 874 A.2d 919 (Md. 2005). · cites it 3× “24 C.F.R. § 203.5 (b) (2004). Under the program, an approved lender serves in the FHA’s place to review an application and determine whether the proposed mortgage is eligible for FHA insurance.”

United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593 (S.D.N.Y. 2013). · cites it 3× “¶ 19 (citing 24 C.F.R. §§ 203.5 (d), (e)(3))). HUD provides specific requirements for how underwriters are to evaluate a borrower’s credit risk and appraise mortgaged property.”

United States v. Quicken Loans Inc., 239 F. Supp. 3d 1014 (E.D. Mich. 2017). · cites it 3× “at 942-943 (quoting 24 C.F.R. § 203.5 (a)). Once a loan is endorsed by HUD or the DEL lender, it is insured by the FHA.”

United States v. Allied Home Mortg. Corp., 933 F.3d 468 (5th Cir. 2019). “See 24 C.F.R. § 203.5 (c). That regulation is consistent with Dr.”

Quicken Loans Inc. v. United States, 152 F. Supp. 3d 938 (E.D. Mich. 2015). “” 24 C.F.R. § 203.5 (a). To monitor a lender’s compliance with program requirements, the Secretary of HUD “may review all documents” required for a mortgage’s insurance endorsement under the DEL program.”

United States v. Movtady, 13 F. Supp. 3d 325 (S.D.N.Y. 2014). · cites it 2× “Among other things, for example, DEL participants are required to “evaluate [each] mortgagor’s credit characteristics,” 24 C.F.R. § 203.5 (d), and “have [each] property [to be mortgaged] appraised” according to HUD standards, 24 C.”

United States v. Allied Home Mortg. Corp. (5th Cir. 2019). “See 24 C.F.R. § 203.5 (c). That regulation is consistent with Dr.”

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