The Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2010-03 to announce it will be using its regulatory authority to terminate a mortgagee’s authorization to underwrite single family loans in geographic areas where the lender has a high rate of early defaults and claims.

Currently, HUD exercises its authority to terminate only the loan origination approval authority of a mortgagee. Effective with ML 10-03, HUD will systematically review all Direct Endorsement (DE) underwriting mortgagees’ defaults (loans 90 or more days’ delinquent) and claim rates on loans during the initial 24 months from the date of the commencement of the amortization.

These reviews will be conducted every three months and will focus on those mortgagees showing particularly high default and claim rates said HUD.  The initial suspension threshold is 300% above the national and field office default rate. It will drop down to 250% on June 30 and to 200% at year-end. 

HUD will publish a list of mortgagees which have had their Authority terminated in the Federal Register and on HUD’s web site, together with a general explanation of the cause and effect of the termination.

If a correspondents sponsor was terminated in a particular area, they will allow a 30 day period to establish a new relationship with another FHA approved mortgagee said HUD. 

Mortgagee Letter 2010-03