C. Lender Insurance (LI) Program Eligibility & Approval

The LI Program was offered beginning on January 1, 2006. The LI Program enables high-performing FHA-approved Direct Endorsement (DE) lenders, with acceptable default and claim rates, to endorse FHA mortgage loans without a pre-endorsement review conducted by FHA.

An LI approved lender performs its own pre-endorsement review and submits loan level data to FHA via the FHA Connection, Business to Government (B2G) or other electronic means. FHAC

• performs an automated verification process to check the data for accuracy and completeness, and
• for those loan level data submissions that clear all of the risk-mitigation edits that FHA has in place
• the system generates a mortgage insurance certificate electronically to serve as evidence that the mortgage has been insured, and
• the lender is not required to provide a case binder in advance of endorsement.

Note: If a loan does not clear the FHA edits, a lender may need to submit a case binder to FHA. If the LI lender has been approved for electronic submission, the lender may submit an electronic case binder (eCB) as opposed to a hard copy case binder.

Reference: For more information on

• LI endorsement processing, see HUD 4155.2 8.C.3
• requirements for LI lender pre insurance review, see HUD 4155.2 8.A.2
• LI case binder submission, see HUD 4155.2 8.B.7, and
• LI lender submission requirements for case binders selected for PETR, see HUD 4155.2 9.B.1.d.

The LI Program reduces a lender's submission of case binders to FHA and the need to have FHA review the application for mortgage insurance before FHA endorsement of the mortgage for insurance. The need to submit case binders to satisfy Notices of Return (NORs) is also dramatically reduced.

In those instances in which FHA does require submission of a case binder, for lenders choosing to submit case binders electronically, all mailing costs associated with the mortgage insurance endorsement process are eliminated.

Reference: For more information in LI endorsement processing, see HUD 4155.2 8.C.3.

Under the LI Program, despite the fact that lenders do not need to have an FHA pre-endorsement review of loans, FHA does select a sample of mortgages for post endorsement technical review (PETR).

Note: A lender may submit case binders for PETR in paper or electronic format.

Reference: For more information on submission requirements for case binders selected for PETR, see HUD 4155.2 9.B.1.d.

The regulations governing the LI Program may be found in

• 24 CFR 203.4
• 24 CFR 203.6, and
• 24 CFR 203.255(f).

In order to be eligible to participate in the LI Program, a lender must

• be an unconditionally approved DE lender, and
• have an acceptable default and claim record, as described in HUD 4155.2 2.C.2.b, for two years prior to its application for participation in the LI Program.

For DE lenders that underwrite as sponsors for FHA-approved loan correspondents, the default and claim rate is the aggregate of both retail originations and mortgages underwritten for their loan correspondents.

Lenders must agree to indemnify FHA under the conditions of Section 256(c) of the National Housing Act.

Note: LI eligibility is company-specific and not determined at the branch level.

Reference: For information on LI endorsement processing, see HUD 4155.2 8.C.3.

The acceptable claim/default rate is defined as at or below 150 percent of the national average. DE lenders that operate only in one state have the right to have a compare rate using FHA loans made in that state only rather than the national average.

DE lenders wishing to participate in the LI Program must request approval. Access to the LI Program is conditioned upon the lender's certification, executed as an electronic acknowledgement through the FHA Connection, that it will comply with the LI Program's procedures and requirements.

Each lender must acknowledge, prior to participating, that it is eligible under the LI Program and will participate according to applicable regulations and other written instructions from FHA.

Approval for the LI Program is effective for one year. At the end of the one-year period, the lender will be automatically checked by FHA's system of records. If the lender's claim/default performance continues to be acceptable and meets all other approval criteria for LI participation, the lender's approval will be renewed for another year.

A lender's approval to participate in the LI Program may be terminated when

• the lender fails to adopt and employ prudent review techniques
• DE approval for the lender or any branch is terminated (termination of DE approval also results in LI termination for the lender or any branch), and/or
• the lender fails to meet the eligibility criteria listed in
• HUD 4155.2 2.C.2.a
• HUD 4155.2 2.C.2.b, and
• HUD 4155.2 2.C.2.c.