Based upon “the mortgage industry’s evolution over time, the advancement of technology, and due to no longer needing to maintain several branch offices to conduct FHA business nationwide,” the FHA has adopted a new rule regarding branch registration.
Under the prior rule, all FHA-approved mortgagees and lenders were required to register any branch office where Title I or II loans were originated. Branch offices registered with HUD were granted a nationwide “Area Approved for Business,” that authority being limited to originate or underwrite “in those states where the lender or mortgagee fully complies with state origination and/or underwriting licensing and approval requirements” (see HUD Handbook 4000.1 I.A.4b, Single Family Lending Area (4000.1)).
Effective March 4, 2024, mortgagees and lenders will have a choice as to whether to register and maintain branch offices with HUD (see Changes in Branch Office Registration Requirements, 89 Fed. Reg. 7274 (Feb. 2, 2024)).
In support of the changes, the FHA considered several comments received during the rulemaking process, including less-centralized offices due to technological developments and post-pandemic industry trends towards remote work. The agency noted that the older registration requirement “no longer aligns with the virtual environment in which the industry operates” (89 Fed. Reg. 7275 (Feb. 2, 2024)).
The new rule is also driven by the agency’s desire to expand availability of FHA programs to underserved communities. The revisions are intended to reduce the administrative burden for existing lenders and mortgagees as registration fees will only apply to branches that mortgagees or lenders register with the FHA. As such, the new rule “may also incentivize small size lenders, mortgagees, banks, and credit unions to offer FHA programs in branch offices in which they did not previously register with HUD.” As a result, the agency hopes to provide homeowners with better access to FHA-insured mortgages and loans.
Branch offices not registered will also be excluded from the HUD Lender List Search page.
Importantly, the new rule does not affect HUD’s monitoring of lenders and mortgagees. It remains a lender’s responsibility to ensure compliance with all FHA program requirements. “Each lender and mortgagee is responsible for the actions of its staff that participate in FHA transactions” and “must continue to maintain effective internal controls and execute risk and control procedures on a day-to-day basis.” HUD will continue to maintain oversight and risk management of lenders and mortgagees, regardless of branch office registration, and will retain “existing processes and procedures for enforcement activities to address noncompliance.”
The agency also clarified that mortgagees that elect to register branch offices will still be able to access branch-level data in Neighborhood Watch, including compare ratios for registered branches. This information will not be available for un-registered branches, but the agency noted that Neighborhood Watch still “provides a variety of geographic parameters independent of branch IDs.” The FHA still expects mortgagees to focus on properties underwritten in a particular HUD field office jurisdiction, regardless of the originating branch, and to “continue tracking the performance of specific branches using their own data if necessary.”
Additional information is expected. In an accompanying announcement, FHA stated it will soon publish a mortgagee letter that provides implementation guidance for the provisions in the final rule.