3.1

LENDER QUALIFICATION

1. Eligible Lenders. Under the Section 184 Program, loans may be made and serviced only by eligible, qualified lenders. Lenders must comply with their supervisory agency’s requirements concerning net worth, staffing, geographic authorities and industry relationships (such as FHA’s Sponsor/Loan Correspondent agreements). Qualified lenders include:
1. Lenders who are approved by the Federal Housing Administration (FHA), U.S. Department of Housing and Urban Development for participation in the single-family mortgage insurance program under Title II of the National Housing Act.
2. Lenders authorized by the U.S. Department of Veterans Affairs to originate automatically guaranteed housing loans under section 1802(d), chapter 37, title 38, of the U.S. Code.
3. Lenders approved by the U.S. Department of Agriculture to make loans for single-family housing under the Housing Act of 1949.
4. Lenders who are supervised, approved, regulated, or insured by any agency of the federal government.
5. Any other lender approved by the Secretary (see paragraph 3.1b).
2. Lender Approval for Section 184 Only (under paragraph 3.1 a (5) above). To effectively manage the program’s risk, we will allow fiscally sound entities with personnel capable of undertaking the responsibility of loan origination, that are not otherwise approved to participate in the Section 184 Loan Guarantee Program to apply for approval. Interested parties will submit the documentation listed below to the Director, Office of Loan Guarantee, Program ONAP:
1. A statement requesting approval as a 184 lender. That statement should include the name and address of the applicant and the geographic area in which the applicant intends to originate Section 184 loans; the EIN number for the applicant: the date and state of incorporation, if applicable; a list of the officers/directors who will be responsible for the actions of the applicant (and persons holding more than 10 percent of stock in the entity, if applicable), including their Social Security Numbers and home address; and a list of employees who will be submitting documentation to HUD, their Social Security Numbers and positions;
2. Resume(s) of at least one corporate (if applicable) officer/director with experience in mortgage lending;
3. Residential Mortgage Credit Reports on all officers/directors and a business credit report on the entity requesting approval. The applicant will order and pay for the credit reports;
4. Annual Certified Audit Reports. With the request for approval, the entity must submit its most recent (but not older than 15 months) annual certified audit report. Note that an entity approved as a Section 184 lender under 24 CFR Part 1005.104(e) will be required to submit its certified audit report annually within 90 days of the close of its fiscal year;
5. A statement concerning the applicant’s intent to sell (including the names of its investors and/or servicers) or hold the 184 loans after closing. If the applicant intends to hold and service its 184 portfolio, the applicant must document its ability to service government loans; and
6. A copy of the applicant’s quality control plan (due diligence reviews) for the origination of 184 loans.

Note that any lender approved under this section will comply with all requirements of the Real Estate Settlement Procedures Act (RESPA) at 24 CFR Part 3500.

3. Approved Lenders. A lender meeting the qualifications under paragraph 3.1a(1) through (4) is also required to submit the following documentation to the Program ONAP.
1. Evidence of federal approval, supervision, regulation or insurance. For example, all HUD/FHA approved lenders must submit the HUD/FHA lender identification number for each approved branch office that will originate Section 184 loans.
2. Address, telephone number and name of the branch manager for each branch office that will originate Section 184 loans. HUD/FHA approved lenders must provide the FHA lending area for each branch office.
3. If a HUD/FHA correspondent/sponsor relationship exists, provide a copy of the HUD/FHA approval for the relationship; including the sponsor’s lender identification number.
4. The name and location of the entity that will service the Section 184 loans must be submitted for review.

Only lenders meeting the qualifications under paragraph 3.1a. may originate and service Section 184 loans. Loan brokers that do not qualify under paragraph 3.1a cannot originate Section 184 loans for the purpose of referring the loan to an approved lender.

4. Tribal Lenders. Tribal banks or credit unions are eligible lenders if they are supervised, approved, regulated, or insured by the federal government or may apply for approval under the Section 184 program (see paragraph 3.1(b) above). However, the statute does not permit a tribe, IHA/TDHE, or other organization of Indians to loan amounts borrowed from the U.S. government.
5. Conflict of Interest. Lenders may not have a conflict of interest with borrowers under the Section 184 Program. In general, conflict of interest is defined as a relationship between the lender and borrower that is:
1. Familial: In general, lenders may not loan to borrowers who have a familial relationship with lender board members or staff in decision making capacities, including staff involved in loan underwriting and approval. Lenders may make loans to such borrowers only if the staff member and borrower disclose this information in the firm commitment submission to HUD and the staff member agrees to abstain from all involvement in loan processing.
2. Business: In general, lenders may not loan to borrowers who have a business relationship with lender board members or staff in decision-making capacities. For example, the lender’s chief underwriter may not be co-owner of the applicant’s business. Lenders may loan to such borrowers only if the related lender staff discloses this relationship in the firm commitment submission to the Department and abstain from involvement in the loan processing. This policy does not prohibit the lender from providing the borrower other financial services such as car loans, student loans, etc.
6. Lender Identification Number. For purposes of Section 184, each lender may use its FHA lender number or its federal tax employer identification number (EIN) to access HUD’s Credit Alert Interactive Voice Response System (CAIVRS) or for other identification purposes. Approved lenders who do not have access to CAIVRS may contact the Program ONAP for access.

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3.2

COMPLIANCE WITH APPLICABLE TRIBAL LAWS

Regulations (24 CFR Part 1005.112) state the lender/borrower will certify that they acknowledge and agree to comply with all applicable tribal laws. An Indian tribe with jurisdiction over the dwelling unit does not have to be notified of individual section 184 loans unless required by applicable tribal law. Failure of the lender to comply with applicable tribal law (24 CFR Part 1005.113) is considered to be a practice detrimental to the interest of the borrower and may be subject to enforcement action(s) under section 184(g) of the statute.

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3.3

DISQUALIFICATION OF LENDERS AND CIVIL PENALTIES

1. Cause for Disqualification. The Department may disqualify lenders or holders of a guarantee certificate who fail to comply with HUD processing requirements including, but not limited to:
1. Failing to maintain appropriate accounting records.
2. Inadequate servicing of guaranteed loans.
3. Using imprudent credit and underwriting judgment.
4. Engaging in practices otherwise detrimental to the interest of a borrower or of the United States.
5. Loss of the lender’s approval by the federal agency responsible for the lender’s supervision, approval and regulatory oversight.
2. Administrative Penalties for Non-Performance. If the Department finds that a lender or holder of a guarantee certificate has engaged in any of these activities, it may:
1. Temporarily refuse to guarantee loans made by this lender/holder until the lender’s/holder’s operating practices are deemed to be acceptable.
2. Permanently refuse to guarantee loans made by this lender.
3. Bar loan purchasers from acquiring additional guaranteed loans.
4. Require that the lender/holder assume no less than 10 percent of any loss on additional guaranteed loans.
5. Require that the lender refund unallowable or unearned fees.
6. Indemnify the Department for any losses incurred in the event a claim is filed.
3. Civil Money Penalties. If the Department finds that an originating or servicing lender (including their staff and employees) or holder of a guarantee certificate has failed to follow the Section 184 statute, regulations or Processing Guidelines, the Department may impose civil money penalties in accordance with Section 536 of the National Housing Act.
4. Status of Guarantees to Disqualified Lenders. HUD will continue to honor the guarantee for loans made prior to the lender’s disqualification if the loans were made in good faith.

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3.4

QUALITY CONTROL REQUIREMENT

All lenders originating and/or servicing Section 184 loans must establish and implement a formalized, written quality control plan for originating and/or servicing these loans. The mortgagee must utilize a program of internal/external audit or provide for an independent review by the mortgagee’s management/supervisory personnel who are knowledgeable and have no direct origination, underwriting or servicing responsibilities. The Plan must be implemented and maintained in such a manner consistent with its needs to assist corporate management in determining the accuracy, validity and completeness of its loan origination and/or servicing functions. The Plan must be comprehensive and include all origination and/or servicing issues and provide a plan for corrective action.

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3.5

FILE RETENTION — ORIGINATING MORTGAGEE

Number of Copies. Two sets of origination files must be created. One set is required for HUD and one set is needed for the mortgagee’s files. In addition, BIA or the borrower may need copies of certain documents.

If the originating mortgagee sells the loan, it must maintain a copy of the entire loan origination file for a period of 2 years. The file may be stored in any manner the mortgagee chooses, but upon verbal or written request, the mortgagee shall make available to HUD staff, legible hard copies of all documents within 24 hours. The entire loan file (including the original loan origination file) must be maintained by the servicing mortgagee for the life of the loan plus three years. Paragraph 8.2c discusses file retention by the servicing mortgagee.