www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 November 3, 1988 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 88-35 TO: ALL APPROVED MORTGAGEES SUBJECT: Purchase of Mortgages Prior to Issuance of MICs The Department recognizes that many approved mortgagees purchase mortgages prior to the issuance of the Mortgage Insurance Certificate (MIC) to the originating mortgagee. In some cases, subsequent to closing, the Department has become aware of fraud or misrepresentation on the part of the originating mortgagee or other situations have occurred in which the mortgagee did not comply with FHA requirements. Consequently, HUD denied mortgage insurance endorsement. Also, cases have occurred where the originating mortgagee failed to remit to the Department the Mortgage Insurance Premium (MIP) even though these mortgages were purchased by approved mortgagees with the representation that the MIPs had been transmitted to HUD. In such instances the purchasing mortgagee had to pay the MIP to HUD before insurance endorsement was provided. Because of the adverse consequences that may arise for mortgagees and mortgagors in transactions of this nature, we wish to take this opportunity to caution all mortgagees that they place themselves at risk in purchasing uninsured mortgages. At a minimum, mortgagees which purchase such mortgages should take appropriate measures to assure that the MIP has been remitted and that the mortgages are otherwise eligible for HUD-FHA mortgage insurance. We recognize that within the mortgage banking industry, the sale of mortgages prior to the issuance of the MIC is no longer an unusual way of conducting business. However, all mortgagees should be aware that dealing in uninsured mortgages does not offer the mortgagee the protection afforded with insured mortgages and that mortgagees should not expect the Department to shoulder the expense of any loss incurred because a mortgagee purchased an uninsured mortgage. HUD will not endorse any ineligible mortgages for insurance or waive MIP payments in any case. In Mortgagee Letter 84-24, the Department stated that it expected all approved mortgagees (including loan correspondents) to "...process, close, fund and submit mortgages for endorsement in their own name ..." In order to reduce the exposure to approved mortgagees that purchase mortgages, the Department has decided that any approved mortgagee, including a loan correspondent's sponsor, may (1) complete the MIP transmittal form, send the MIP to the Department and receive back the MIP Statement of Account; and (2) submit the mortgage along with evidence of assignment for endorsement in the name of the originating mortgagee. However, all documents must continue to be submitted in the name of the originating mortgagee. Also, the originating mortgagee must continue to execute the certifications required for endorsement. The required certification for regularly processed cases is contained in Mortgagee Letter 87-12 and for Direct Endorsement cases in Direct Endorsement Letter 88-1 . Should you have further questions, you may contact the Single Family Development Division at (202) 755-6700 or the Lender Approval and Recertification Division at (202) 755-6924. Sincerely yours, Thomas T. Demery Assistant Secretary