U. S. Department of Housing and Urban Development
                              Washington.  D.C. 20410-8000

                               August 22, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER                              TI-405

     MEMORANDUM FOR:  ALL TITLE I LENDING INSTITUTIONS
                      Attn:  Installment Loan Department
     SUBJECT:  Prohibition on the Use of Loan Brokers in the Title I
               Program
 
           For some time, the Department has been considering whether
     the Title I regulations permit the use of loan brokers or other
     third-party sources of loan referrals.  After a detailed review
     of this issue, we have concluded that the use of third-party
     referrals in the origination of Title I direct loans is not
     permitted by the Title I regulations, and results in programmatic
     abuses that are detrimental to the best interests of borrowers,
     lenders and the Department.
 
          Therefore, for all Title I direct loans with credit applications
     dated on or after November 1, 1990, lenders may not accept
     any referrals from a loan broker, mortgage broker, real estate
     broker, or other third party having a financial interest in the
     loan transaction.  This prohibition applies without regard to
     whether the third party is an approved Title I lender, and
     without regard to the type of financial arrangement that might be
     made by the lender with such third party.  This prohibition does
     not apply to paid employees of the lender engaged in marketing
     the Title I program to potential borrowers.
 
          The Department recognizes the desire of some lenders to
     establish outreach programs that will make the Title I program
     available to greater numbers of creditworthy borrowers.
     Therefore, approved Title I lenders whose primary interest is in
     servicing Title I loans may purchase loans that have been
     originated and funded by other approved Title I lenders, prior to
     these loans being reported for insurance in accordance with 24
     CFR 201.30.  These loans may be purchased under whatever
     financial arrangements are agreeable to the originating and
     servicing lenders, so long as the fees and charges which are
     collected from the borrower or included in the loan amount are in
     accordance with 24 CFR 201.25. The loan documents must be drawn
     up in the name of the originating lender, with an assignment of
     interest to the servicing lender.  Lenders purchasing loans under
     this type of arrangement are cautioned that they will be held
     accountable for compliance with all of the credit underwriting,
     loan origination, and loan servicing requirements of the Title I
     regulations.
 
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2
 
Regulations Do Not Provide for Loan Brokers
 
     The regulatory framework which underlies the Title I loan