24 Cfr 202.8

Office of Assistant Secretary for Housing, HUD

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the Secretary, that assures the faithful
performance of the responsibilities of
the mortgagee.
§ 202.7 Nonsupervised
lenders
and
mortgagees.
(a) Definition. A nonsupervised lender
or mortgagee is a lending institution
which has as its principal activity the
lending or investing of funds in real estate mortgages, consumer installment
notes, or similar advances of credit, or
the purchase of consumer installment
contracts, and which is not approved
under any other section of this part. A
nonsupervised mortgagee may submit
applications for mortgage insurance. A
nonsupervised lender or mortgagee
may originate, purchase, hold, service
or sell insured loans or mortgages, respectively.
(b) Additional requirements. In addition to the general approval requirements in § 202.5, a nonsupervised lender
or mortgagee shall meet the following
requirements:
(1) Net worth. The net worth requirements appear in § 202.5(n).
(2) Liquid assets. The mortgagee shall
have liquid assets consisting of cash or
its equivalent acceptable to the Secretary in the amount of 20 percent of
its net worth, up to a maximum liquidity requirement of $100,000.
(3) Credit source—(i) Title I. A lender
shall have and maintain a reliable
warehouse line of credit or other funding program acceptable to the Secretary of not less than $500,000 for use
in originating or purchasing Title I
loans.
(ii) Title II. Except for multifamily
mortgagees, a mortgagee shall have a
warehouse line of credit or other mortgage funding program acceptable to
the Secretary which is adequate to
fund the mortgagee’s average 60 day
origination operations, but in no event
shall the warehouse line of credit or
funding program be less than $1,000,000.
(4) Audit report. (i) A lender or mortgagee must comply with the financial
reporting requirements in 24 CFR part
5, subpart H. Audit reports shall be
based on audits performed by a certified public accountant, or by an independent public accountant licensed by
a regulatory authority of a State or
other political subdivision of the

§ 202.8

United States on or before December
31, 1970, and shall include:
(A) A financial statement in a form
acceptable to the Secretary, including
a balance sheet and a statement of operations and retained earnings, a statement of cash flows, an analysis of the
mortgagee’s net worth adjusted to reflect only assets acceptable to the Secretary, and an analysis of escrow funds;
and
(B) Such other financial information
as the Secretary may require to determine the accuracy and validity of the
audit report.
(ii) A mortgagee must submit a report on compliance tests prescribed by
the Secretary.
(5) Fidelity bond. A Title II mortgagee
shall have fidelity bond coverage and
errors and omissions insurance acceptable to the Secretary and in an amount
required by the Secretary, or alternative insurance coverage approved by
the Secretary, that assures the faithful
performance of the responsibilities of
the mortgagee.
[62 FR 20082, Apr. 24, 1997, as amended at 62
FR 65182, Dec. 10, 1997; 63 FR 9742, Feb. 26,
1998; 63 FR 44361, Aug. 18, 1998; 67 FR 53451,
Aug. 15, 2002]

§ 202.8 Loan correspondent lenders
and mortgagees.
(a) Definitions.
Loan correspondent. (1) A loan correspondent lender does not hold a Title
I Contract of Insurance and may not
purchase or hold loans but may be approved to originate Title I direct loans
for sale or transfer to a sponsor or
sponsors which holds a valid Title I
Contract of Insurance and is not under
suspension.
(2) A loan correspondent mortgagee
is a mortgagee that has as its principal
activity the origination of mortgages
for sale or transfer to its sponsor or
sponsors or that meets the definition of
a supervised mortgagee in § 202.6(a) but
applies for approval as a loan correspondent mortgagee. A loan correspondent mortgagee may originate
mortgages and submit applications for
mortgage insurance but it may not
hold, purchase or service insured mortgages, except that a loan correspondent
mortgagee meeting the definition of a
supervised mortgagee in § 202.6(a) may

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§ 202.8

24 CFR Ch. II (4–1–10 Edition)

service insured mortgages in its own
portfolio.
Sponsor. (1) With respect to Title I
programs, a sponsor is a lender that
holds a valid Title I Contract of Insurance and meets the net worth requirement for the class of lender to which it
belongs.
(2) With respect to Title II programs,
a sponsor is a mortgagee which holds a
valid origination approval agreement,
is approved to participate in the Direct
Endorsement program, and meets the
net worth requirement for the class of
mortgagee to which it belongs.
(b) Additional requirements. In addition to the general approval requirements in § 202.5, a loan correspondent
lender or mortgagee shall meet the following requirements:
(1) Net worth. A loan correspondent
lender or mortgagee shall have a net
worth of not less than $63,000 in assets
acceptable to the Secretary, plus an
additional $25,000 for each branch office
authorized by the Secretary, up to a
maximum requirement of $250,000, except that a multifamily mortgagee
shall have a net worth of not less than
$250,000 in assets acceptable to the Secretary.
(2) Notification. A loan correspondent
lender or mortgagee and each of its
sponsors shall provide prompt notification to the Secretary if their loan correspondent agreement is terminated.
(3) Audit report. A loan correspondent
lender or mortgagee must comply with
the financial reporting requirements in
24 CFR part 5, subpart H except that a
loan correspondent mortgagee meeting
the definition of a supervised lender or
mortgagee in § 202.6(a) need not file annual audit reports. Audit reports shall
be based on audits performed by a certified public accountant, or by an independent public accountant licensed by
a regulatory authority of a State or
other political subdivision of the
United States on or before December
31, 1970, and shall include:
(i) A financial statement in a form
acceptable to the Secretary, including
a balance sheet, statement of operations and retained earnings, a statement of cash flows, an analysis of the
net worth adjusted to reflect only assets acceptable to the Secretary and an
analysis of escrow funds; and

(ii) Such other financial information
as the Secretary may require to determine the accuracy and validity of the
audit report.
(4) Liquid assets. A loan correspondent
mortgagee shall maintain liquid assets
consisting of cash or its equivalent acceptable to the Secretary in the
amount of 20 percent of its net worth,
up to a maximum liquidity requirement of $100,000.
(5) A loan correspondent lender or
mortgagee may sell or transfer loans or
mortgages only to its sponsors, although a loan correspondent mortgagee may sell to a mortgagee that is
not a sponsor with the Secretary’s approval. There is no limitation on the
number of sponsors that a loan correspondent lender or mortgagee may
have and no limitation on the number
of loan correspondents that a lender or
mortgagee may sponsor.
(6) Each sponsor must obtain approval of its loan correspondent lenders
or mortgagees from the Secretary.
(7) Each sponsor shall be responsible
to the Secretary for the actions of its
loan correspondent lenders or mortgagees in originating loans or mortgages,
unless applicable law or regulation requires specific knowledge on the part
of the party to be held responsible. If
specific knowledge is required, the Secretary will presume that a sponsor has
knowledge of the actions of its loan
correspondent lenders or mortgagees in
originating loans or mortgages and the
sponsor is responsible for those actions
unless it can rebut the presumption
with affirmative evidence.
(8) A loan correspondent mortgagee
shall comply with the warehouse line
of
credit
requirements
of
§ 202.7(b)(3)(ii), unless there is a written
agreement by its sponsor to fund all
mortgages originated by the loan correspondent mortgagee.
(9) For mortgages processed through
Direct Endorsement under §§ 203.5 and
203.255(b) of this chapter, or through
Lender Insurance under §§ 203.6 and
203.255(f) of this chapter, underwriting
shall be the responsibility of the Direct
Endorsement sponsor or Lender Insurance sponsor (respectively), and the
mortgage shall be closed in the loan
correspondent mortgagee’s own name
or the name of the sponsor that will

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Office of Assistant Secretary for Housing, HUD
purchase the loan. For mortgages not
processed through Direct Endorsement
or through Lender Insurance, the mortgage must be both underwritten and
closed in the loan correspondent’s own
name.
(10) A loan correspondent lender shall
close all loans in its own name prior to
sale or transfer of the loans to its sponsor.
[62 FR 20082, Apr. 24, 1997, as amended at 62
FR 30225, June 2, 1997; 67 FR 56420, Nov. 7,
2002; 67 FR 53451, Aug. 15, 2002]

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§ 202.9 Investing lenders and mortgagees.
(a) Definition. An investing lender or
mortgagee is an organization that is
not approved under any other section
of this part. An investing lender or
mortgagee may purchase, hold or sell
Title I loans or Title II mortgages, respectively, but may not originate Title
I loans or Title II mortgages in its own
name or submit applications for the insurance of mortgages. An investing
lender or mortgagee may not service
Title I loans or Title II mortgages
without prior approval of the Secretary. An investing lender or mortgagee is not required to meet a net
worth requirement.
(b) Additional requirements. In addition to the general approval requirements in § 202.5, an investing lender or
mortgagee shall meet the following requirements:
(1) Funding arrangements. An investing lender or mortgagee shall have, or
have made arrangements for, funds sufficient to support a projected investment of at least $1,000,000 in property
improvement, manufactured home or
real estate loans or mortgages.
(2) Officers and staff. In lieu of the
staffing and facilities requirements in
§ 202.5(b), an investing lender or mortgagee shall have officers or employees
who are capable of managing its activities in purchasing, holding, and selling
Title I loans or Title II mortgages.
(3) Fidelity bond. An investing mortgagee shall maintain fidelity bond coverage and errors and omissions insurance acceptable to the Secretary and in
an amount required by the Secretary,
or alternative insurance coverage approved by the Secretary, that assures

§ 202.10

the faithful performance of the responsibilities of the mortgagee.
[62 FR 20082, Apr. 24, 1997, as amended at 63
FR 9742, Feb. 26, 1998]

§ 202.10 Governmental
institutions,
Government-sponsored enterprises,
public housing agencies and State
housing agencies.
(a) Definition. A Federal, State or
municipal governmental agency, a Federal Reserve Bank, a Federal Home
Loan Bank, the Federal Home Loan
Mortgage Corporation, or the Federal
National Mortgage Association may be
an approved lender or mortgagee. A
mortgagee approved under this section
may submit applications for Title II
mortgage insurance. A lender or mortgagee approved under this section may
originate, purchase, service or sell
Title I loans and insured mortgages, respectively. A mortgagee or lender approved under this section is not required to meet a net worth requirement. A mortgagee shall maintain fidelity bond coverage and errors and
omissions insurance acceptable to the
Secretary and in an amount required
by the Secretary, or alternative insurance coverage approved by the Secretary, that assures the faithful performance of the responsibilities of the
mortgagee. There are no additional requirements beyond the general approval requirements in § 202.5 or as provided under paragraph (b) of this section.
(b) Public housing agencies and State
housing agencies. Under such terms and
conditions as the Secretary may prescribe and notwithstanding the general
requirements of § 202.5 or the requirements of paragraph (a) of this section,
a public housing agency or its instrumentality or a State housing agency
may be approved as a mortgagee for
the purpose of originating and holding
multifamily mortgages funded by
issuance of tax exempt obligations by
the agency.
(c) Audit requirements. The insuring of
loans and mortgages under the Act
constitutes ‘‘financial assistance’’ for
purposes of audit requirements set out
in part 44 of this title. State and local
governments (as defined in 24 CFR 44.2)
that receive insurance as lenders and

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