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CHAPTER 1. GENERAL INFORMATION

1-1 PURPOSE. This Handbook sets forth the policies and procedures of the

Department for the approval and annual recertification of lenders for

participation in the HUD/FHA Title I program. The regulations governing

lender approval are in 24 CFR Part 202.

1-2 ENABLING LEGISLATION. Title I, Section 2 of the National Housing Act

(12 U.S.C. 1703) authorizes HUD to provide credit insurance to qualified

financial institutions for losses on eligible property improvement or

manufactured home loans. In this Handbook loans originated under the

provisions of this section of the Act are referred to as \"Title I

loans.\"

1-3 GENERAL APPROVAL REQUIREMENTS. Before financial institutions may

originate, purchase or hold Title I loans, they must obtain written

approval from HUD to participate in the Title I program. Separate

approval is required to participate in the Title II insured mortgage

loan program. Approval requirements for the Title II program are

contained in 24 CFR Part 202 and HUD Handbook 4060.1.

A financial institution will be approved to participate in the Title I

program upon meeting the Department\'s approval requirements and

submitting an acceptable fee and application as described in Chapters 2

and 3, respectively, of this Handbook. Applications for both the home

office and branch office(s) approval are submitted to the Lender

Approval and Recertification Division. The application fee is forwarded

to the lock box noted in Chapter 3.

1-4 MANUFACTURED HOUSING AND PROPERTY IMPROVEMENT LOANS. Under the

provisions of the Title I program, approved lenders may originate and

receive insurance on either property improvement loans or loans for

manufactured housing. As of the effective date of this handbook,

lenders will no longer be required to submit two applications in order

to originate loans under both programs. Lenders will be able to

originate and submit claims under one lender identification number. The

Department will maintain only one reserve account which will cover both

manufactured housing and property improvement loans.

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1-5 CONTRACT OF INSURANCE. At the time of approval, all types of lenders

will receive a letter of approval. With the exception of Loan

Correspondents, this letter also constitutes a Contract of Insurance

between the lender and the Department. Loan Correspondents do not

receive a Contract of Insurance. The Contract is separate and apart from

a lender\'s status as an approved Title I lender. A lender whose

Contract is terminated may continue to be approved as a Title I lender,

and it continues to be insured with respect to the Title I loans it

holds at the time of termination, but it cannot otherwise exercise the

rights of an approved lender.

The approval letter for Loan Correspondents and the Contract of

Insurance for all other types of lenders constitute an agreement between

the institution and the Department which shall govern participation in

the Title I program.

Please refer to Paragraph 4-6 for information concerning the effects of

termination of a Contract of Insurance.

1-6 TYPES OF APPROVED LENDERS. To qualify for participation in the Title
I

program, a financial institution must be in one of the categories listed

below. Throughout this Handbook the term \"lender\" generally refers to

all categories.

A. SUPERVISED LENDER. A Supervised Lender is a financial institution

that is a member of the Federal Reserve System or whose accounts

are insured by the Federal Deposit Insurance Corporation or the

National Credit Union Administration.

B. NONSUPERVISED LENDER. A Nonsupervised Lender is a financial

institution that has as its principal activity the lending or

investing of funds in mortgages, consumer installment notes, or

similar advances of credit, or the purchasing of consumer

installment contracts and is not a Supervised Lender or a

Governmental Institution.

C. LOAN CORRESPONDENT. A Loan Correspondent is a financial

institution approved by HUD/FHA to originate Title I direct loans

for sale or transfer to a sponsoring financial institution which

holds a valid Title I Contract of Insurance and is not under

suspension. A Loan Correspondent may be either a Supervised or

Nonsupervised Institution.

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D. GOVERNMENTAL INSTITUTION. A Federal, State or municipal agency, a

Federal Reserve Bank, the Government National Mortgage Association,

a Federal Home Loan Bank, the Federal National Mortgage

Association, or the Federal Home Loan Mortgage Corporation may be

approved as a Title I lender.

E. INVESTING LENDER. An Investing Lender is any financial

institution, including a charitable or nonprofit organization or

pension fund, that is approved by HUD/FHA to purchase, hold or sell

Title I loans that have been originated by another approved Title

I institution and insured under the Title I regulations. An

investing lender may not originate Title I loans in its own name,

and it may not service such loans except with the prior approval of

HUD/FHA.

F. NONPROFIT INSTITUTION. While not strictly a lender type, a

nonprofit financial institution may apply to become approved to

make Title I loans. A nonprofit institution may be approved as a

Nonsupervised Lender, a Loan Correspondent or an Investing Lender

and must meet the approval requirements for the type of lender for

which it is seeking approval.

1-7 LOAN ORIGINATION RESPONSIBILITY. Lenders must originate loans
following

accepted practices of prudent lending and HUD/FHA requirements which are

specified in 24 CFR Part 201.

A. They must obtain and verify information with at least the same

thoroughness used for non-insured loans.

B. They are responsible for sound underwriting of Title I loans they

originate. This includes, but is not limited to, taking credit

applications; interviewing loan applicants; investigating credit;

and securing loans with liens when required by 24 CFR Part 201.

1-8 LOAN SERVICING RESPONSIBILITY. While only an approved Title I lender

may hold Title I loans, it is not necessary for a slender to be approved

by the Department to service Title I loans. However, HUD expects Title

I loans to be serviced in accordance with HUD requirements and accepted

servicing practices of prudent lending institutions. A Title I lender

holding Title I loans is responsible for ensuring they are serviced in

this manner whether it services them itself or arranges for a non-HUD-

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approved lender to service its loans.

A. Servicers must have adequate systems for contacting borrowers,

including persons with disabilities, and are expected to pursue

aggressive policies to cure delinquencies and defaults.

B. Lenders are responsible for proper collection efforts even when

collection is made through a servicer or agent.

1-9 TRANSFERRING INSURED LOANS. A Title I lender may assign or otherwise

transfer a Title I loan only to another approved Title I lender. The

transferee may be any lender type except Loan correspondent.

1-10 REPORTING IRREGULARITIES TO HUD. Irregularities, unethical
practices

and/or fraud, by any participant (including lenders, borrowers,

contractors, dealers or any other interested party) must be reported to

either HUD\'s Single Family Monitoring Division in Washington, DC or the

Office of Inspector General located in the nearest HUD field office.

1-11 INELIGIBLE PERSONS. A Title I lender may not make an insured loan
if

any person participating in the transaction is currently under

suspension or debarment or a limited denial of participation under the

provisions of 24 CFR Part 24 or 25 or similar provisions of any other

Federal agency.

1-12 REPORTS AND EXAMINATIONS. HUD/FHA may, at any time, require a Title
I

lender to report on any matter related to its Title I operations. This

may include the inspection of a lender\'s loan files, reports, records,

books or accounts. Representatives of the Office of Inspector General

and/or Monitoring Division may periodically visit a lender\'s office to

review its origination and servicing procedures. (See Chapter 4 for

additional information.)

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