There are two types of participating FHA lenders. One has “automatic authority” or “direct endoresement” (DE) authority to approve your FHA loan application in most cases, and the other has “conditional approval” authority which requires the lender to submit your FHA loan paperwork to the FHA for final review before the loan can be closed.
FHA loan rules for these two different types. Found in HUD 4155.2 Chapter One Section A, we learn the following:
“Under FHAs Direct Endorsement (DE) program, approved lenders may underwrite and close mortgage loans without FHAs prior review or approval. This includes all aspects of the mortgage loan application, property analysis, and borrower underwriting.”
Chapter One includes a note, adding: “This assumes that the lender is a DE lender with unconditional
approval. If the lender has only conditional FHA approval, and is in the Pre-Closing Review phase, then the lender must submit the loan to FHA for approval prior to closing the loan.”
Most FHA home loans are available for DE or direct endorsement by the lender, with two exceptions described in Section A:
–the Section 203(n), Single Family Cooperative program, and
–Mortgage loans for HUD employees, with the exception of streamline refinances
This explains why some borrowers might have their FHA loans referred back to the FHA for review before closing time, but there are other situations that may require the same thing even if the lender has DE authority. These may be referred back to the FHA on a case-by-case basis, so it’s important to understand that each application is unique and processed individually.
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