What are the current qualifications for HUD approval? Following is a concise, but complete summary of the requirements. If a mortgagee satisfies these, then with the proper paperwork, application can confidently be made to HUD for approval.

• An applicant must be a corporation, a limited liability company (LLC), or a partnership. A sole proprietorship is not acceptable. Both C and S corporations qualify. An LLC must meet more specific requirements; it must have at least two members; its operating agreement must show a term of existence of at least ten years, and also have provision for continuance after the withdrawal of a member.  Both the LLC operating agreement and articles of organization must be submitted for review. Partnership requirements are too complicated to cover here, and are not recommended unless there are compelling tax or legal issues involved. The eligibility requirements following will indicate “corporation” for brevity, but also apply to LLC’s and partnerships.
   

• The applicant corporation must have an adjusted net worth of at least $63,000 for a loan correspondent or $250,000 for a non-supervised lender. At least 20 percent of the net worth must be in the form of liquid assets, which are defined as cash and cash equivalents, such as readily marketable securities. The remainder of the net worth may consist of furnishings, equipment, and other business items owned by the corporation. The entire corporate net worth must be verified to HUD by an audited financial statement, prepared by a Certified Public Accountant (CPA) in accordance with Generally Accepted Accounting Principles (GAAP). The audited statement must also contain the HUD Computation of Adjusted Net Worth, a formula that excludes the value of certain unacceptable assets.
   

• The corporation must be currently licensed by the state regulatory agency in which its home office is located. There can be no sanctions or restrictions on the state license.
   

• At least one senior designated corporate officer (president or vice-president) must have a minimum of three years mortgage origination experience, either conventional or FHA. A resume must be submitted showing the places and dates where the employment occurred. (In the case of an LLC applicant, the designated operating manager-member must have the three years experience.)
   

• In companies with joint officers, there must be a duly appointed senior officer (president or vice-president), with the required minimum three years of acceptable experience, designated to conduct exclusively the affairs of the approved mortgagee. This is an area of common confusion. Here are examples of the rule: you cannot own and operate a HUD approved mortgage company and have day to day management responsibilities at any other mortgage company; you cannot own and manage a real estate brokerage and have day to day operating responsibilities at a HUD approved mortgage company. You can have an ownership interest in either of these other entities, as long as you, the designated officer of the HUD approved mortgage company, have no day to day management responsibilities with any other business entity. You will also, of course, need to heed all of the RESPA requirements with respect to conflicts of interest between different entities.
   

• The corporation, its major stockholders, and its senior officers must have acceptable credit. Recent credit reports, both personal and commercial, must be submitted to HUD. There can be no outstanding tax liens or past-due Government loans. Bankruptcies must be discharged and seasoned, and good credit re-established. A default on an FHA insured loan is cause for application rejection. HUD uses the Mortgage Asset Resource Institute (MARI), as well as its own record base, to check the background of applicants for license restrictions, suspensions, debarments, and other negative items which may make individuals or companies ineligible for approval. Applicants may preview the MARI database by going to www.mari-inc.com to determine if there are adverse records. There is a nominal fee for this service. 
   

• The corporation must have acceptable main office facilities. The office must be located in a commercial building, not a residence, with the types of furnishings and equipment required to run a mortgage operation in a responsible and professional manner. There must be permanently affixed business signs to identify the mortgage company to borrowers. The corporation’s main office must be separate and apart from any other business entity, but may share a common reception area or lobby.
   

• The corporation must have at least two employees. The employees may include the principals of the corporation, but a shared receptionist cannot be used to meet this requirement.
   

• A loan correspondent applicant is required to have a HUD-approved sponsor (a supervised or non-supervised lender with Direct Endorsement approval) that will underwrite and fund its FHA originations. Once the correspondent has received its initial HUD approval, additional sponsors may be added via the FHA Connection on the Internet.
   

• Non-supervised lenders must maintain a warehouse line of credit for at least $1,000,000.
   

• Non-supervised lenders, but not loan correspondents, must provide evidence of a fidelity bond and errors and omissions insurance in the amount of at least $300,000 each.

Those are the requirements to originate FHA loans. The actual application package to HUD involves substantial paperwork, but the qualifications themselves are by no means difficult or unreasonable. There is, however, a non-refundable $1,000 application fee to HUD for reviewing and processing the application, so it is important to submit it correctly.

Once approved, each mortgagee must be recertified by HUD on an annual basis. This recertification requires the submission of an audited financial report and a $500 fee to HUD within 90 days after the end of the company’s fiscal year. Failure to meet the strict recertification deadlines has resulted in approval termination for many mortgagees in recent years.