source:
  type: guide
  id: hud-4000-1-v-a-actions-and-sanctions-against-mortgagees
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Actions
    and Sanctions Against Mortgagees (05/09/2022)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Actions
    and Sanctions Against Mortgagees (05/09/2022).
  coverage_tier: operative
obligations:
- id: hud-4000-1-v-a-actions-and-sanctions-against-mortgagees-full
  canonical_id: hud-4000-1-v-a-actions-and-sanctions-against-mortgagees-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Actions and
    Sanctions Against Mortgagees (05/09/2022)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Actions
      and Sanctions Against Mortgagees (05/09/2022)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'a. Actions and Sanctions Against Mortgagees (05/09/2022) i.
      Probation of Title II Direct Endorsement Authority FHA may place a Mortgagee
      on Direct Endorsement probation for a specified period of time for the purpose
      of evaluating the Mortgagee’s compliance with the requirements of the Direct
      Endorsement Program. The scope of the probation depends upon the seriousness
      of the problems and deficiencies exhibited by the Mortgagee. For additional
      information on this authority, see 24 CFR § 203.3(d)(1). This action is separate
      and apart from probation imposed by the MRB. V. QUALITY CONTROL, OVERSIGHT,
      AND COMPLIANCE E. Enforcement 3. Program Office Actions and Sanctions Handbook
      4000.1 1731 Last Revised: 11/26/2025 (A) Scope (1) Training The Mortgagee’s
      underwriter, or other technical staff, may be required to attend training sessions,
      as appropriate. (2) Title II Loan Reviews FHA may increase the percentage of
      the Mortgagee’s cases subject to Title II Loan Reviews. (3) Mortgagee Audit
      and Monitoring Review FHA may require the Mortgagee to perform a review or audit
      of its underwriting processes, or to hire an independent third party to assess
      the Mortgagee’s operational controls and systems, and report the results to
      FHA. FHA may also conduct an on-site monitoring review of the Mortgagee. (4)
      Quality Control Plan FHA may require the Mortgagee to make changes to its QC
      Plan. (5) Test Case Phase Review Status FHA may place a Mortgagee back in Test
      Case Phase review status and subject the Mortgagee’s cases to technical underwriting
      reviews and Firm Commitment processing prior to endorsement. See Supplemental
      Mortgagee Authorities. (a) Time Frame Test Case Phase review status continues
      until the Mortgagee corrects its underwriting deficiencies or until the Mortgagee’s
      Direct Endorsement approval is withdrawn. (b) Cause A return to Test Case Phase
      review status may result from, but is not limited to, the following circumstances:
      • final Title II loan review results that demonstrate a Mortgagee’s failure
      to follow FHA requirements; • a pattern of fraud identified by FHA, of which
      the Mortgagee was aware, or should have been aware; or • the results of on-site
      or other reviews of the Mortgagee. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE
      E. Enforcement 3. Program Office Actions and Sanctions Handbook 4000.1 1732
      Last Revised: 11/26/2025 (6) Additional Elements FHA may impose additional elements
      of probation reasonably related to the Mortgagee’s underlying violations that
      allow FHA to monitor the Mortgagee and assist FHA with bringing the Mortgagee
      into compliance with FHA regulations. (B) Notice FHA will send a written notice
      of probation to the Mortgagee. The probation notice will list the violations
      that precipitated the probation and explain the elements being applied to the
      Mortgagee’s probation. (C) Effective Date Probation is effective immediately
      upon the receipt of the notice of probation by the Mortgagee. ii. Withdrawal
      of Title II Direct Endorsement Authority FHA may withdraw the Direct Endorsement
      authority of any Mortgagee that demonstrates a pattern or practice of failing
      to comply with FHA underwriting guidelines or program requirements. This action
      is separate and apart from the termination action described in the credit watch
      termination section. (A) Scope FHA may terminate a Mortgagee’s approval to participate
      in the Direct Endorsement Program in a particular jurisdiction or on a nationwide
      basis. (B) Notice and Appeal FHA will provide the Mortgagee with written notice
      of the proposed withdrawal that identifies the grounds for the action and advises
      the Mortgagee of its right to an informal conference. (1) Informal Conference
      FHA will expeditiously arrange for a conference where the Mortgagee may present
      information and argument in opposition to the proposed withdrawal. The Mortgagee
      may be represented by counsel. (2) Determination After consideration of the
      material presented, FHA will issue a decision in writing stating whether the
      proposed termination is rescinded, modified, or affirmed. V. QUALITY CONTROL,
      OVERSIGHT, AND COMPLIANCE E. Enforcement 3. Program Office Actions and Sanctions
      Handbook 4000.1 1733 Last Revised: 11/26/2025 (3) Appeal and Final Agency Action
      The Mortgagee may appeal the decision to the Deputy Assistant Secretary (DAS)
      for Single Family Housing or their designee. A decision by the DAS for Single
      Family Housing or their designee constitutes final agency action. iii. Credit
      Watch Termination of Title II Mortgagees HUD may terminate a Mortgagee’s authority
      to originate or underwrite FHA-insured Single Family Mortgages in any geographic
      area where the Mortgagee has an excessive rate of early defaults and claims
      in accordance with the Credit Watch Termination regulations at 24 CFR § 202.3(c)(2).
      Credit Watch Termination is separate and apart from any action that may be taken
      by the MRB. (A) Frequency and Scope FHA reviews the default and claim rate of
      FHA-insured Single Family Mortgages on a quarterly basis. FHA compares the rate
      of each participating Mortgagee with the rates of other Mortgagees in the same
      geographic area. The review is limited to Mortgages with an amortization date
      within the preceding 24 months. (B) Cause FHA may terminate the origination
      or underwriting authority of any Mortgagee whose default and claim rate exceeds
      both the national default and claim rate and 200 percent of the default and
      claim rate within the geographic area served by a HUD field office. (C) Notice
      and Appeal FHA will issue a Proposed Credit Watch Termination Notice to the
      Mortgagee prior to terminating the Mortgagee’s approval. The Mortgagee may appeal
      the proposed termination by submitting a written request for an informal conference
      with the DAS for Single Family Housing or its designee within 30 Days of receipt
      of the Notice. (1) Informal Conference The Mortgagee or its representative may
      make an oral and/or written presentation to oppose the proposed termination.
      FHA will only consider presentations that specifically address relevant mitigating
      factors and present facts and circumstances to explain the Mortgagee’s poor
      performance. (2) Mitigating Factors FHA will consider relevant mitigating factors
      in deciding whether to terminate a Mortgagee’s origination and/or underwriting
      authority. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement 3. Program
      Office Actions and Sanctions Handbook 4000.1 1734 Last Revised: 11/26/2025 (3)
      Determination After the informal conference, FHA will make a determination whether
      to sustain or withdraw the termination. FHA will notify the Mortgagee of its
      decision in writing via a Final Notice of Determination. If sustained, the termination
      will not take effect until the Mortgagee receives the Final Notice. (4) Waiver
      of Appeal If a Mortgagee does not request an informal conference within 30 Days
      of receiving the Proposed Credit Watch Termination Notice, the Mortgagee has
      waived its appeal and its authority will be terminated 60 Days from the date
      of the Proposed Credit Watch Termination Notice without further notice from
      HUD. (D) Effect of Termination A Mortgagee whose authority has been terminated
      under Credit Watch is prohibited from originating or underwriting FHA-insured
      Single Family Mortgages within the area of the HUD field office(s) listed in
      the Notice. The Mortgagee’s general FHA approval and supplemental authorities
      remain unaffected. See Supplemental Mortgagee Authorities. (1) Case Status (a)
      Definition An Approved Mortgage is a Mortgage underwritten and approved by a
      DE underwriter, or covered by a Firm Commitment issued by HUD. (b) Standard
      During the period of credit watch termination, FHA will not endorse any Mortgage
      originated and/or underwritten by the Mortgagee, unless prior to the date of
      termination a Firm Commitment has been issued by HUD relating to any such Mortgage
      or a Direct Endorsement (DE) underwriter approved the Mortgage. Mortgages that
      closed or were approved before the termination became effective may be endorsed.
      Cases at earlier stages of processing cannot be submitted for insurance by the
      terminated Mortgagee. However, the cases may be transferred for completion of
      processing and underwriting to another Mortgagee authorized to underwrite FHA-insured
      Mortgages in that area. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement
      3. Program Office Actions and Sanctions Handbook 4000.1 1735 Last Revised: 11/26/2025
      (2) Public Notice HUD will publish a list of Mortgagees who have had their authority
      terminated in the Federal Register and on HUD’s website with a general explanation
      of the cause and effect of the termination. (E) Reinstatement (1) Waiting Period
      A terminated Mortgagee may request to have its authority reinstated no earlier
      than six months after the effective date of the termination. (2) Independent
      Review The Mortgagee must obtain an independent review of the terminated area’s
      operation and mortgage origination or underwriting, specifically including the
      FHA-insured Mortgages cited in the termination notice. The analysis must identify
      the underlying cause for the Mortgagee’s high default and claim rate. The review
      must be conducted and issued by an independent Certified Public Accountant (CPA)
      qualified to perform audits under Government Auditing Standards as set forth
      by the General Accounting Office. (3) Corrective Action Plan The Mortgagee must
      submit a corrective action plan to address each of the issues identified in
      the CPA’s report, along with evidence that the plan has been implemented. FHA
      reserves the right to impose additional requirements for reinstatement. (4)
      Application for Reinstatement The application for reinstatement must be submitted
      through the Lender Electronic Assessment Portal (LEAP). The application must
      be accompanied by the CPA’s report and the corrective action plan. iv. Suspension
      or Termination of Title II Lender Insurance Authority (A) Definition The Lender
      Insurance (LI) Compare Ratio is the percentage of Mortgages underwritten by
      the Mortgagee that are in claim or default status compared with the percentage
      of Mortgages in claim or default status for all Mortgagees operating in the
      same state(s) over the preceding two-year period. V. QUALITY CONTROL, OVERSIGHT,
      AND COMPLIANCE E. Enforcement 3. Program Office Actions and Sanctions Handbook
      4000.1 1736 Last Revised: 11/26/2025 (B) Scope FHA monitors Mortgagees participating
      in the LI program whose LI Compare Ratios exceed 150 percent. (C) Cause FHA
      may immediately terminate or temporarily suspend a Mortgagee’s LI Authority
      for any cause set forth in 24 CFR § 203.4(d). (D) Notice and Appeal FHA will
      provide written notice to any Mortgagee whose LI Authority has been suspended
      or terminated. Mortgagees may appeal the suspension or termination by requesting
      an informal conference with the DAS for Single Family Housing or its designee.
      (1) Informal Conference The suspension or termination letter will provide the
      address to where the request for an informal conference may be sent, and the
      time frame for the informal conference. The informal conference must be requested
      in writing within 30 Days of the notice of suspension or termination. (2) Determination
      The DAS or the designee will issue a decision in writing after the informal
      conference to either affirm the suspension or termination, or reinstate the
      Mortgagee’s LI Authority. This decision represents a final agency action pursuant
      to section 256(d) of the National Housing Act (12 U.S.C. § 1715z-21(d)) and
      is not subject to further appeal or judicial review. (3) Waiver of Appeal If
      a Mortgagee does not request an informal conference within 30 Days of receiving
      the suspension or termination letter, the Mortgagee has waived its right to
      appeal. (E) Effective Date The suspension or termination of the Mortgagee’s
      LI Authority is effective immediately upon the receipt of the notice by the
      Mortgagee. (F) Effect of Suspension or Termination A Mortgagee must submit every
      case binder to HUD for a pre-endorsement review and endorsement consideration.
      V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement 3. Program Office
      Actions and Sanctions Handbook 4000.1 1737 Last Revised: 11/26/2025 A Mortgagee’s
      Direct Endorsement authority is not affected by the suspension or termination
      of its LI Authority. Mortgagees who have had their LI Authority suspended or
      terminated may continue to underwrite and close FHA Mortgages without prior
      review by HUD. (G) Reinstatement (1) Waiting Period A Mortgagee whose LI Authority
      has been terminated is prohibited from applying for reinstatement of its LI
      Authority for six months from the date of termination. (2) Claim and Default
      Rate At the time of the application for reinstatement, the Mortgagee must have
      unconditional Direct Endorsement authority and a two-year claim and default
      rate that does not exceed 150 percent of the aggregate claim and default rate
      for the states in which it underwrote Mortgages. (3) Application for Reinstatement
      Applications for reinstatement of LI Authority must be submitted to FHA through
      LEAP. The application must include: • a copy of the Acknowledgment of Terms
      and Conditions for LI page from FHAC signed by an authorized official registered
      with HUD; • a corrective action plan identifying the changes in internal policies
      and procedures that address the issues that resulted in the termination of LI
      Authority; and • documentation evidencing that the Mortgagee has implemented
      the corrective action plan. v. Return to Conditional or Withdrawal of Unconditional
      DELRAP Authority (A) Adverse Action (1) Loss of Direct Endorsement Authority
      Withdrawal of Title II Direct Endorsement Authority will result in automatic
      termination of DELRAP authority. (2) Noncompliance with Condominium Project
      Approval Requirements Failure to comply with Condominium Project Approval requirements
      may result in one of the following actions: • The Mortgagee is returned to Conditional
      DELRAP Authority status. • The Mortgagee’s Unconditional DELRAP Authority is
      withdrawn. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement 3. Program
      Office Actions and Sanctions Handbook 4000.1 1738 Last Revised: 11/26/2025 (B)
      Notice FHA will send written notice listing the violations that precipitated
      the action(s) to the Mortgagee. (C) Appeal The Mortgagee may submit an appeal
      of the decision to FHA within 30 Days of the date of the decision. (D) Informal
      Conference If the decision is sustained, the applicant may submit a second appeal
      to the Office of Single Family Program Development. The Director or designee
      will conduct an informal conference with the Mortgagee and its counsel, if any,
      no later than 60 Days from the date of the decision. (E) Determination FHA will
      issue a determination following the informal conference stating whether Unconditional
      DELRAP Authority is approved or denied. If Unconditional DELRAP Authority is
      denied, the determination will state the reasons for the denial. (F) Reinstatement
      (1) Waiting Period A Mortgagee may request reinstatement of the Mortgagee’s
      DELRAP authority no earlier than six months after the date of the termination
      notice. (2) Application for Reinstatement The application for reinstatement
      is submitted to the appropriate HOC using the DELRAP authority Application and
      Approval process. The Mortgagee must: • meet the Eligibility Requirements for
      DELRAP authority; • submit a corrective action plan; and • provide evidence
      that the Mortgagee has implemented the corrective action plan and that the underlying
      causes for termination have been satisfactorily remedied. vi. Withdrawal of
      Title I Manufactured Housing Direct Endorsement Authority FHA may withdraw the
      Manufactured Housing DE authority of any Title I Lender that demonstrates a
      pattern or practice of failing to comply with FHA underwriting guidelines or
      program requirements. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement
      3. Program Office Actions and Sanctions Handbook 4000.1 1739 Last Revised: 11/26/2025
      (A) Scope FHA may terminate a Title Lender’s approval to participate in the
      Manufactured Housing DE Program in a particular jurisdiction or on a nationwide
      basis. (B) Notice and Appeal FHA will provide the Title I Lender with written
      notice of the proposed withdrawal that identifies the grounds for the action
      and advises the Title I Lender of its right to an informal conference. (1) Informal
      Conference FHA will expeditiously arrange for a conference where the Title I
      Lender may present information and argument in opposition to the proposed withdrawal.
      The Title I Lender may be represented by counsel. (2) Determination After consideration
      of the material presented, FHA will issue a decision in writing stating whether
      the proposed termination is rescinded, modified, or affirmed. (3) Appeal and
      Final Agency Action The Lender may appeal the decision to the Deputy Assistant
      Secretary (DAS) for Single Family Housing or his or her designee. A decision
      by the DAS for Single Family Housing or his or her designee constitutes final
      agency action. (C) Effect of Termination A Title I Lender whose authority has
      been terminated is prohibited from originating or underwriting FHA-insured Title
      I Loans within the area of the HUD field office(s) listed in the Notice. The
      Title I Lender’s general FHA approval and supplemental authority remain unaffected.
      (1) Case Status (a) Definition A Title I Loan is a Loan underwritten and approved
      by a DE underwriter. (b) Standard After a Title I Lender’s withdrawal of Title
      I Manufactured Housing DE authority, FHA will not endorse any Title I Loan originated
      by the Title I Lender. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement
      3. Program Office Actions and Sanctions Handbook 4000.1 1740 Last Revised: 11/26/2025
      Title I Loans that closed or were approved before the termination became effective
      may be endorsed, except in the case of fraud or misrepresentation. Cases at
      earlier stages of processing cannot be submitted for insurance by the terminated
      Title I Lender. However, the cases may be transferred for completion of processing
      and underwriting to another Title I Lender authorized to underwrite FHA-insured
      Title I Loans in that area. (2) Public Notice HUD will publish a list of Title
      I Lenders who have had their authority terminated in the Federal Register and
      on HUD’s website with a general explanation of the cause and effect of the termination.
      (D) Reinstatement (1) Waiting Period A terminated Title I Lender may request
      to have its authority reinstated no earlier than six months after the effective
      date of the termination. (2) Independent Review The Title I Lender must obtain
      an independent review of the terminated area’s operation and mortgage origination
      or underwriting, specifically including the Title I FHA-insured Loans cited
      in the termination notice. The analysis must identify the underlying cause for
      the Title I Lender’s high default and claim rate. The review must be conducted
      and issued by an independent Certified Public Accountant (CPA) qualified to
      perform audits under Government Auditing Standards as set forth by the General
      Accounting Office. (3) Corrective Action Plan The Title I Lender must submit
      a corrective action plan to address each of the issues identified in the CPA’s
      report, along with evidence that the plan has been implemented. FHA reserves
      the right to impose additional requirements for reinstatement. (4) Application
      for Reinstatement The application for reinstatement must be submitted through
      the Financial Operations Center. The application must be accompanied by the
      CPA’s report and the corrective action plan. The contact information for the
      FOC is: V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement 3. Program
      Office Actions and Sanctions Handbook 4000.1 1741 Last Revised: 11/26/2025 U.S.
      Department of Housing and Urban Development Financial Operations Center 52 Corporate
      Circle Albany, New York 12203 1-800-669-5152, extension 2832 Title_One_Help@hud.gov
      vii. Termination of Title I Lender Contract of Insurance HUD may terminate a
      Title I Lender’s authority to originate or underwrite Title I Loans for any
      Title I Lender that demonstrates a pattern or practice of failing to comply
      with Title I originating, underwriting or program guidelines. (A) Notice and
      Appeal FHA will provide the Title I Lender with written notice of the proposed
      termination of the Title I Lender’s Contract of Insurance within five business
      days that identifies the grounds for the action and advises the Title I Lender
      of its right to an informal conference. (1) Informal Conference FHA will expeditiously
      arrange for a conference where the Title I Lender may present information and
      arguments in opposition to the proposed termination prior to the expiration
      of the five business day notice period. The Title I Lender may be represented
      by counsel. (2) Determination After consideration of the material presented,
      FHA will issue a decision in writing stating whether the proposed termination
      is rescinded, modified, or affirmed. (B) Effect of Termination The Title I Lender
      remains responsible for servicing or selling the Title I Loans that it holds
      and is authorized to file insurance claims on these Title I Loans, but it cannot
      otherwise exercise the rights of an FHA-approved Title I Lender. (1) Newly Originated
      Loans A Title I Lender cannot obtain insurance coverage for new Title I Loans
      originated under the terminated Contract of Insurance as of the effective date
      of termination. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE E. Enforcement
      4. Mortgagee Review Board Actions and Sanctions Handbook 4000.1 1742 Last Revised:
      11/26/2025 (2) Previously Insured Loans The insurance reserve on Title I Loans
      previously accepted for insurance is not adversely affected except for Title
      I Loans involving fraud or misrepresentation. (3) Premiums and Obligations The
      Title I Lender is not relieved of the liability to pay future insurance premiums
      or other obligations owed to HUD. (4) Reserves Insurance Reserves earned by
      the Title I Lender as of the date of termination, under the terminated contract,
      remain to its credit unless exhausted by filing of claims. (C) Reinstatement
      of Contract of Insurance (1) Waiting Period A Title I Lender may apply to obtain
      a new Contract of Insurance no earlier than six months after the effective date
      of the termination. (2) Corrective Action Plan The Title I Lender must submit
      a corrective action plan to address each of the issues identified that resulted
      in termination, along with evidence that the plan has been implemented. FHA
      reserves the right to impose additional requirements for reinstatement. (3)
      Application for Reinstatement The application for reinstatement must be submitted
      through the FOC. The application must be accompanied by the corrective action
      plan.'
  judgment: false
