"FHA-approved lenders are obliged to apply our underwriting standards, not only to protect our insurance fund, but to make certain families can sustain their mortgages," said Acting FHA Commissioner Bob Ryan. "Due diligence is at the root of mortgage lending protecting lenders, the FHA, and certainly homeowners from the prospect of foreclosure."
For those lenders with special authority to insure mortgage loans on FHA's behalf, HUD seeks to force indemnification for 'serious and material' violations of FHA origination requirements such that the mortgage never should have been endorsed by the mortgagee in the first place just as FHA would not have insured the mortgage on its own.
Specifically, these lenders may be required to indemnify HUD if they failed to: (1) verify and analyze the creditworthiness, income, and/or employment of the borrower; (2) verify the source of assets brought by the borrower for payment of the required down payment and/or closing costs; (3) address property deficiencies identified in the appraisal affecting the health and safety of the occupants or the structural integrity of the property;
or (4) ensure that the property appraisal satisfies FHA appraisal requirements. HUD may seek indemnification irrespective of whether the violation caused the mortgage default.
When the Onsite Sewage Disposal System is not sufficient and an off-site system is not available, the Mortgagee must reject the Property unless the Onsite Sewage Disposal System is repaired or replaced and complies with local health department standards.
