Sec. 225. Indemnification by mortgagees

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If the FHA determines that at or before the time of loan closing the mortgagee knew, or should have known based on the information then reasonably available to the mortgagee, of a serious and material violation of the requirements established by the FHA with respect to a mortgage executed after the date of the enactment of this Act by such mortgagee approved by the FHA under the direct endorsement program or insured by a mortgagee pursuant to the delegation of authority under section 256 of the National Housing Act ( 12 U.S.C. 1715z–21 ) such that the mortgage loan should not have been approved and endorsed for insurance, and the FHA pays an insurance claim with respect to the mortgage within a reasonable period specified by the FHA, the FHA may require the mortgagee approved by the FHA under the direct endorsement program or the mortgagee delegated authority under such section 256 to indemnify the FHA for the loss, or any portion thereof, if the violation was a materially contributing factor to the cause of the mortgage default.

If fraud or material misrepresentation was involved in connection with the origination or underwriting of a mortgage executed after enactment by the mortgagee and the FHA determines that at or before the time of loan closing such mortgagee knew or should have known, based on the information then reasonably available to such mortgagee, of the fraud or material misrepresentation such that the mortgage loan should not have been approved and endorsed for insurance, the FHA shall require the mortgagee approved by the FHA under the direct endorsement program or the mortgagee delegated authority under such section 256 to indemnify the FHA for the loss, or any portion thereof, if the fraud or material misrepresentation was a materially contributing factor to the cause of the mortgage default.

The FHA shall, by regulation, establish an appeals process for mortgagees to appeal indemnification determinations made pursuant to subsection

(a)or (b). The FHA shall issue regulations establishing appropriate requirements and procedures governing the indemnification of the FHA by the mortgagee, including public reporting on— the number of loans that— were not originated or underwritten in accordance with the requirements established by the FHA; involved fraud or material misrepresentation in connection with the origination or underwriting that was a material contributing factor to the cause of the mortgage default; and the financial impact on the Mutual Mortgage Insurance Fund when indemnification is required. The FHA shall, pursuant to its existing regulatory authority, issue and update annually a manual, handbook, or guide that collects all of the origination and underwriting requirements that a mortgagee must follow to make residential mortgage loans eligible for insurance by the FHA which shall— provide clear and concise directions so that a mortgagee can reasonably know what is expected of it; identify examples of specific serious and material violations that could be the basis for an indemnification demand under this section; apply nationally and be interpreted by the FHA uniformly with respect to all mortgages endorsed for insurance; and permit prospective changes with reasonable advance notice to mortgagees, which such changes must be incorporated into the following year’s revised version of the manual, handbook, or guide and may not provide for retroactive changes to mortgages previously endorsed for insurance. The FHA shall— make prompt initial determinations of a mortgagee’s potential liability for either indemnification under this section or other administrative remedies or sanctions that may be available under the National Housing Act or other applicable laws, based on either self-reports by the mortgagee or other findings by the FHA through its examination processes of potential serious and material violations of such origination and underwriting requirements established under paragraph

(1)or other fraud and material misrepresentations; promptly notify the mortgagee of such initial determination and afford the lender the opportunity to provide additional information and analysis before a final determination is made; and not pursue indemnification under subsections

(a)and

(b)with respect to those mortgages reviewed under this subsection unless an initial determination of mortgagee liability is made and communicated to the mortgagee within six months of the FHA’s receipt of information that is reasonably sufficient to enable the FHA to determine initially that a serious and material violation or fraud or material misrepresentation may have occurred. This section shall take effect on the date of the enactment of this Act. During the transition period under section 551, any reference in this section to the FHA shall be construed to refer to the Secretary of Housing and Urban Development to the extent the Secretary has not delegated authority under this section to the FHA pursuant to section 552(1).

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12 USC 1715z–21

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Sec. 225

Indemnification by mortgagees

Cite12 USC 1715z–21

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