Can a new Mortgagee created through merger, acquisition or reorganization qualify for Lender Insurance (LI) authority?

Yes.  There is an exception for new Mortgagees created by a merger, acquisition, or reorganization resulting in a new FHA Lender ID. 
If the new Mortgagee lacks a Lender Insurance (LI) Compare Ratio because it was recently created by a merger, acquisition or reorganization that resulted in the issuance of a new FHA Lender ID, it must:
•           have Unconditional Direct Endorsement authority;
•           have had one or more Mortgagees with LI authority at the time of the merger, acquisition or reorganization, participate in the merger, acquisition or reorganization;
•           have had an acceptable LI Compare Ratio for all Mortgagees with LI authority participating in the merger, acquisition or reorganization, at the time of the merger, acquisition, or reorganization;
•           have an LI Compare Ratio that is derived from • aggregating the claims and defaults of the formerly FHA-approved Mortgagees participating in the merger, acquisition or reorganization, that is not more than 150%; and
•           ensure that management and staff who were involved with LI processing for the FHA-approved Mortgagee prior to the merger, acquisition, or reorganization will continue to exercise those responsibilities for the new Mortgagee.
The 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.
Mortgagees created through mergers, acquisitions, or reorganizations that are issued a new FHA Lender ID must apply for LI authority through LEAP.
For additional information see Handbook 4000.1 I.A.5.b at:  
For more information refer to the LEAP User Manual that can be accessed using the LEAP Information link in the Approvals & Renewals section at:  

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-02180