What functions can an FHA-approved Mortgagee contract out?

The Mortgagee may use contract support for administrative, human resources and clerical functions that include:

  • clerical assistance;
  • mortgage processing (typing of mortgage documents, mailing and collecting verification forms, ordering credit reports, and/or preparing for endorsement and shipping mortgages to the purchasing mortgagee);
  • ministerial tasks in mortgage servicing (processing of a foreclosure action, preservation and protection, and/or tax services);
  • legal functions;
  • Third Party Verification Services (TPV);
  • Quality Control; and
  • human resources services (payroll processing, payment of employment taxes and the provision of employee benefits) provided by a professional employer organization or a similar entity. 

Third Party Verification refers to a process through which a Borrower’s employment, income, and asset information is verified directly by the Mortgagee with a borrower’s employer or financial institution, through the services of a third party vendor.
The Mortgagee must not contract with any entity or person that is suspended, debarred, under a Limited Denial of Participation (LDP), or who is otherwise excluded from participation in FHA transactions. 
The Mortgagee must not contract out management or underwriting functions.
The Mortgagee must ensure that the contracting out of certain functions does not and will not materially affect underwriting or servicing decisions or otherwise increase financial risk to FHA.
The Mortgagee remains responsible for the quality of its FHA-insured Mortgages and must ensure that its contractors fully comply with all applicable laws and FHA requirements.
The Mortgagee may own or have an ownership interest in a separate business Entity that offers such contract services.
Employees covered by a contract for human resources services described above must remain under the direct supervision and control of the Mortgagee.  FHA considers the Mortgagee, the employer with respect to all activities related to FHA business, and the Mortgagee retains full responsibility and legal liability for the actions of employees covered by a contract for human resources services with regard to all HUD regulations and requirements.
The Mortgagee and its contractor must have a valid contractual agreement in place that specifies the roles and responsibilities of each party.
For additional information see Handbook 4000.1 Section I.A.6.j at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

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-05117