What practice allows lenders to shorten the loan processing time without needing FHA approval?

The practice that allows lenders to shorten the loan processing time without needing FHA approval is known as direct endorsement. This system permits approved lenders to underwrite and close FHA loans without having to submit each loan for prior review by the Federal Housing Administration (FHA). By utilizing direct endorsement, lenders can streamline the entire mortgage process, thus providing a faster turnaround for loan approvals and enhancing efficiency in the lending process.

This method not only saves time but also reduces the workload on FHA staff, allowing them to focus on monitoring lender performance and compliance instead. Lenders who are well-versed in FHA guidelines can make lending decisions with greater autonomy, which ultimately results in quicker processing for borrowers.

In contrast, the other choices provided in the question pertain to different aspects of the mortgage process. Loan origination refers to the entire process of creating a new loan, which includes all steps from initial application to funding. Automatic underwriting is a technology-driven process that aids in assessing a borrower's risk profile quickly, but it still must conform to the guidelines set by FHA or other governing bodies. Conventional approval pertains specifically to non-FHA loans and is governed by different standards. Although these practices can improve loan efficiency, direct endorsement is specifically the method that circumvents the requirement for FHA