hud fha-lender

Transcription

hud fha-lender

HUD
FHA-LENDER
UPDATE
DECEMBER 8TH, 2014
LAS VEGAS, NV
Copyright © 2014 AHA Services, Inc.
All Rights Reserved
Disclaimer: The materials contained herein are designed to provide accurate information in regard
to the subject matter covered. However, these materials are not a substitute for the promulgated
standards or regulatory guidance. This material is provided with the understanding that AHACPA is
not engaged in rendering legal, accounting or other professional advice. If such advice is required
the services of a competent professional should be secured.
Table of Contents
Introduction:
Agenda Announcements About the Speakers HUD Acronym List Course Attendee List About AHACPA ‐ AHACPA Membership Information ‐ AHACPA Electronic Submission Service Course materials:
LEAP and FHA Program Changes ..................................................................... Section 1 FHA Single Family Housing Policy Handbook Doing Business with FHA ............................................................................ Section 2 Supplemental Information ..................................................................................................... 2a ‐ Mortgagee Letter 2014‐09: Annual Recertification and Post‐Approval Updates ‐ Revised MBS Issuer Eligibility Requirements ‐ Ginnie Mae Press Release FHA Single Family Housing Policy Handbook Quality Control, Oversight and Compliance ................................................ Section 3 CFPB – Capital Impairment Risk ....................................................................... Section 4 HUD Audit Guide and Other Procedures ......................................................... Section 5 Supplemental Information ........................................................................................................... 5a ‐ Mortgagee Letter 2013‐41: Lender Self‐Reporting Requirements ‐ FHA’s Proposed Supplemental Performance Metric Reporting Findings ....................................................................................................................... 5b -- Evaluations --
FHA Lender Update Agenda
December 08, 2014
Nolita Ballroom
Continental Breakfast (7:30 - 8:30)
Speaker
Monique White-Chiselom
Topic
LEAP and FHA Program Changes
Time
8:30 AM - 10:00 AM
Break (10:00 - 10:10)
Mike Olsen
Doing Business with FHA | Quality Control
10:10 AM - 12:00 PM
LUNCH - Nolita 3 (12:00 - 1:00)
Andy Schell &
Theresa Marie
CFPB - Capital Impairment Risk
1:00 PM - 2:40 PM
Break (2:40 - 2:50)
Les Sparks
HUD Audit Guide and Other Procedures
2:50 PM - 4:30 PM
Announcements
If you have questions or need any assistance please let us know. Susan or Kathy will help you out. If the room gets too hot or too cold we can notify the hotel staff. It takes about an hour for the temperature to change in these large rooms. You can email us at [email protected] CPE Credit Please make sure you sign in and out at the end of each day. We cannot issue CPE certificates without your signature on the sign in/out sheet. If you do not sign in or out we will assume you do not need the CPE credit. CPE certificates will be emailed to you the week following the conference. If you need to leave early, the sign‐out sheets will be available after lunch. Your CPE credits will be adjusted accordingly. Wi‐Fi The Cosmopolitan does not provide complimentary wireless. Phones Please silence your phones and other portable electronic devices. If you need to take a phone call please step out into the commons area near the elevators. Boarding Passes & Charging Station We will have a station set up in the back of the room for printing boarding passes & charging electronic devices. Your Belongings Someone from AHACPA will be in the room during lunch. We are not responsible for lost or stolen items. Evaluations A link to the course evaluation will be emailed to you a day or two after the conference. For your convenience, we have also included a hard copy in the very back of this book. What’s for Lunch (& snacks)? December 8th – Lunch will be in Nolita 3 (next door): 12:00 ‐ “Viva Italia” 
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Capri Salad, vine ripe tomatoes, fresh mozzarella, torn basil, aged balsamic and olive oil Marinated grilled and chilled asparagus, pancetta confetti, charred sweet tooth peppers, cracked pepper and preserved lemon oil Italian submarine sandwiches: soppressata, genoa salami, mortadella, ham, provolone, shaved lettuce, thinly sliced tomatoes, hot and sweet Italian peppers Wood stone fired pizzas (2 types): pepperoni, mushrooms and green peppers & four chees (mozzarella, fontina, white cheddar, parmesan) Piccata style chicken, lemon caper butter sauce, fried sage leaves Marinated olive antipasto with ricotta salata and pepperoncini Ricotta cheesecake tarts, tiramisu chocolate cups, cannolis with chocolate & pistachios Freshly brewed coffee, select teas and brewed iced tea 2:40 pm ‐ Afternoon snack: 
Individually‐wrapped sweet and salty snacks, assorted whole seasonal fruits, drinks Bins full of candy will be available at the breaks  Water coolers are available at the back of the room throughout the day
About the Speakers
Monique White‐Chiselom, Interim Supervisory Auditor, HUD‐FHA Monique White‐Chiselom has worked at the Department of Housing and Urban Development 2006. Presently, she is the Interim Supervisory Auditor for the US Department of Housing & Urban Development, Office of Lender Activities and Program Compliance, FHA – Lender Recertification Branch in Washington, DC. Prior to joining HUD, Ms. Chiselom worked as an Auditor for the Defense Contract Audit Agency. She holds a Bachelors degree in Business Administration with a concentration in Accounting. Theresa Marie, CIO, Metric Banking Solutions
Theresa Marie is an award winning technology executive with a well‐earned reputation as an extraordinary team builder who is gifted at finding solutions to complex scenarios. Along with 25 years of experience in the sophisticated technologies that support the foundation of the financial services industry, she possesses intuitive listening skills that enable her to identify and understand complex issues and create effective solutions that yield exceptional results. It’s these traits, and her solid track record of actualizing successes, that make Theresa a vital resource for any organization looking to maximize their integration and deployment of technology to achieve highly satisfied front‐end users and to maximize the technology ROI. Theresa’s background includes 25 years in the banking and mortgage lending industries where she was involved in every aspect of the technology and operations – from origination to servicing and from process assessment to new technology solution integration. Additionally, Theresa has been the driving force behind innovative mortgage technology solutions, where she led multiple initiatives that advanced the effectiveness of technology and process in mortgage lending including the design of an innovative Automated Underwriting System. Theresa has been recognized as a leader in the industry, receiving both the 2009 New Mexico Technology Council – Women in Technology Nomination, the 2009 Celent Model Bank award winner and the 2007 New Mexico IT Excellence Award for Best Solution. She received a four year scholarship to the University of Wisconsin, Madison from the Rotary Club where she studied aeronautical engineering. She has been active in industry organizations such as the Mortgage Bankers Association, American Institute of Banking, UW‐Madison & CUNA Financial Counseling School. Michael E. Olsen, CFO, AHACPA
Mr. Olsen brings twenty‐six years of experience in accounting, auditing, tax planning and educational program development and delivery. Mr. Olsen has a Master’s of Business Administration and is a Certified Public Accountant. Mr. Olsen also has 12 years of specialized experience in the housing industry with a specific emphasis on the audit, financial reporting and submission requirements specifically required by the Department of Housing and Urban Development for HUD‐approved Lending, multifamily and public housing areas. Prior to joining AHACPA, Mr. Olsen was employed by the international accounting firm of Ernst & Young for approximately 2 years and most recently has been self‐employed with his own accounting and tax practice for the past 18 years. Prior to that he spent five years as Chief Financial Officer and Accounting Manager for Skaggs Management Company. Andrew Schell, CPA/CFF, CMB, Mortgage Banking Solutions
Mr. Schell is Managing Partner and Co‐Founder of Mortgage Banking Solutions, Metric Banking Solutions and MBS Financial Services (“MBS”), based in Austin, Texas. With a nationwide client base, MBS evaluates hundreds of mortgage banks each year and is the preeminent M&A firm in mortgage finance. Andy began his career in 1978 as a mailroom clerk for an FDIC bank. By 1983, at the age of 24, he was presenting the corporate financial results to the bank’s Board of Directors. In 1998 he became President & CFO of a multi‐state mortgage bank. Over the past 30 years he has lead operations for both small and large organizations, including Bank of America in San Francisco where his team created the national Correspondent Lending platform. He also managed all Loan Accounting for the bank’s $14 billion mortgage production operation and managed all hedge settlements for a $35 billion portfolio. He lead the loan servicing operation for a multi‐
billion Dallas commercial bank and went on to lead the creation of 7 national companies from mortgage lending to federal contracting including the installation of Intercontinental Ballistic Missile Silos for the national defense shield in Alaska and the reprogramming of software that was sold to NASA. He holds an undergraduate degree in Finance from the University of North Texas and a graduate degree Banking and Credit Risk Management from Southern Methodist University. He is a Certified Public Accountant who gained his public accounting experience in Texas. He is also a Certified Mortgage Banker, as well as being Certified in Financial Forensics by the AICPA. The combination of his experience and diversity of certifications create a demand for his services as a Forensic Accountant in Legal Expert Witness services. He speaks around the country and is often published in national circulations discussing risk management, accounting, and capital markets. He is currently the host of “The Profit Doctor” segment on the Lykken on Lending radio program. Andy is an accomplished musician, drummer and certified sound engineer. He has served in many community and civic groups including as a member of the leadership board for Crosspoint Community Church and as Board Treasurer for a non‐profit children’s performance group called Broadway Kidz, He can be reached at: ASchell@MBS‐Team.com or 512‐501‐2812. Les Sparks, President, AHACPA
Les is the President of the Affordable Housing Association of Certified Public Accountants. Prior to this, Les was involved in various capacities in the software manufacturing for governmental “Case Management” systems for governmental agencies. He was the Chief Financial Officer for Professional Staff Management, a large employment services firm. Les began his career with the international accounting firm of Ernst & Young. He spent over 13 years at E&Y providing accounting, auditing and consulting services to variety of clients in many industries. Les is an accomplished trainer in both software and accounting issues. As president of AHACPA, Les provides support to the more than 600 members of the association. This support includes the interpretation of accounting and auditing and financial statement requirements as specified by the Department of Housing and Urban Development. Such support is provided either by phone, email or other means and is designed to assist the members in correctly reporting financial information to HUD’s Real Estate Assessment Center. Les is responsible for the development and presentation of training programs which provide continuing professional education (CPE) to auditors and other users of the relevant REAC systems. Les also supervises the preparation of over 700 annual financial statement submissions under multifamily, public housing and FHA lender requirements. HUD Acronym Listing
ACRONYM
DEFINITION
ACRONYM
DEFINITION
A/E
Architect and Engineering
FASB
Financial Accounting Standards Board
AAFB
Area Approved for Business
FASS
Financial Assessment Subsystem
ABA
Annual Budget Authority
FASSMF
ACC
Annual Contributions Contract
FASS-PHA
AcSEC
Accounting Standards Executive Committee
AFHMP
Affirmative Fair Housing Marketing Plan
FASSUB
See FASSUB
Financial Assessment Subsystem - Public Housing
Administration
Financial Assessment Subsystem - Submission
AFS
Annual Financial Statement
FDIC
Federal Deposit Insurance Corporation
AHACPA
Affordable Housing Association of CPAs
FDS
Financial Data Schedule
AICPA
American Institute of Certified Public Accountants
FDT
Financial Data Template
AMP
Asset Management Project
FHA
Federal Housing Administration
ARC
Annual Required Contribution
FHA/MF
Federal Housing Administration/Multifamily
ARQ
Audit Required Questions
FMC
PIH Financial Management Center
ARRA
American Recovery and Reinvestment Act
FMD
Financial Management Division
BLI
Budget Line Item
FRAG
Financial Reporting and Auditing Guide
BTA
Business-Type Activities
Freddie Mac
Federal Home Loan Mortgage Corporation
CA
Contract Administrator
FSS
Family Self Sufficiency
CAAF
FYE
CAIVRS
Coordinator Access Authorization Form
EIV Role - Contract Administrator Coordinator (HUD
Staff)
Credit Alert Interactive Voice Response System
GAAP
Fiscal Year End
Governmental Accounting, Auditing, and Financial
Reporting (‘The Blue Book’)
Generally Accepted Accounting Principles
CAU
EIV Role - Contract Administrator User (Non-HUD)
GAAS
Generally Accepted Auditing Standards
CEO
Chief Executive Officer
GAGAS
Generally Accepted Government Auditing Standards
CFDA
Catalog of Federal Domestic Assistance
GAO
General Accounting Office
CFFP
Capital Fund Financing Program
GAS
Government Auditing Standards (see GAGAS)
CFP
Capital Fund Program
GASB
Governmental Accounting Standards Board
CFR
Code of Federal Regulation
Ginnie Mae
Government National Mortgage Association
CMA
Computer Matching Agreement
HAP
Housing Assistance Payment
COCC
Central Office Cost Center
HCV
Housing Choice Voucher
CPA
Certified Public Accountant
HDK
CPE
Continuing Professional Education
DAS
Deputy Assistant Secretary
HEREMS
EIV Role - Helpdesk Personnel
Home Equity Conversion Mortgage (Reverse
mortgage)
Housing Enterprise Real Estate Management System
DBA
Doing Business As
HFU
EIV Role - HUD Field Office User
DCF
Data Collection Form
HHS
Health and Human Services
DE
Direct Endorsement
HMDA
Home Mortgage Disclosure Act
DEC
Departmental Enforcement Center
HOC
HUD Homeownership Center (FHA)
DHAP
Disaster Housing Assistance Program
HOH
Head of Household
DVP
Disaster Voucher Program
HQA
EIV Role - HQ User Administrator
EC
Enforcement Center (see DEC)
HQU
EIV Role - HUD HQ User
EIV
Enterprise Income Verification
HSC
EIV Role - Housing Coordinator (HUD staff)
ELI
Extremely Low Income
HSU
eLOCCS
Electronic Line of Credit Control System
HUD
Fannie Mae
Federal National Mortgage Association
FASAB
Federal Accounting Standards Advisory Board
EIV Role - Non-HUD User
U.S. Department of Housing and Urban
Development
HUD Office of Inspector General
CAC
GAAFR
HECM
HUD OIG
ACRONYM
DEFINITION
ACRONYM
DEFINITION
HUD PM
HUD Project Manager
PHAS
Public Housing Assessment System
HUDCAPS
HUD Central Accounting and Program System
PIC
PIH Information Center
IAR
Independent Auditor Report
PIH
(Office of) Public and Indian Housing
IG
Inspector General
PUM/PUPM
Per-Unit per Month
IP
Improvement Plan
QAD
Quality Assurance Division
IPA
Independent Public Accountant (See CPA)
QAR
Quality Assurance Review
KDHAP
Katrina Disaster Housing Assistance Program
QASS
Quality Assessment Subsystem
LASS
Lender Assessment Subsystem
QC
Quality Control
LDP
Limited Denial of Participation
QWHRA
Quality Housing & Work Responsibility Act
LI
Low Income
R&O
Regulatory & Operating Agreement
LIHTC
Low-income Housing Tax Credit
RA
Rental Assistance
LLC
Limited Liability Company
RAD
Rental Assistance Demonstration Program
LOCOM
Lower of cost or market
RASS
Residential Assessment Subsystem
M2M
Market to Market-OHMAR Restructured Loans
RDA
Rural Development Agency
MASS
Management Assessment Subsystem
REAC
Real Estate Assessment Center
MCAW
Mortgage Credit Analysis Worksheet
REMS
Real Estate Management System
MD&A
Management Discussion and Analysis
RESPA
Real Estate Settlement Procedures Act
MF
Mixed Finance
RHIIP
Rental Housing Integrity Improvement Project
MFH
Multifamily Housing
RHS
Rural Housing Services
RMCR
Residential Mortgage Credit Reports
MIP
Management Interactive Network Connection (Rural
Housing)
Mortgage Insurance Premium
RRH
Rural Rental Housing
MOR
Management & Occupancy Review
RSI
Required Supplementary Information
MRB
Management Review Board
SAA
Single Audit Agency
MTW
Moving-to-Work
SAC
Special Application Center
NASS
iNtegrated Assessment Subsystem
SAS
Statement on Auditing Standards
NCGAS
National Council on Governmental Accounting
Statement
NCUA
National Credit Union Administration
NDNH
National Directory of New Hires
NH
Nursing Home
NPO
Non Profit Organization
SSAE
NRA
Net Restricted Assets
SSN
Statement of Position
Statements on Standards for Attestation
Engagements
Social Security Number
O/A
Owners / Management Agent
SUB
REAC AFS Submitter
OAHP
Office of Affordable Housing Preservation
TAC
Technical Assistance Center
OCBOA
Other Comprehensive Basis of Accounting
TFAE
Total Federal Awards Expended
OIG
Office of Inspector General
TIN
Tax Identification Number
OIG
EIV Role - OIG User
TPA
Transfer of Physical Assets
OMB
Office of Management and Budget
TRACS
Tenant Rental Assistance Certification System
ONAP
Office of Native American Programs
TSP
Tenant Selection Plan
OPEB
Other Post Employment Benefits
UAAF
User Access Authorization Form
P&U Division
Processing & Underwriting Division in an HOC
UEL
Utility Expense Level
PASS
Physical Assessment Subsystem
UFRS
Uniform Financial Reporting Standards
PCAOB
Public Company Accounting Oversight Board
UI
Unemployment Benefits
PEL
Project expense level
UII
Unique IPA Identifier
PHA
Public Housing Authority
URL
Uniform Resource Locator
MINC
SEFA
SFAS
SKE
SOP
Schedule of Expenditures of Federal Awards
Statements of Financial Accounting Standards issued
by FASB
Skills, Knowledge, Experience
ACRONYM
DEFINITION
VASH
HUD Veterans Affairs Supportive Housing Program
V-Form
Yearly Verification Report for Lender
VLI
Very Low Income
VMS
Voucher Management System
WASS
HUD’s Secure Connection / Secure Systems
Government Auditing Standards issued by GAO (See
GAGAS)
Yellowbook
Attendee List
AHACPA:
Attendees:
459 North 300 West, Suite 11 Kaysville, UT 84037 800‐532‐0809 Dave Adams Geffen Mesher & Company PC 888 SW 5th Ave Ste 800 Portland, OR 97204 503‐221‐0141 Les Sparks [email protected] Mike Olsen [email protected] Kathy Christensen [email protected] Susan Harris [email protected] Speakers:
Theresa Marie Mortgage Banking Solutions Austin, TX 78709‐1856 512‐501‐2804 Andy Schell KLS Consulting, LLC dba Mortgage Banking Solutions Austin, TX 78709 512‐501‐2812 Monique White‐Chiselom HUD ‐ Lender Approval & Recertification Division Washington, DC 20024 Daniel Baker Gallina LLP 925 Highland Point Drive, Ste 450 Roseville, CA 95678 916‐784‐7800 Michael Barber BKM Sowan Horan, LLP 15301 Dallas Parkway, Suite 960 Addison, TX 75001 214‐545‐3973 Amanda Bergantino Moss Adams LLP 2333 Hempstead St. #18 Medford, OR 97501 Karen Bergquist Marrs Bergquist CPAs 3615 S Town Center Drive, Suite 100 Las Vegas, NV 89135 702‐579‐2707 Mila Bilbao Idaho Housing & Finance Association PO Box 7899 Boise, ID 83707‐1899 208‐331‐4749 Randy Boles The Boles Group PC 7550 South Willow Drive Tempe, AZ 85283 480‐838‐3277 Rebecca Bradac Metz & Associates PLLC 9201 N 25th Ave Phoenix, AZ 85021 602‐944‐6353 Conor Bright Spiegel Accountancy Corp. 2033 No. Main Street, Suite 365 Walnut Creek, CA 94596 925‐977‐4000 Vickie Brouse KHA Accountants and Advisors PC 4880 Long Prairie Road Suite 100 Flower Mound, TX 75028 972‐221‐2500 Gary Campbell Campbell Jones Cohen CPAs 7848 West Sahara Ave Las Vegas, NV 89117 702‐255‐2330 Henry Chavez Spiegel Accountancy Corp. 2033 No. Main Street, Suite 365 Walnut Creek, CA 94596 925‐977‐4000 Santo Chiarelli Acquavella, Chiarelli, Shuster & CO, LLP 517 Route 1, Ste 4103 Iselin, NJ 08830 732‐855‐9600 David Conway Novogradac & Company LLP 303 West Third Street Dover, OH 44622 330‐365‐5404 Steve Cook Cook & Company, PLLC 155 NE 100th Street, Suite 410 Seattle, WA 98125 206‐362‐1337 Michael Cooke Cooke Cameron Travis & Company 2109 Devereux Cir Birmingham, AL 35243‐2556 205‐967‐0101 Loli Cremat Cashuk Wiseman Goldberg Birnbaum & Salem LLP 3333 Camino Del Rio South Ste 230 San Diego, CA 92108 619‐563‐0145 Joseph Crivelli Friedman LLP ‐ New York 1700 Broadway New York, NY 10019 212‐842‐7000 Nathan Crowe Elliott Davis, LLC 650 Rapids Rd. Columbia, SC 29212 803‐429‐4033 Margaret Cruz Spiegel Accountancy Corp. 2033 No. Main Street, Suite 365 Walnut Creek, CA 94596 925‐977‐4000 Mark Demos Crowe Horwath 15233 Ventura Blvd, 9th Floor Sherman Oaks, CA 91403 818‐325‐8627 Aneela DeWinter Forman Richter & Rubin 3383 Deerlane Drive Duarte, CA 91010 626‐915‐7666 Angel Drown Casey Peterson & Associates 909 St Joseph Street, Ste 101 Rapid City, SD 57701 605‐348‐1930 Stan Edwards McBride Edwards LLP 111 Woodmere Rd #120 Folsom, CA 95630 916‐965‐6305 Rick Goldberg Cashuk Wiseman Goldberg Birnbaum & Salem LLP 3333 Camino Del Rio South Ste 230 San Diego, CA 92108 619‐563‐0145 David Hesley Hesley Shoquist & Company, LTD 2607 White Bear Ave Maplewood, MN 55109 651‐770‐8505 Deshayn Hoag Casey Peterson & Associates 909 St Joseph Street, Ste 101 Rapid City, SD 57701 605‐348‐1930 Ken Hughes KHA Accountants and Advisors PC 4880 Long Prairie Road Suite 100 Flower Mound, TX 75028 972‐221‐2500 Rick Humphrey Romito Tomasetti & Associates 4 Marion Road Marblehead, MA 01945 781‐938‐5600 Eric Jack Jack & Company 12465 Fort Street Suite 200 Draper, UT 84020 801‐265‐0967 Steve Janowicz Bates Coughtry Reiss LLP 2601 Saturn St , Ste 210 Brea, CA 92821‐6702 714‐871‐2422 Lisa Jones Campbell Jones Cohen CPAs 7848 West Sahara Ave Las Vegas, NV 89117 702‐255‐2330 Steve Kassak Cashuk Wiseman Goldberg Birnbaum & Salem LLP 3333 Camino Del Rio South Ste 230 San Diego, CA 92108 619‐563‐0145 Ryan Kidd Harris Kidd PLLC 7900 SE 28th Street Suite 212 Mercer Island, WA 98040 206‐232‐1282 Kenny Kresl Bauerle & Company PC 7887 E Belleview Ave, Ste 700 Englewood, CO 80111 303‐759‐0089 Steven Lok Cook & Company, PLLC 155 NE 100th Street, Suite 410 Seattle, WA 98125 206‐362‐1337 Jason Lukaszewicz Moss Adams LLP ‐ Medford 221 Stewart Ave. #301 Medford, OR 97501 541‐857‐1040 Marian Malutich BKM Sowan Horan, LLP 15301 Dallas Parkway, Suite 960 Addison, TX 75001 214‐545‐3973 Jay Mangel Crowe Horwath.com 15233 Ventura Blvd Sherman Oaks, CA 91403 818 325 8402 Lori Marrs Marrs Bergquist CPAs 3615 S Town Center Drive, Suite 100 Las Vegas, NV 89135 702‐579‐2707 Ben Montalbo Cashuk Wiseman Goldberg Birnbaum & Salem LLP 3333 Camino Del Rio South Ste 230 San Diego, CA 92108 619‐563‐0145 Amanda Moore Moss Adams LLP ‐ Medford 221 Stewart Ave #301 Medford, OR 97501 541‐857‐1040 David Motes Clark Raymond & Company, PLLC 8350 164th Ave NE, Ste #200 Redmond, WA 98052 425‐861‐8500 James Murphy James Murphy, CPA 6700 Freeport Blvd Suite 110 Sacramento, CA 95822 916‐391‐1090 Richard Price Global Business Solutions LLC 438 E 200 S, 3rd Floor Salt Lake City, UT 84111 801‐355‐0105 Jeff Spiegel Spiegel Accountancy Corp. 2033 No. Main Street, Suite 365 Walnut Creek, CA 94596 925‐977‐4000 Robert Prill Hoffman, Stewart & Schmidt, P.C. 4900 Meadows Road Lake Oswego, OR 97035 5032205900 Tristan Salazar McBride Edwards LLP 111 Woodmere Rd #120 Folsom, CA 95630 916‐965‐6305 Derek Watada Bauerle & Company PC 7887 E Belleview Ave, Ste 700 Englewood, CO 80111 303‐759‐0089 Jon Sandidge Sandidge & Company 1250 NE Loop 410 Suite 220 San Antonio, TX 78209 210‐826‐5552 Martha Sandidge Sandidge & Company 1250 NE Loop 410 Suite 220 San Antonio, TX 78209 210‐826‐5552 Lloyd Sandquist Clark Raymond & Company, PLLC 8350 164th Ave NE, Ste #200 Redmond, WA 98052 425‐861‐8500 Darren Schmidt Widmer Roel PC 4334 18th Ave S, Suite 101 Fargo, ND 58103‐7414 701‐237‐6022 Kay See Campbell Jones Cohen CPAs 7848 West Sahara Ave Las Vegas, NV 89117 702‐255‐2330 Sierra Shirley EKS&H LLLP 7979 East Tufts Ave, Ste 400 Denver, CO 80237 303‐740‐9400 Cristiene Silvestre Spiegel Accountancy Corp. 2033 No. Main Street, Suite 365 Walnut Creek, CA 94596 925‐977‐4000 Todd Sloniker Sloniker & Woodgate, PC 6565 Highland Road Waterford, MI 48327 248‐666‐4085 Ashlynn Smothermon RBTK, LLP 4909 Murphy Canyon Road Suite 120 San Diego, CA 92123 858‐430‐0300 about
AHACPA
Submission
Services
ABOUT
AHACPA
H I S T O R Y : AHACPA was founded in 1998 to offer electronic submission services for multifamily housing as well as training. In January of 2002 Mike Olsen & Les Sparks purchased AHACPA. Since that time we have expanded submission and training services to include HUD‐approved lenders and Public Housing Authorities. We increased membership from 200 member firms to over 500, and we have quadrupled the number of courses we offer. S U B M I S S I O N S : AHACPA is nationally recognized for its training, technical support, troubleshooting and electronic submission of HUD annual financial statements. Since 1998 AHACPA has submitted thousands of annual financial statements for owners, agents, and CPAs. Our submission service is efficient, timely, and cost effective. We perform the complete submission process for you, within HUD’s required time frame, at a competitive fee. TRAINING: AHACPA has been offering continuing professional education courses throughout the United States for over 16 years. Our Multifamily courses provide audit training and HUD updates for auditors, owners & managers of HUD‐subsidized multifamily properties. Lender courses provide audit training and HUD updates for auditors & owners of HUD‐Approved lenders. The PHA conference provides audit training and HUD updates for PHA financial personnel, fee accountants, financial managers & auditors. AHACPA is NASBA certified. M E M B E R S H I P : AHACPA currently has over 500 member firms. Members’ benefits include technical support, access to templates & tools, and discounts at our trainings. THE PEOPLE
LES SPARKS, PRESIDENT Les is President of the Affordable Housing Association of Certified Public Accountants. Prior to this, Les was involved in various capacities in the software manufacturing for governmental "Case Management" systems for governmental agencies. He was the Chief Financial Officer for Professional Staff Management, a large employment services firm. Les began his career with the international accounting firm of Ernst & Young. He spent over 13 years at E&Y providing accounting, auditing and consulting services to variety of clients in many industries. Les is an accomplished trainer in both software and accounting issues. Les has a Masters of Accounting. As president of AHACPA, Les provides support to the more than 600 members of the association. This support includes the interpretation of accounting and auditing and financial statement requirements as specified by the Department of Housing and Urban Development. Such support is provided either by phone, email or other means and is designed to assist the members in correctly reporting financial information to HUD’s Real Estate Assessment Center. Les is responsible for the development and presentation of training programs which provide continuing professional education (CPE) to auditors and other users of the relevant REAC systems. Les also supervises the preparation of over 700 annual financial statement submissions under multifamily, public housing and FHA lender requirements. M I K E O L S E N , CFO Mike brings twenty‐seven years of experience in accounting, auditing, tax planning and educational program development and delivery. Mike has a Master’s of Business Administration and is a Certified Public Accountant. Mike also has 12 years of specialized experience in the housing industry with a specific emphasis on the audit, financial reporting and submission requirements specifically required by the Department of Housing and Urban Development for HUD‐approved lending, multifamily and public housing areas. Prior to joining AHACPA, Mike was employed by the international accounting firm of Ernst & Young for approximately 2 years and most recently has been self‐employed with his own accounting and tax practice for the past 19 years. Prior to that he spent five years as Chief Financial Officer and Accounting Manager for Skaggs Management Company. KATHY CHRISTENSEN, OFFICE MANAGER Kathy has been with AHACPA from its very beginning. With over 16 years in experience with the REAC system she is one of the country’s foremost experts on the submission process. She is frequently called upon by REAC for testing and trouble shooting of the multifamily submission system. Kathy has extensive background in office software solutions and is also responsible for the company’s website as well as audit tools and other application development. Kathy’s submission responsibilities include the receipt, logging and tracking of all multifamily submissions. She makes assignments to the keying staff and ensures that all client submitted packages are in the proper format for keying. Kathy uses her many HUD contacts to work out any submission problems that arise to ensure prompt resolution of issues preventing submission. SUSAN HARRIS, ACCOUNTING SUPERVISOR Susan has been with AHACPA full time for 8 years, and for 3 years prior as data entry during peak busy season. Susan processes all the invoicing and receipts for AHACPA, and correlates all bookings and logistics for private classes. She handles all the FHA submissions, from receipt, logging and tracking until acceptance. She also assists with PHA submissions. O T H E R S T A F F : AHACPA will also utilize other staff to assist in the timely submission of financial statements during our peak busy season time. Such individuals are selected based on the team’s personal knowledge of the required skill sets including, prompt and accurate data entry as well as the judgment required to make decisions regarding issues that may arise during the submission process. Such decision making is critical in being able to complete the volume of submissions timely. These individuals are also trained to communicate any such issues to the client or the CPA for proper resolution of the matter. Each of these individuals has a minimum of 5 years experience performing multifamily submissions with AHACPA. It is likely that your account will be serviced by one dedicated staff for the majority of the submissions to ensure a consistent approach throughout. Membership
The Affordable Housing Association of Certified Public Accountants (AHACPA) is the premier national
association providing support, training, and services for professionals of the Affordable Housing Industry and
HUD-Approved Lending Industry. Our objective is to inform you of the latest HUD requirements and provide
specific guidance on how to implement those requirements.
Membership Benefits
Technical Support
As an AHACPA member, you have access to AHACPA’s technical support. This invaluable resource can save
you hours of tracking down information or trying to get guidance, direction or assistance from HUD. We have
probably experienced any HUD problem you are facing. Let us help you. For technical support questions email
[email protected], fax (801) 547-5070, or call (800) 532-0809.
Continuing Professional Education
AHACPA offers a variety of CPE Courses. Members attending courses receive a $50 discount off the registration
fee.
The Affordable Housing Conferences are held annually. These two-day Conferences feature nationally
recognized speakers and representatives from HUD Multifamily and Public Housing. These speakers and
representatives present sessions on the latest affordable housing revisions.
We also offer one-day update courses for Multifamily and Lenders. Course descriptions, dates and locations can
be found at our Website.
AHACPA Templates
Templates are downloadable standard document files. These templates provide illustrations and workable files
you can customize when producing these documents. If there is a template that you are looking for and can’t
locate on our website please let us know.
Analytical Review
AHACPA conducts a bi-yearly multifamily analytical review project. We collect copies of REAC submissions and
compile the data for your analytical review purposes. Access to this data is limited to those that provide us with
submission copies and AHACPA members.
Referrals
AHACPA frequently receives calls requesting referrals for a CPA firm to perform audits and peer reviews. When
providing referrals we always first refer to our membership list:
http://www.ahacpa.org/membership/MembershipDirectory.asp
Membership Dues
Membership dues are $300 annually, per office location. To sign up for membership in the AHACPA complete
the Membership Registration form attached, or register online: https://ahacpa.org/aMember/signup
Other AHACPA Benefits
AHACPA Forms, Publications and Guides
Forms, Publications and Guides contain current affordable housing & lender documents. These can be found on
our website separated in three sections: HUD Multifamily, Public Housing and Lenders.
Submission Services
AHACPA has submitted thousands of annual multifamily and lender financial statements for owners, agents, and
CPAs. Our submission service is efficient and cost effective. We perform the complete submission process for
you, within HUD’s required time frame. We offer this service for multifamily and lenders. For more information
on multifamily submissions contact Kathy ([email protected]). For more information on lender submissions
contact Susan ([email protected]).
AHACPA Newsletter
AHACPA keeps you informed of the latest affordable housing and HUD-approved lender news and updates. This
news is via email in our newsletter. If you know of anyone that would like to be added to our email list please
send their name and email address to [email protected].
For more information concerning these and other services please visit our website at www.ahacpa.org.
Membership Application
Fee of $300 per Office Location
Membership Main Contact (this is the person that will receive the renewal notice): Name:
Title:
Firm
pName:
Address:
City:
State:
Zip Code:
Phone
Number:
Fax:
Email:
Please list name and email address of co-workers that want to receive AHACPA email news:
Method of Payment: TOTAL $_________  MasterCard  Visa  Discover  American Express  Check (address above) Cardholder’s Name Card Number Billing Address Signature Email for CC Receipt CVV Exp: Multifamily Electronic Submission Service
AHACPA is nationally recognized for its training, technical support, troubleshooting and
electronic submission of HUD annual financial statements. Since 1998 AHACPA has submitted
thousands of annual financial statements for owners, agents, and CPAs. Our submission
service is efficient, timely, and cost effective. We perform the complete submission process for
you, within HUD’s required time frame, at a competitive fee.
Submission Service Process in Nine Easy Steps:
1. AHACPA applies for your User IDs, if needed
2. Auditor or Client uploads financial statements to AHACPA’s secure document portal called
ShareFile
3. AHACPA enters the data into the REAC FASSUB system
4. AHACPA uploads a copy of the submission report along with a copy of the Auditor's agreedupon procedure report to the ShareFile portal
5. The auditor reviews the reports and lets AHACPA know of any changes
6. When the auditor is satisfied that the submission is correct they mark "agrees" on the
agreed-upon procedures report and send back to AHACPA
7. AHACPA completes the agreed-upon procedure report on behalf of the auditor
8. AHACPA completes the submission
9. AHACPA uploads a complete copy of the submission including confirmation page to
ShareFile
Information Needed for Submission – please provide on next page
 REAC Coordinator ID and Password (or coordinator assigns AHACPA access)
 Auditor's Unique IPA Identifier (UII) Number
 Copy of entire financial statement. Notes and findings in a word processing format
 Financial Statements that comply with the following requirements:




Use current chart of accounts (https://ahacpa.org/Documents/ElectronicSubmission/HUD-Chart-of-Accounts.pdf)
You must include the HUD required supplemental information.
Your statements MUST conform with Uniform Financial Reporting Standards for HUD
Housing Programs (www.hud.gov/offices/reac/pdf/sas_29_final.pdf)
Financial Data Templates prepared on GAAP basis
- Balance Sheet
- Revenue and Expense
- Equity Data
- Cash Flow Data
- Surplus Cash, Distributions and Residual Receipts
- Footnotes
- Applicable Auditor’s Reports
- Schedule of Findings and questioned Costs if applicable, including all required info
- Federal Award Data (A-133 Audits)
Submission Fee
The fee for AHACPA’s HUD MF electronic submission is $500 per property. Contact us for
information on quantity discounts.
AHACPA’s HUD MF Electronic Submission Service
Fax completed form to (801) 547-5070 or email to [email protected]
Billing Information:
Name:
Title:
Company:
Address:
City:
State:
Phone:
Zip Code:
Fax:
Email:
ID Numbers Needed for Auditors:
Audit firms must have a “Unique IPA Identifier (UII)” number. UII#:
If you do not have a UII please provide the following: Firm Tax ID:
Auditor Name:
Auditor Title:
Audit Firm Name:
Audit Firm Address:
City:
State:
Phone:
Zip Code:
Fax:
Email:
ID Numbers Needed for Properties:
Our company has 16 data entry people. HUD requires that we each have our own ID.
We do nearly 800 submissions per year. When we receive your file for entry there is no
way of knowing which of the data entry people will get the file. Therefore, it is
necessary to have all of our IDs assigned access to do the electronic submission for
your entity. If only one ID is assigned access there will be a delay in your filing. [See
next page for directions]
Option 1 – You let us borrow your coordinator ID and password and we take care of the
setup. REAC Coordinator ID:
REAC Password:
Option 2 – You assign all eight AHACPA IDs access:
1. Log into REAC http://www.hud.gov/offices/reac/online/reasyst.cfm.
2. Go to "Property Assignment Maintenance"
3. Enter User ID (see list below) none of the other fields need to be filled in. Press
"submit".
4. In the top box select the "FASSUB - SUB" and "FASSUB - CPC" roles. In the
bottom box select the property or properties. Press "submit". On the next page
press "confirm".
5. Repeat steps 2-4 for each ID listed below:
1. I10172
7. I22248
13. I33927
2. I11056
8. I22250
14. I33950
3. I21434
9. I27076
15. I33951
4. I21463
10. I33918
16. I34169
5. I22245
11. I33919
6. I22247
12. I33926
PROJECT(S):
Project Name:
Year End:
Owning Entity Name:
Owning Entity Tax Identification Number (TIN):
Project FHA Number:
Project Address:
City:
State:
Project Name:
Zip Code:
Year End:
Owning Entity Name:
Project FHA Number:
Project Address:
City:
State:
Project Name:
Zip Code:
Year End:
Owning Entity Name:
Project FHA Number:
Project Address:
City:
State:
Project Name:
Zip Code:
Year End:
Owning Entity Name:
Project FHA Number:
Project Address:
City:
State:
Project Name:
Zip Code:
Year End:
Owning Entity Name:
Project FHA Number:
Project Address:
City:
State:
Zip Code:
Multifamily
Coordinator Registration
To apply for a System Coordinator ID fill out the form below, and return to Kathy
Christensen [email protected] or fax to 801-547-5070.
In 7-10 days an ID will be assigned and mailed to the CEO of the HUD-registered entity
specified below. The password will not be disclosed, so make sure you remember it!!!
If you wish to be the coordinator for more than one entity, you must first register as a
coordinator for only one. After you receive your coordinator ID you can then request other
entities be assigned to your ID.
Your Information:
First Name:
Middle Initial:
Last Name:
Social Security Number:
Email address:
Mother’s Maiden Name:
Password:
Must be at least 6 characters in length and include one upper case letter, one lower case letter and one
number or character. For example, Hud001
Organization Information:
Organization/Property Name:
Tax ID Number:
HUD FHA Annual Financial Statement Electronic Submission
AHACPA is nationally recognized for its training, technical support, troubleshooting and electronic
submission of HUD annual financial statements. Since 1998 AHACPA has submitted thousands of
annual financial statements for CPAs and Lenders. Our submission service is efficient, timely, and
cost effective. We perform the complete submission process for you, within HUD’s required time
frame, at a competitive fee.
Submission Service Process in Nine Easy Steps:
1. The mortgagee forwards the audited financial statement packet, including the LEAP FDT
template to AHACPA.
2. AHACPA enters the data and uploads required items.
3. AHACPA emails the auditor a copy of the submission report along with a copy of the Auditor's
agreed-upon procedure report generated by the LEAP system.
4. The auditor reviews the reports and informs AHACPA of any necessary changes.
5. When everything is in agreement, the auditor marks the “Agrees/No Such Document Issued”
circles on the agreed-upon procedures release report, signs and sends it back to AHACPA.
6. AHACPA completes the agreed-upon procedure report on behalf of the auditor.
7. AHACPA completes the submission.
8. AHACPA emails both the auditor and the mortgagee a confirmation of the completed
submission.
9. AHACPA monitors the submission until it’s accepted.
Information Needed for Submission:





FHA Coordinator ID and Current Password (they change every 21 days)
Copy of entire financial statement package, including supplemental data:
 Applicable Auditor’s Reports, HAND signed, on letterhead
 Computation of Adjusted Net Worth
 Schedule of Audit Finding, if applicable
 Corrective Action Plan, if applicable, submitted on the mortgagee letterhead and signed
 Management Letter, if referenced in reports, and if required, a corrective action plan.
Including Financial Data Templates
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/lender/SFH_Lenders_LEAP
-
Balance Sheet
Income statement
Statement of Equity
Adjusted Net Worth
Information sheet COMPLETELY filled out
CPA Cert and other items, Call Report, Consolidating schedules, etc. as required from info
sheet
Submission Fee:
The fee for AHACPA’s HUD FHA electronic submission starts at $500 per submission for
Supervised Mortgagees, $400 per submission for Unsupervised Mortgagees. Invoices payable
upon receipt. Contact us for information on quantity discounts.
3/14
REQUIRED SUBMISSION INFORMATION
PLEASE fill out LEGIBLY, AND COMPLETELY – thanks!
LENDER Information:
** FHA Connection Coordinator ID:
ID should start with an Mxxxxx, have 6 digits.
** FHA Connection 8 digit password:
Effective Nov 30, 2013 passwords required to be 8 characters
in length and include at least one uppercase letter, one
number, and one special character (e.g., @, $, & ).
Lender:
Title I/ll Number:
Address:
City:
State: _________ Zip Code:
AUDITOR Information:
Name:
Title:
Firm:
Address:
City:
Phone:
State:
______Fax:
** UII#:
Zip Code:
Email
**If you do not have/know your UII, put Tax ID # here, I will assist you in getting/looking it up.
AUDITORS, Please ANDWER ALL:
FINANCIAL STATEMENT INFO:
Is the FHA approved lender a subsidiary in a parent-subsidiary relationship?
Y/
N
audited consolidated Financial Statements of the parent company, or subsidiary?
IF Y, then: Are you submitting
Consolidated /
Subsidiary
[Supervised only:
IF Consolidated, then: Is subsidiary 40%> of parent?
Y/
N IF Y, then unaudited consolidating schedules or call
report req. IF N, then: Does the subsidiary have a guarantee by the parent?
Y/
N IF Y, then corp guarantee
attached and unaudited consolidating schedules or call report req. IF N, then audited consolidating schedules req.]
Audit was conducted in accordance with which auditing standards?
Type of Audit Opinion Issued:
Unqualified/Unmodified Opinion
Type of Audit Opinion on supplemental info:
AICPA/GAGAS
Other, please list: ______________________
Unqualified/Unmodified Opinion
Is a going concern paragraph included in auditor’s report?
Y/
PCAOB/GAGAS
Other, please list: ______________
N
Reported Findings – Significant Deficiencies? (Related to IC over financial reporting)
Reported Findings – Material Weaknesses? (Related to IC over financial reporting)
Y/
Y/
Reported Findings – Material Non-Compliance? (Related to the financial statement audit)
N
N
Y/
N
HUD COMPLIANCE AUDIT:
Type of Audit Opinion Issued:
Unqualified Opinion
Other, please list: ______________________
Reported Findings – Significant Deficiencies? (Related to IC over compliance)
Reported Findings – Material Weaknesses? (Related to IC over compliance)
Y/
Y/
Reported Findings – Material Non-Compliance? (Related to HUD compliance audit)
N
N
Y/
N
Y/
N (IF Y, HAS to be
MANAGEMENT LETTER:
Were certain matter communicated to management not disclosed in audit reports?
uploaded, along with a CAP)
CPA Firm or Practitioner License: evidence is attached indicating that the CPA Firm or practitioner is licensed in the
state where the FHA approved entity's home office is located (or books and records are kept).
ECTION
www.ahacpa.org 459 N. 300 W. Suite 11, Kaysville, UT 84037 (800) 532‐0809 www.ahacpa.org 459 N. 300 W. Suite 11, Kaysville, UT 84037 (800) 532‐0809 www.ahacpa.org 459 N. 300 W. Suite 11, Kaysville, UT 84037 (800) 532‐0809 www.ahacpa.org 459 N. 300 W. Suite 11, Kaysville, UT 84037 (800) 532‐0809 ECTION
Doing
Business
with FHA
Application
through
Endorsement
Servicing
& Loss
Mitigation
Claims &
Disposition
Quality
Control,
Oversight &
Compliance
Manufactured Home
(Title II)
New Construction
Refinance
Section 247
Section 248
Section 251
Solar & Wind
Quality Control
Mortgagee Monitoring
Enforcement
Claims Policy
Disposition
MORTGAGEES
CLAIMS
Preservation & Protection
Requirements
TITLE II FORWARD MORTGAGE
Performing Loan Servicing
Loss Mitigation
Forbearance / Partial Claims / Special Forbearance /
Loan Modifications / Unemployment / FHA HAMP
Loss Mitigation
Origination / Processing
Underwriting
Closing
Post-Closing & Endorsement
TITLE II REVERSE MORTGAGE
(Home Equity Conversion Mortgage)
OTHER PARTICIPANTS
Home Inspectors
Real Estate Brokers
Nonprofit Organizations
Appraisers
Direct Endorsement Underwriters
203(k) Consultants
Last Updated: August 7, 2014
TITLE I
Underwriting
Closing
Chattel Appraisal
Land Appraisal
Product Sheets
Loss Mitigation
OTHER PARTICIPANTS
Home Inspectors
Real Estate Brokers
Nonprofit Organizations
Appraisers
Direct Endorsement Underwriters
203(k) Consultants
Real Estate Owned
Alternate Disposition Strategies
Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
203(k)
203(k) Consultants
Condominium
203 (h)
Back to Work
Build your Own Land
Construction to
Permanent
Energy Efficient
PRODUCT SHEETS
MORTGAGEES
Title II Investor Lenders
Title II Governmental Lenders
Third-Party Originators
TITLE II FORWARD MORTGAGES
Appraisal
Underwriting
Closing
Title I Lenders
Title II Supervised Lenders
Title II Non-Supervised Lenders
Single Family Housing Policy Handbook Framework
FHA Single Family Housing Policy Handbook
I. Doing Business with FHA
Table of Contents
1
2
TABLE OF CONTENTS
3
I. DOING BUSINESS WITH FHA........................................................................................... 1
4
A. FHA LENDERS AND MORTGAGEES .............................................................................. 1
5
6
7
8
9
10
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13
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30
31
32
33
34
35
36
37
38
39
40
41
42
43
1. Types of Program Approvals .................................................................................................... 1
a. Title I................................................................................................................................... 1
i. Definition ...................................................................................................................... 1
ii. Standard ........................................................................................................................ 1
b. Title II ................................................................................................................................. 1
i. Definition ...................................................................................................................... 1
2. Types of Approved Mortgagees................................................................................................ 2
a. Supervised Mortgagee ........................................................................................................ 2
i. Definition ...................................................................................................................... 2
(A) Small Supervised Mortgagee .................................................................................. 2
ii. Standard ........................................................................................................................ 2
iii. Activities Authorized .................................................................................................... 2
b. Nonsupervised Mortgagee .................................................................................................. 2
i. Definition ...................................................................................................................... 2
ii. Standard ........................................................................................................................ 2
c. Government Mortgagee ...................................................................................................... 3
i. Definition ...................................................................................................................... 3
ii. Standard ........................................................................................................................ 3
d. Investing Mortgagee ........................................................................................................... 3
i. Definition ...................................................................................................................... 3
ii. Standard ........................................................................................................................ 3
3. Application and Eligibility Requirements for Approval........................................................... 4
a. Title I and Title II Program Applications ........................................................................... 4
b. Online Application.............................................................................................................. 4
i. Application Information................................................................................................ 4
(A) Standard .................................................................................................................. 4
(B) Required Documentation ........................................................................................ 4
ii. Application Documentation .......................................................................................... 4
(A) Standard .................................................................................................................. 4
iii. Certification of Compliance.......................................................................................... 6
(A) Standard .................................................................................................................. 6
(C) Unable to Certify..................................................................................................... 8
(D) FHA Review ........................................................................................................... 8
iv. Application Fee............................................................................................................. 8
[June 30, 2014]
i
Table of Contents
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2
3
4
5
6
7
8
9
10
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12
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44
45
(A) Standard .................................................................................................................. 8
c. Eligibility Requirements ..................................................................................................... 9
i. Business Form............................................................................................................... 9
(A) Standard .................................................................................................................. 9
(1) Corporation ....................................................................................................... 9
(a) Definition .................................................................................................... 9
(b) Standard ...................................................................................................... 9
(c) Required Documentation ............................................................................ 9
(2) Limited Liability Company............................................................................... 9
(a) Definition .................................................................................................... 9
(b) Standard ...................................................................................................... 9
(c) Required Documentation ............................................................................ 9
(3) Series Limited Liability Company.................................................................. 10
(a) Definition .................................................................................................. 10
(b) Standard .................................................................................................... 10
(c) Required Documentation .......................................................................... 10
(4) Partnership ...................................................................................................... 10
(a) Definition .................................................................................................. 10
(b) Standard .................................................................................................... 10
(5) Nonprofit......................................................................................................... 11
(a) Definition .................................................................................................. 11
(b) Standard .................................................................................................... 11
(B) Required Documentation ...................................................................................... 12
ii. Mortgagee Name......................................................................................................... 12
(A) Definition .............................................................................................................. 12
(1) Institution Name.............................................................................................. 12
(2) “Doing Business As” Name............................................................................ 12
(B) Standard ................................................................................................................ 12
(C) Required Documentation ...................................................................................... 12
iii. Office Facilities........................................................................................................... 13
(A) Definition .............................................................................................................. 13
(1) Home Office.................................................................................................... 13
(2) Branch Offices ................................................................................................ 13
(B) Standard ................................................................................................................ 13
(1) Home Office.................................................................................................... 13
(2) Branch Offices ................................................................................................ 13
iv. Ownership and Personnel ........................................................................................... 14
(A) Principal Owners................................................................................................... 14
(1) Definition ........................................................................................................ 14
(2) Standard .......................................................................................................... 14
(3) Required Documentation ................................................................................ 14
[June 30, 2014]
ii
Table of Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
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18
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31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
(B) Personnel Requirements........................................................................................ 14
(1) Corporate Officers .......................................................................................... 14
(a) Definition .................................................................................................. 14
(b) Standard .................................................................................................... 15
(2) Officer in Charge ............................................................................................ 15
(a) Definition .................................................................................................. 15
(b) Standard .................................................................................................... 15
(3) Employees....................................................................................................... 16
(a) Definition .................................................................................................. 16
(b) Standard .................................................................................................... 16
(i) Eligibility of employees...................................................................... 16
(ii) Compensation ..................................................................................... 16
(iii)SAFE Act Compliance........................................................................ 16
(iv)Dual Employment ............................................................................... 17
(v) Conflict of Interest .............................................................................. 17
(vi)Underwriters ....................................................................................... 17
v. Credit Worthiness ....................................................................................................... 17
(A) Definition .............................................................................................................. 17
(1) Institutional Credit Worthiness ....................................................................... 17
(2) Individual Credit Worthiness.......................................................................... 17
(B) Standard ................................................................................................................ 18
(1) Report on Mortgagee ...................................................................................... 18
(2) Reports on Principal Owners .......................................................................... 18
(3) Reports on Corporate Officers ........................................................................ 18
vi. State License or Registration ...................................................................................... 18
(A) Business License or Registration .......................................................................... 19
(1) Standard .......................................................................................................... 19
(B) Personnel Licenses................................................................................................ 19
(1) Standard .......................................................................................................... 19
vii. Financial Requirements .............................................................................................. 20
(A) Standard ................................................................................................................ 20
(1) Adjusted Net Worth ........................................................................................ 20
(a) Single Family Programs............................................................................ 20
(b) Multifamily Programs............................................................................... 20
(i) With Servicing .................................................................................... 20
(ii) Without Servicing ............................................................................... 20
(c) Dual Participation ..................................................................................... 20
(2) Liquidity.......................................................................................................... 20
[June 30, 2014]
iii
Table of Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
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25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
(1) Small Supervised Mortgagees......................................................................... 21
(2) Supervised, Nonsupervised, and Investing Mortgagees ................................. 21
(a) Audit of Financial Statements................................................................... 21
(b) Accounting and Auditing Standards ......................................................... 21
(c) Audit Period Covered ............................................................................... 21
viii. Principal Activity of Nonsupervised Mortgagees................................................. 22
(A) Standard ................................................................................................................ 22
ix. Funding Program ........................................................................................................ 22
(A) Nonsupervised Mortgagees................................................................................... 22
(1) Standard .......................................................................................................... 22
(B) Investing Mortgagees............................................................................................ 22
(1) Standard .......................................................................................................... 22
x. Fidelity Bond .............................................................................................................. 23
(A) Standard ................................................................................................................ 23
xi. Errors and Omissions Insurance ................................................................................. 23
(A) Standard ................................................................................................................ 23
xii. Quality Control Plan ................................................................................................... 23
(A) Standard ................................................................................................................ 23
d. Processing of Applications for Approval.......................................................................... 24
e. Approval of Application ................................................................................................... 24
f. Application Denial ............................................................................................................ 24
i. Appeal of Denial ......................................................................................................... 24
ii. Reapplication .............................................................................................................. 24
4. Branch Offices ........................................................................................................................ 24
a. Registration ....................................................................................................................... 24
b. Single Family Lending Area............................................................................................. 25
i. Definition .................................................................................................................... 25
ii. Standard ...................................................................................................................... 25
c. Managers........................................................................................................................... 25
i. Definition .................................................................................................................... 25
(A) Branch Manager.................................................................................................... 25
(B) Regional Manager................................................................................................. 25
ii. Standard ...................................................................................................................... 25
iii. Compensation ............................................................................................................. 26
iv. Required Documentation ............................................................................................ 26
d. Net Branching Prohibition ................................................................................................ 26
5. Supplemental Mortgagee Authorities ..................................................................................... 26
a. Title II Direct Endorsement Authority.............................................................................. 26
i. Scope of Authority...................................................................................................... 26
[June 30, 2014]
iv
Table of Contents
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
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25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
(A) Definitions............................................................................................................. 26
(1) Conditional Authority ..................................................................................... 26
(2) Test Case Phase............................................................................................... 26
(3) Unconditional DE Authority........................................................................... 27
(B) Standard ................................................................................................................ 27
ii. Eligibility Requirements ............................................................................................. 27
(A) FHA Mortgagee Approval .................................................................................... 27
(B) Experience............................................................................................................. 27
(C) Personnel Requirements........................................................................................ 27
iii. Application and Approval........................................................................................... 27
(A) Application............................................................................................................ 27
(1) Request to Enter into the Test Case Phase...................................................... 27
(B) Notification and Entrance Conference.................................................................. 28
(C) Test Case Phase..................................................................................................... 28
(1) Case Binder Submission ................................................................................. 28
(a) Pre-closing Submission............................................................................. 28
(b) Post-closing Submission ........................................................................... 28
(2) Test Case Underwriting Report ...................................................................... 29
(3) Test Case Closing Package ............................................................................. 29
(D) Approval Decision ................................................................................................ 29
(1) Approval of Unconditional DE Authority ...................................................... 29
(2) Denial of Unconditional DE Authority........................................................... 29
(a) Denial Decision......................................................................................... 29
(b) Denial Appeal ........................................................................................... 29
(c) Informal Conference ................................................................................. 30
(i) Determination ..................................................................................... 30
(d) Appeal Following Informal Conference ................................................... 30
(3) Reapplication Following Denial ..................................................................... 30
iv. Unconditional DE Approval ....................................................................................... 30
v. Principal/Authorized Agent Relationship ................................................................... 30
(A) Definition .............................................................................................................. 30
(B) Standard ................................................................................................................ 31
(1) Required Authorities....................................................................................... 31
(2) Process ............................................................................................................ 31
b. Title II Single Family Mortgagee Lender Insurance......................................................... 31
i. Scope of Authority...................................................................................................... 31
(A) Definitions............................................................................................................. 32
(1) LI Mortgagee .................................................................................................. 32
(2) LI Compare Ratio ........................................................................................... 32
(B) Standard ................................................................................................................ 32
ii. Eligibility Requirements ............................................................................................. 32
(A) Standard ................................................................................................................ 32
[June 30, 2014]
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30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
(1) Exception for New Mortgagees Created by Merger, Acquisition, or
Reorganization Resulting in New FHA Lender Identification Number ......... 32
iii. Application and Approval........................................................................................... 33
(A) First-Time Applicants ........................................................................................... 33
(1) Standard .......................................................................................................... 33
(3) Approval ......................................................................................................... 33
(B) Application from Mortgagee Created by Merger, Acquisition, or Reorganization
Resulting in New FHA Lender Identification Number......................................... 33
(1) Standard .......................................................................................................... 33
(a) Application Submitted via U.S. Mail........................................................ 34
(b) Application Submitted via Courier ........................................................... 34
c. Title I Manufactured Home Loan Direct Endorsement Authority.................................... 34
d. Title II Multifamily Accelerated Processing Authority .................................................... 34
6. Post-Approval Operations....................................................................................................... 34
a. Operating Requirements and Restrictions ........................................................................ 34
b. Compliance with Law ....................................................................................................... 35
c. Servicing of FHA Insured Mortgages............................................................................... 35
d. Employee Compensation .................................................................................................. 35
e. Conflicts of Interest........................................................................................................... 35
f. Payment of Operating Expenses ....................................................................................... 35
i. Definition .................................................................................................................... 35
ii. Standard ...................................................................................................................... 35
g. Prohibited Payments ......................................................................................................... 35
h. Staffing.............................................................................................................................. 36
i. Control and Supervision of Staff ................................................................................ 36
(A) General Supervision and Control.......................................................................... 36
(B) Use of Contractors ................................................................................................ 36
(1) Permissible Use............................................................................................... 36
(2) Impermissible Use .......................................................................................... 37
i. Affiliates ........................................................................................................................... 37
i. Definition .................................................................................................................... 37
ii. Standard ...................................................................................................................... 37
j. Branch Office Requirements............................................................................................. 37
k. Fair Housing Notice.......................................................................................................... 37
l. Advertising........................................................................................................................ 38
i. Definition .................................................................................................................... 38
(A) Advertising............................................................................................................ 38
(B) Advertising Device ............................................................................................... 38
ii. Standard ...................................................................................................................... 38
(A) Advertising............................................................................................................ 38
(B) Advertising Device ............................................................................................... 38
(1) HUD and FHA Names and Acronyms............................................................ 38
(2) HUD and FHA Logos ..................................................................................... 39
[June 30, 2014]
vi
Table of Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
(3) FHA-Approved Lending Institution Logo ...................................................... 39
(a) User Restrictions....................................................................................... 39
(b) Content Restrictions.................................................................................. 39
iii. Required Documentation ............................................................................................ 39
7. Post-Approval Changes .......................................................................................................... 40
a. Requirements for All Information Updates, Notices, and Requests ................................. 40
i. Definitions................................................................................................................... 40
(A) Information Update............................................................................................... 40
(B) Notice of Material Event....................................................................................... 40
(C) Request.................................................................................................................. 40
ii. Standard ...................................................................................................................... 40
b. Contact Information .......................................................................................................... 41
i. Addresses .................................................................................................................... 41
(A) Standard ................................................................................................................ 41
(C) Relocation to a Different State.............................................................................. 41
(1) Home Office.................................................................................................... 41
(2) Branch Office.................................................................................................. 42
ii. All Other Contact Information.................................................................................... 42
c. Business Changes.............................................................................................................. 42
i. Liquid Assets or Net Worth Deficiency...................................................................... 42
ii. Operating Loss ............................................................................................................ 42
iii. Fidelity Bond .............................................................................................................. 42
iv. Errors and Omission Insurance................................................................................... 43
v. Principal Activity Change of Nonsupervised Mortgagee ........................................... 43
vi. Servicing for Investing Mortgagees............................................................................ 43
vii. Fiscal Year End Date .................................................................................................. 43
viii. Supervision Change .............................................................................................. 43
ix. Business Form............................................................................................................. 43
(A) Change Resulting in New Federal Taxpayer Identification Number.................... 44
(B) Change Not Resulting in New Federal Taxpayer Identification Number............. 44
x. Bankruptcy.................................................................................................................. 44
(A) Business ................................................................................................................ 44
(B) Personal................................................................................................................. 44
xi. Lending License(s)...................................................................................................... 45
xii. Mergers, Acquisitions, and Reorganizations .............................................................. 45
(A) Merger or Consolidation ....................................................................................... 45
(1) Duties of a Non-Surviving FHA-Approved Mortgagee ................................. 45
(a) Standard .................................................................................................... 45
(b) Required Documentation .......................................................................... 46
(2) Duties of a Surviving Entity ........................................................................... 46
(a) FHA-Approved Mortgagee That Survives a Merger with a Non-Approved
Entity......................................................................................................... 46
(b) Two or More FHA-Approved Mortgagees Merge.................................... 46
[June 30, 2014]
vii
Table of Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
(c) Non-Approved Entity That Survives a Merger with an FHA-Approved
Mortgagee ................................................................................................. 47
(B) Sale, Acquisition, or Disassociation ..................................................................... 47
(1) An FHA-Approved Mortgagee Is Acquired by Another Entity ..................... 48
(a) Dissolution of Acquired FHA-Approved Mortgagee ............................... 48
(i) Duties of Acquired FHA-Approved Mortgagee ................................. 48
(ii) Duties of Acquiring Entity.................................................................. 48
(b) Continuation as Subsidiary or Corporate Affiliation ................................ 49
(i) Acquisition by an FHA-Approved Mortgagee ................................... 49
(ii) Acquisition by a Non-Approved Entity .............................................. 49
(2) An FHA-Approved Mortgagee Acquires a Non-Approved Entity................. 50
(3) An FHA-Approved Mortgagee Becomes Independent................................... 50
xiii. Conservatorship, Receivership, or Transfer of Control ........................................ 50
xiv. Unresolved Findings or Sanctions ........................................................................ 50
8. Annual Recertification ............................................................................................................ 51
a. General Requirements....................................................................................................... 51
i. Standard ...................................................................................................................... 51
(A) Recertification Process.......................................................................................... 51
(B) Filing Deadline...................................................................................................... 51
(C) Exception for Recently Approved Mortgagees..................................................... 51
ii. Required Documentation ............................................................................................ 51
b. Online Certification .......................................................................................................... 51
i. Standard ...................................................................................................................... 51
(A) Supervised and Nonsupervised Mortgagees ......................................................... 52
(B) Investing and Government Mortgagees ................................................................ 53
iii. Unable to Certify......................................................................................................... 54
(A) Standard ................................................................................................................ 54
(B) FHA Review ......................................................................................................... 54
iv. Repercussion of False Certification ............................................................................ 54
c. Annual Recertification Fee ............................................................................................... 54
i. Standard ...................................................................................................................... 54
ii. Calculation of Fee Amount......................................................................................... 54
iii. Exception for Government Mortgagees...................................................................... 55
d. Financial Data Submission ............................................................................................... 55
i. Small Supervised Mortgagees..................................................................................... 55
ii. Supervised, Nonsupervised, and Investing Mortgagees ............................................. 55
(A) Audit of Financial Statements............................................................................... 55
(B) Accounting and Auditing Standards ..................................................................... 55
e. Failure to Recertify ........................................................................................................... 55
9. Voluntary Withdrawal of FHA Mortgagee Approval............................................................. 55
a. Standard ............................................................................................................................ 55
b. Required Documentation .................................................................................................. 56
c. Reapproval ........................................................................................................................ 56
45
B. OTHER PARTICIPANTS ................................................................................................... 57
[June 30, 2014]
viii
Table of Contents
1
2
3
4
5
6
7
8
9
1.
2.
3.
4.
5.
6.
7.
8.
9.
Appraisers ............................................................................................................................... 57
Brokers.................................................................................................................................... 57
Consultants 203(k) .................................................................................................................. 57
Direct Endorsement Underwriters .......................................................................................... 57
Housing Finance Agencies ..................................................................................................... 57
Instrumentalities of Government ............................................................................................ 57
Title I Manufactured Housing Dealers ................................................................................... 57
Nonprofits ............................................................................................................................... 57
Third-Party Originators........................................................................................................... 57
10
GLOSSARY................................................................................................................................. 58
11
ACRONYMS ............................................................................................................................... 61
12
[June 30, 2014]
ix
A. FHA Lenders and Mortgagees
1
I. DOING BUSINESS WITH FHA
2
A. FHA LENDERS AND MORTGAGEES1
3
4
5
6
A mortgagee must be approved by the Federal Housing Administration (FHA) in accordance
with the approval requirements contained in this FHA Single Family Housing Policy Handbook
(SF Handbook) in order to participate in the origination, underwriting, closing, endorsement,
servicing, purchasing, holding, or selling of FHA-insured Title I or Title II mortgages.
7
1. Types of Program Approvals
8
9
10
FHA approves mortgagees separately for participation in the Title I and Title II programs. FHA
approval is conveyed to a specific legal Entity and cannot be shared with or extended to other
Entities, including a related Entity such as a parent or subsidiary.
11
a. Title I
12
i. Definition
13
14
15
16
A Title I mortgagee is a mortgagee that (a) holds a valid Title I contract of insurance and
is approved by FHA or (b) held a Title I contract that has been terminated or suspended
but remains responsible for servicing or selling the Title I mortgages that it holds and is
authorized to file insurance claims on these mortgages.
17
ii. Standard
18
19
20
21
A Title I mortgagee may be approved to originate, underwrite, close, endorse, service,
purchase, hold, or sell property improvement mortgages and mortgages for the purchase
of Manufactured Housing. Unless otherwise specified, Title I mortgagees must meet the
same approval requirements and follow the same procedures as Title II mortgagees.
22
b. Title II
23
i. Definition
24
25
26
A Title II mortgagee is a mortgagee that has been approved to originate, underwrite,
close, endorse, service, purchase, hold, or sell FHA single family insured mortgages or
multifamily mortgages.
1
This section covers FHA approval for both Title I lenders and Title II mortgagees. The term “mortgagee” is used
for all types of FHA approval (both Title II mortgagees and Title I lenders) and the term “mortgage” is used for all
products (both Title II mortgages and Title I loans), unless otherwise specified.
[June 30, 2014]
1
1
2. Types of Approved Mortgagees
2
3
FHA approves mortgagees as one of the following four types: supervised, nonsupervised,
government, or investing.
4
a. Supervised Mortgagee
5
i. Definition
6
7
8
9
A supervised mortgagee is a financial institution that is a member of the Federal Reserve
System (FRS) or whose accounts are insured by the Federal Deposit Insurance
Corporation (FDIC) or the National Credit Union Administration (NCUA) (collectively,
“Federal Banking Agencies”).
10
(A) Small Supervised Mortgagee
11
12
13
14
A Small Supervised Mortgagee is a supervised mortgagee that has consolidated assets
below the threshold for audited financial reporting established by the Federal Banking
Agency with oversight of the mortgagee. Thresholds are codified at 12 CFR §§
363.1(a), 562.4(b)(2), and 715.4(c), and are subject to change.
15
ii. Standard
16
A supervised mortgagee must meet the general approval requirements set forth below.
17
iii. Activities Authorized
18
19
A supervised mortgagee may originate, underwrite, close, endorse, service, purchase,
hold, or sell FHA-insured mortgages.
20
b. Nonsupervised Mortgagee
21
i. Definition
22
A nonsupervised mortgagee is a non-depository lending institution.
23
ii. Standard
24
25
26
27
28
29
30
31
32
A nonsupervised mortgagee must meet the general approval requirements set forth below
and:
 meet FHA’s principal activity requirement by deriving at least 50 percent of its
annual gross revenues from lending, investing, or servicing funds in real estate
mortgages, consumer installment notes, or similar advances of credit, or from
purchasing consumer installment contracts;
 have an acceptable business form;
 demonstrate credit worthiness; and
 have an acceptable funding program.
[June 30, 2014]
2
1
2
3
A nonsupervised mortgagee may originate, underwrite, close, endorse, service, purchase,
4
c. Government Mortgagee
5
i. Definition
6
7
A government mortgagee is a federal, state, or municipal governmental agency, a Federal
Reserve Bank, or a Federal Home Loan Bank.
8
ii. Standard
9
A government mortgagee must meet the general approval requirements set forth below.
10
11
12
A government mortgagee may originate, underwrite, close, endorse, service, purchase,
13
d. Investing Mortgagee
14
i. Definition
15
An investing mortgagee is an organization that invests funds under its own control.
16
ii. Standard
17
18
19
20
21
22
23
24
25
An investing mortgagee must meet the general approval requirements set forth below
and:
 it must have staff capable of managing the mortgagee’s activities relating to its
FHA-insured mortgages;
 it must have an acceptable business form;
 it must demonstrate credit worthiness;
 it must have an acceptable funding program; and
 funds invested in FHA-insured mortgages must be under the mortgagee’s direct
control.
26
27
28
29
An investing mortgagee may purchase, hold, or sell FHA-insured mortgages. An
investing mortgagee may only service FHA-insured mortgages if it receives prior
approval to do so on a case-by-case basis.
[June 30, 2014]
3
1
3. Application and Eligibility Requirements for Approval
2
a. Title I and Title II Program Applications
3
A mortgagee may apply for Title I and Title II approval separately or in the same application.
4
b. Online Application
5
6
7
8
9
10
11
A mortgagee seeking FHA approval must submit an online application containing all
information and documentation required to demonstrate eligibility for approval as provided
in this section. The online application also includes required certifications and an application
fee. Mortgagees must ensure that all information contained in and documentation submitted
with the application is true, complete, and up to date as of the date of submission of the
application.
i. Application Information
12
(A) Standard
13
14
15
16
17
18
19
20
21
22
23
24
25
26
The mortgagee must provide the following information as part of a completed
application for FHA approval:
 general information (such as the mortgagee name, date mortgagee was
established, Taxpayer Identification Number (TIN), Nationwide Mortgage
Licensing System and Registry (NMLS) ID);
 contact information (the primary mortgagee contact information for all
inquiries related to the application);
 addresses (the geographic and mailing addresses for the mortgagee’s home
office);
 mortgagee type (the type of FHA mortgagee approval being sought);
 Corporate Officers (the names, titles, and Social Security Numbers (SSN) for
all Corporate Officers who will be directly involved in managing, overseeing,
or conducting FHA business and designate the Officer in Charge); and
 principal owners (the names, SSN or TIN, and percent ownership).
27
(B) Required Documentation
28
29
The mortgagee must submit all of the application information in the online
application.
30
ii. Application Documentation
31
(A) Standard
32
33
The mortgagee must provide supporting documentation to demonstrate that it is
eligible for FHA approval.
[June 30, 2014]
4
Business Formation Documents
Commercial Credit Report of
Mortgagee
Credit Reports of Principal Owners and
Corporate Officers
Resumes of Corporate Officers
Resume of Officer in Charge
State License or Registration
Financial Reports
Funding Program
Fidelity Bond
Errors and Omissions Insurance
Quality Control Plan






Not Federally
Regulated
Federally
Regulated2
Documents Required for Application
Investing
Mortgagee
The mortgagee must submit all eligibility documentation listed in the table below that
is required for the type of approval being sought. This documentation is submitted in
the online application.
Government
Mortgagee
2
3
4
Nonsupervised
Mortgagee
Supervised
Mortgagee
1































2
An investing mortgagee that is a member of the FRS or whose accounts are insured by the FDIC or the NCUA is
“federally regulated.”
[June 30, 2014]
5
1
iii. Certification of Compliance
2
(A) Standard
3
4
The mortgagee, through a Corporate Officer, must make the following certifications
in its application:
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
1. I certify I am a Corporate Officer and/or principal owner of the mortgagee with
the authority to legally bind the mortgagee and to execute these certifications and
acknowledgments on behalf of the mortgagee.
2. I certify the mortgagee is not subject to any assessments or contingent liabilities
not disclosed in its financial statements.
3. I certify that neither the mortgagee nor any of its officers, partners, directors,
principals, managers, supervisors, loan processors, loan underwriters, or loan
originators are:
a. Suspended, debarred, under a Limited Denial of Participation (LDP), or
otherwise restricted under Part 24 of Title 24 of the Code of Federal
Regulations, Part 180 of Title 2 as implemented by Part 2424 of Title 2, or
under similar provisions of any other federal or state agencies;
b. Under indictment for, have been convicted of, or charged with a felony
offense that reflects adversely upon the mortgagee’s integrity, competence
or fitness to meet the responsibilities of an FHA-approved mortgagee;
c. Subject to unresolved findings contained in a U.S. Department of Housing
and Urban Development (HUD) or other governmental audit,
investigation, or review (including the HUD OIG);
d. Engaged in business practices that do not conform to generally accepted
practices of prudent mortgagees or that demonstrate irresponsibility,
including, but not limited to, failure to satisfy debts due and owing to
HUD, or associating or affiliating, for the purpose of conducting mortgage
business, with a person or entity previously sanctioned or fined by HUD;
e. Convicted of, or have pled guilty or nolo contendere (no contest) to, a
felony related to participation in the real estate, mortgage loan, or financial
services industry—
i. During the seven year period preceding the date of the application
for licensing and registration; or
ii. At any time preceding such date of application, if such felony
involved an act of fraud, dishonesty, breach of trust, or money
laundering;
f. In violation of provisions of the Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE Act) (12 U.S.C. § 5101 et seq.) or
any applicable provision of state law;
g. In violation of any other requirement established by the Secretary;
h. Currently or presently suspended, terminated, debarred, sanctioned, fined,
convicted, denied approval, or subject to a license or approval revocation
by any federal, state, or local government agency, or a Governmental
[June 30, 2014]
6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
Entity, where the action is related to the responsibilities that are
commensurate with those of the financial services industry; or
i. Currently involved in a proceeding or subject to an investigation that
could result, or has resulted, in suspension, fine, debarment, or other
sanction by a federal, state, or local government agency, conviction in a
criminal matter, bankruptcy or loss of fidelity insurance or errors and
omissions insurance coverage.
4. I certify that no mortgage insurance companies, secondary marketing agencies,
warehouse lenders, brokers or dealers have denied the mortgagee approval in the
past three years from the date of these certifications.
5. I certify the mortgagee, its officers, partners, directors, and/or principals,, have
not been subject to any past or present action by HUD, U.S. Department of
Veteran Affairs (VA), Consumer Financial Protection Bureau (CFPB), Federal
National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), or other governmental entity in which there has been
a request to repurchase a loan or to indemnify the entity against loss.
6. I certify the mortgagee is not currently subject to, previously been, or is proposed
for regulatory or supervisory action by any regulatory entity. Regulatory actions
include, but are not limited to, supervisory agreements, cease and desist orders,
notices of determination, notices of proposed actions, formal memoranda of
understanding, informal memoranda of understanding, unresolved audits,
revocation of license(s) and investigations. Supervisory actions include, but are
not limited to, the appointment of a trustee, receiver, conservator, or managing
agent.
7. I acknowledge on behalf of the mortgagee, its continuing obligation to notify
HUD, in writing, within five days of any change to the information or
documentation provided in connection with this application for approval while
this application is pending review.
8. I certify that neither the mortgagee nor any of its owners, principals, officers,
managers or supervisors have been involved, through ownership or otherwise,
with a previously defaulted Government National Mortgage Association (Ginnie
Mae) issuer(s), an FHA-approved mortgagee that was subject to action by the
Mortgagee Review Board (MRB), and/or an entity subject to a civil or criminal
action by federal or state law enforcement.
9. I certify that, upon the submission of this application, and with its submission of
each mortgage for insurance or request for insurance benefits, the mortgagee has
and will comply with the requirements of the Secretary of HUD, which include,
but are not limited to, the National Housing Act (12 U.S.C. § 1702 et seq.) and,
HUD’s regulations, FHA Handbooks, Mortgagee Letters (ML), and Title I letters
and policies with regard to using and maintaining its FHA mortgagee approval.
10. I acknowledge on behalf of the mortgagee, its continuing obligation to notify
FHA, in writing, within 10 days of issuance of any notice (or proposed notice) of
violation, revocation, sanction, suspension, or any other administrative
action/proceeding initiated by a state or federal regulatory entity (including the
HUD OIG).
[June 30, 2014]
7
1
2
3
4
The certification must be completed in the online application by a Corporate Officer
of the mortgagee who has been granted the certifying official authorization in FHA
Connection (FHAC).
5
(C) Unable to Certify
6
7
8
9
10
11
12
13
14
If a mortgagee is unable to certify to all of the statements set forth in the certification,
the mortgagee must submit a detailed explanation in the online application for each
certification that it is unable to complete. The document must:
 explain in detail the reason(s) why the mortgagee is unable to certify;
 be on the mortgagee’s letterhead;
 be dated;
 be signed by the Corporate Officer who signs the application; and
 contain language certifying that, if approved, the mortgage will comply with
all FHA requirements.
15
(D) FHA Review
16
17
18
19
20
FHA will review the mortgagee’s explanation for being unable to certify and will
render a final decision regarding the mortgagee’s ability to complete the online
application. If additional documentation is needed prior to making a final decision,
the mortgagee will be advised and given a date on which the documentation must be
provided to FHA.
21
iv. Application Fee
22
(A) Standard
23
24
25
26
27
The mortgagee must pay a nonrefundable application fee when submitting an
application for approval. Mortgagees applying for both Title I and Title II approval,
whether simultaneously or separately, will only be assessed a single application fee.
Government mortgagees and mortgagees organized as nonprofits are not required to
pay an application fee.
28
29
The application fee must be submitted in the online application.
[June 30, 2014]
8
1
2
c. Eligibility Requirements
i. Business Form
3
(A) Standard
4
5
A nonsupervised or investing mortgagee must be organized in one of the following
acceptable business forms. A sole proprietorship is not an acceptable business form.
6
(1) Corporation
7
(a) Definition
8
A corporation is an Entity chartered in the United States or its territories.
9
(b) Standard
10
11
The corporation must be organized in accordance with federal and state laws
regarding corporations and must provide for permanent succession.
12
(c) Required Documentation
13
14
The corporation must submit copies of its articles of incorporation and bylaws
with its application.
15
(2) Limited Liability Company
16
(a) Definition
17
18
19
A Limited Liability Company (LLC) is an incorporated legal Entity created
under applicable state law that combines certain legal and tax attributes of
corporations and partnerships.
20
(b) Standard
21
22
23
24
25
26
The LLC must:
 consist of two or more members, unless its single member is a
corporation or LLC consisting of two or more persons or members;
 have a minimum term of existence of 10 years; and
 provide for succession and continuance in the event of the withdrawal
or death of a member.
27
28
29
The LLC must submit its Articles of Organization and operating agreement
with its application. The Articles of Organization and operating agreement
[June 30, 2014]
9
1
2
must contain language addressing the requirements listed in the FHA LLC
Standard section above.
3
The application must include the names and TINs of all members.
4
(3) Series Limited Liability Company
5
(a) Definition
6
7
8
9
A Series LLC is a specific type of LLC that is composed of separate
membership interests, which are divided into individual series. Each series can
hold assets, have members, and conduct operations independently of the other
series in the LLC.
10
(b) Standard
11
12
13
The Series LLC must comply with all requirements for approval of an LLC.
The Series LLC must be organized in accordance with state law that does not
conflict with FHA requirements.
14
15
16
17
18
19
20
The Series LLC’s operating agreement must stipulate that:
 no series may participate in FHA programs unless the approved
mortgagee owns 100 percent of the membership interests in that series;
and
 the approved mortgagee remains fully liable for the debts, liabilities,
obligations and expenses of any and all series that participate in FHA
programs.
21
22
23
The Series LLC must submit its Articles of Organization and operating
agreement with its application.
24
25
The application must include the names and TINs of all series participating in
FHA programs and of all members.
26
(4) Partnership
27
(a) Definition
28
29
A partnership is a for-profit business operation between two or more Entities
that share ownership and management responsibilities.
30
(b) Standard
31
32
The partnership must:
 be organized in accordance with relevant state law;
[June 30, 2014]
10

1
2
3

4
5
have a term of existence that continues for a minimum term of 10
years from the date of application; and
be structured to continue to exist even if a partner withdraws.
Each general partner must be a corporation or other chartered institution
consisting of two or more individuals.
6
7
8
9
10
11
The partnership must designate a managing general partner, who:
 has as its principal activity the management of one or more
partnerships, all of which are mortgage lenders or property
improvement or Manufactured Housing loan lenders; and
 has exclusive authority to deal directly with the Secretary on behalf of
each partnership.
12
13
14
15
The partnership must submit its partnership agreement. The partnership
agreement must contain language addressing the requirements listed in the
FHA Partnership Standard section above.
16
17
18
The partnership must submit the names and TINs of all general partners as
well as the names and SSNs of all officers and directors of the managing
general partner.
19
(5) Nonprofit
20
(a) Definition
21
22
23
A nonprofit is a charitable organization or corporation, civic league, social
welfare organization, or local employee association organized for purposes
other than profit.
24
(b) Standard
25
26
27
The nonprofit must be recognized as tax-exempt by the Internal Revenue
Service (IRS) in accordance with the federal taxation exemption requirements
of Sections 501(c)(3) or 501(c)(4) of the Internal Revenue Code (IRC).
28
29
A nonprofit organized as a corporation, LLC, or partnership must also comply
with all requirements for the applicable business form.
30
31
32
33
The nonprofit must provide a copy of its IRS exemption letter. The nonprofit
must submit all Business Formation Documentation required of its business
form.
[June 30, 2014]
11
1
2
3
The mortgagee must submit its Business Formation Documentation in the online
application.
4
ii. Mortgagee Name
5
(A) Definition
6
(1) Institution Name
7
8
The mortgagee’s institution name is the legally registered corporate name
associated with the mortgagee’s home office.
9
(2) “Doing Business As” Name
10
11
The “Doing Business As” (DBA) name is any registered name or alias that the
mortgagee has a legal right to use.
12
(B) Standard
13
14
15
16
17
18
19
The mortgagee must use as its institution or DBA name the name shown on its
Business Formation Documentation or for which it has received approval from its
state of formation. The mortgagee is prohibited from using any restricted word in, or
as part of, its institution or DBA name in a manner that would violate the Helping
Families Save Their Homes Act of 2009 (Pub.L. 111–22) or 18 U.S.C. § 709, which
places restrictions on “federal,” “government,” or “national” and related words,
unless the mortgagee is exempt from these statutory prohibitions.
20
21
22
23
The mortgagee’s institution name and all DBA names used by a mortgagee for
conducting FHA business must be registered with FHA. The mortgagee must use
only those names that are registered with FHA in advertising and promotional
materials related to FHA programs.
24
(C) Required Documentation
25
26
27
28
29
30
A nonsupervised or investing mortgagee must submit its Business Formation
Documentation and a supervised mortgage must submit a copy of the state license for
its home office as verification of its institution name. The mortgagee must submit
documentation from the state showing it is legally approved to use its institution
name or DBA name, if the name differs from that shown on its Business Formation
Documentation.
[June 30, 2014]
12
1
2
iii. Office Facilities
(A) Definition
3
(1) Home Office
4
5
The mortgagee’s home office is the main office from which it manages its FHA
business.
6
(2) Branch Offices
7
8
Branch offices are all other offices from which a mortgagee conducts FHA
business.
9
(B) Standard
10
(1) Home Office
11
12
A mortgagee must designate a headquarters or “home office” for its FHA
business, which does not have to be its corporate office.
13
14
15
The mortgagee’s home office must have a staff of at least two full-time
employees. The mortgagee may not rely on a shared receptionist to satisfy this
full-time employee requirement.
16
17
18
19
20
21
22
23
24
A mortgagee’s home office facilities must:
 be located in a commercial space that is separate from any other Entity
(except for reception-type entrances or lobbies);
 be clearly identified, including having a permanently affixed business sign
and other means of identification commonly used by businesses, so that
the general public and other businesses will know, at all times, exactly
which Entity is being represented and is conducting business; and
 display a fair housing poster if the mortgagee deals with mortgagors and
the general public.
25
(2) Branch Offices
26
27
28
Mortgagees must also register any branch offices that will conduct FHA business
in accordance with the requirements set forth in the Branch Office requirements
section of this SF Handbook.
29
30
31
FHA will verify compliance with the office facilities requirements through any onsite
visits.
[June 30, 2014]
13
1
iv. Ownership and Personnel
2
3
The mortgagee must comply with the following requirements for its ownership and
personnel.
4
(A) Principal Owners
5
(1) Definition
6
7
A principal owner is any individual or Entity meeting the following thresholds or
roles for the applicable business form:
Business Form
Publicly Traded Corporation
Private or Close Corporation
Limited Liability Company (LLC)
Partnerships
8
Principal Owners
10% or more ownership
25% or more ownership
All Members
All Partners
(2) Standard
9
10
The mortgagee must ensure that none of its principal owners are suspended,
debarred or otherwise excluded from participation in FHA programs.
11
(3) Required Documentation
12
13
A supervised, nonsupervised, or investing mortgagee must identify all principal
owners. The mortgagee must submit this information in the online application.
14
(B) Personnel Requirements
15
(1) Corporate Officers
16
(a) Definition
17
18
19
20
21
22
23
24
25
26
27
A Corporate Officer is a natural person, who serves as one of the following
positions for the mortgagee:
 President;
 Vice President;
 Chief Operating Officer (COO);
 Chief Financial Officer (CFO);
 Director;
 Corporate Secretary;
 Chief Executive Officer (CEO);
 General Counsel;
 Chairman of the Board;
[June 30, 2014]
14



1
2
3
General Partner;
member of an LLC; or
specifically designated staff member(s) of a government mortgagee.
4
(b) Standard
5
6
The mortgagee must ensure that no Corporate Officers are suspended,
debarred or otherwise excluded from participation in FHA programs.
7
8
9
10
11
12
13
14
15
16
The mortgagee must ensure its Corporate Officers only represent a single
mortgagee, unless the following criteria are met:
 the Entities represented have some or all of the same Corporate
Officers or principal owners;
 there is a clear and effective separation of the Entities, and mortgagors
know at all times exactly which Entity is being represented and with
whom they are conducting business; and
 there is a duly appointed or elected senior officer designated as the
Officer in Charge, as described below, who conducts only business of
the mortgagee during normal business hours.
17
18
19
20
21
22
23
The mortgagee must identify all Corporate Officers who will be directly
involved in managing, overseeing, or conducting FHA business. The
mortgagee must submit all of this information in the online application. A
nonsupervised, government, or investing mortgagee must submit a current
resume covering the most recent seven-year period for each of these
Corporate Officers.
24
(2) Officer in Charge
25
(a) Definition
26
27
The Officer in Charge is the Corporate Officer designated to manage and
direct the mortgagee’s FHA operations.
28
(b) Standard
29
30
31
32
33
34
The mortgagee must designate as Officer in Charge a full-time Corporate
Officer, who has at least three years of experience in the specific mortgagee
functions or activities that the mortgagee is approved to perform, including:
 originating or servicing single family or multifamily mortgages;
 investing funds in real estate mortgages; or
 managing other individuals performing these services.
[June 30, 2014]
15
1
2
3
The mortgagee cannot rely on a Corporate Officer’s experience in real estate
sales or brokerage as qualifying experience in mortgagee functions or
activities.
4
5
6
7
The mortgagee must designate the Officer in Charge and submit a current
resume covering the most recent seven-year period detailing the individual’s
relevant experience in the online application.
8
(3) Employees
9
(a) Definition
10
11
Employees are individuals under the direct supervision and control of the
mortgagee.
12
(b) Standard
13
(i) Eligibility of employees
14
15
16
The mortgagee must not employ any individual who will participate in
FHA transactions if the individual is suspended, debarred or otherwise
excluded from participation in FHA programs.
17
(ii) Compensation
18
19
20
21
22
The mortgagee must compensate employees on one of the following
bases:
 a salary;
 a salary plus commission; or
 a commission-only.
23
24
The mortgagee may pay bonuses with any of these three compensation
plans.
25
26
The mortgagee cannot compensate employees who perform underwriting,
quality control, or mortgage servicing activities on a commission basis.
27
The mortgagee must report all employee compensation on IRS Form W-2.
28
(iii)SAFE Act Compliance
29
30
31
The mortgagee must ensure that it and its employees comply with the
requirements of the SAFE Act (12 U.S.C. § 1501 et seq.), including the
licensing and registration of its employees in the NMLS.
[June 30, 2014]
16
1
(iv)Dual Employment
2
3
4
5
The mortgagee must require its employees to be its employees
exclusively, unless the mortgagee has determined that the employee’s
other outside employment, including any self-employment, does not create
a prohibited conflict of interest.
6
(v) Conflict of Interest
7
8
9
Employees are prohibited from having multiple roles in a single FHAinsured transaction. Employees are prohibited from having multiple
sources of compensation from a single FHA-insured transaction.
10
(vi)Underwriters
11
12
13
The mortgagee must ensure that its underwriters are not managed by and
do not report to any individual who performs mortgage origination
activities.
14
15
16
17
The mortgagee must ensure that its underwriter:
 meets basic eligibility requirements; and
 performs the underwriting function in a manner consistent with
FHA guidelines.
18
19
20
The mortgagee must certify that it meets these requirements in the online
application.
21
22
v. Credit Worthiness
(A) Definition
23
(1) Institutional Credit Worthiness
24
25
26
27
28
29
A credit worthy institution is a mortgagee with a credit background for the sevenyear period preceding the FHA mortgagee approval application that:
 reflects no delinquent accounts or collections and no legal actions; or
 reflects legal actions that have been adequately resolved prior to
application and/or delinquent accounts or collections with an acceptable
explanation.
30
(2) Individual Credit Worthiness
31
32
33
A credit worthy individual is a person whose credit background for the seven-year
period preceding the FHA mortgagee approval application:
 reflects no delinquent accounts or collections and no legal actions; or
[June 30, 2014]
17

1
2
3
reflects legal actions that have been adequately resolved prior to
application and/or delinquent accounts or collections with an acceptable
explanation.
4
(B) Standard
5
6
A nonsupervised or investing mortgagee, its principal owners, and its Corporate
Officers must demonstrate credit worthiness.
7
8
The nonsupervised or investing mortgagee must submit the following credit reports.
9
(1) Report on Mortgagee
10
11
12
The mortgagee must submit a commercial credit report not more than 90 Days old
with its application. The mortgagee must provide written explanations for all
negative items disclosed on the credit report.
13
(2) Reports on Principal Owners
14
15
16
The mortgagee must submit a personal credit report for each of its principal
owners. The personal credit report must be a Residential Mortgage Credit Report
(RMCR) or a Tri-Merged Credit Report (TRMCR) not more than 90 Days old.
17
18
The mortgagee must submit a written explanation from the relevant principal
owner for any negative item disclosed on the credit report.
19
(3) Reports on Corporate Officers
20
21
22
The mortgagee must submit a personal credit report for each of its Corporate
Officers. A personal credit report must be an RMCR or a TRMCR and not more
than 90 Days old.
23
24
The mortgagee must submit a written explanation from the relevant Corporate
Officer for any negative item disclosed on the credit report.
25
vi. State License or Registration
26
27
Supervised, nonsupervised, and investing mortgagees must meet the following licensing
requirements.
[June 30, 2014]
18
1
(A) Business License or Registration
2
(1) Standard
3
4
5
The mortgagee must have an active state license, registration, or equivalent
approval to operate its business in the jurisdiction where the home office is
located.
6
7
8
The mortgagee must ensure that each branch office has all licenses, registrations,
or approvals required for the types of mortgagee functions or activities performed
by such branch office for the jurisdiction in which that office is located.
9
10
11
A mortgagee that has been refused a state license or been sanctioned by any state
in which it will originate FHA mortgages must disclose the circumstances of the
refusal or sanction and the resolution to FHA.
12
13
14
15
16
The mortgagee must submit a copy of its state license, registration or equivalent
approval for the state in which the home office is located. If the mortgagee is
exempt from licensing requirements, the mortgagee must submit documentation
of the applicable exemption.
17
18
19
The mortgagee, through a Corporate Officer, must certify at application that it has
not been refused a license or been sanctioned by any state in which it will
originate FHA mortgages.
20
21
22
23
24
If the mortgagee has been subject to an action against its license, it is unable to
certify. It must follow the unable to certify procedures and must submit
documentation concerning the action that shows the nature of the action and
evidence of an acceptable resolution (for example, a reinstatement or subsequent
approval of a license, payment of sanctions or fines, or similar documentation).
25
(B) Personnel Licenses
26
(1) Standard
27
28
29
The mortgagee must ensure that its Corporate Officers, employees, and contracted
third parties have all state and federal licenses and registrations required for the
mortgagee functions or activities that such individuals will perform.
30
31
32
The mortgagee must certify that it meets this requirement as part of the online
application.
[June 30, 2014]
19
1
vii. Financial Requirements
2
(A) Standard
3
4
Supervised, nonsupervised, and investing mortgagees must meet the following
adjusted net worth and liquidity requirements at all times.
5
(1) Adjusted Net Worth
6
(a) Single Family Programs
7
8
9
10
The mortgagee must have a minimum adjusted net worth of $1,000,000 plus 1
percent of the total volume in excess of $25,000,000 of FHA single family
mortgages originated, underwritten, serviced, and/or purchased during the
prior fiscal year, up to a maximum required adjusted net worth of $2,500,000.
11
(b) Multifamily Programs
12
(i) With Servicing
13
14
15
16
17
The mortgagee must have a minimum adjusted net worth of $1,000,000
plus an additional net worth of 1 percent of the total volume in excess of
$25,000,000 of FHA multifamily mortgages originated, underwritten,
purchased, and/or serviced during the prior fiscal year, up to a maximum
required net worth of $2,500,000.
18
(ii) Without Servicing
19
20
21
22
23
The mortgagee must have a minimum adjusted net worth of $1,000,000
plus an additional net worth of one-half of 1 percent of the total volume in
excess of $25,000,000 of FHA multifamily mortgages originated,
underwritten, and/or purchased during the prior fiscal year, up to a
maximum required net worth of $2,500,000.
24
(c) Dual Participation
25
26
27
28
29
30
A mortgagee approved to participate in both single family and multifamily
programs must have a minimum adjusted net worth of $1,000,000 plus an
additional net worth of 1 percent of the total volume in excess of $25,000,000
of the aggregate of FHA single family and multifamily mortgages originated,
underwritten, purchased, and/or serviced during the prior fiscal year, up to a
maximum required net worth of $2,500,000.
31
(2) Liquidity
32
33
The mortgagee must hold no less than 20 percent of its required adjusted net
worth in eligible liquid assets.
[June 30, 2014]
20
1
2
3
4
Supervised, nonsupervised, and investing mortgagees must submit the documentation
described below. Government mortgagees are not required to submit financial
information.
5
(1) Small Supervised Mortgagees
6
7
8
9
10
11
A Small Supervised Mortgagee must submit a copy of its Unaudited Regulatory
Report (i.e. report of condition and income, also known as the “call report,” which
is submitted on the Federal Financial Institutions Examination Council forms 031
and 041, or a consolidated or fourth quarter NCUA call report, submitted on
NCUA Form 5300 or 5310) signed by a Corporate Officer, that aligns with its
fiscal year end.
12
(2) Supervised, Nonsupervised, and Investing Mortgagees
13
(a) Audit of Financial Statements
14
15
16
The mortgagee must submit financial statements reported in accordance with
the HUD OIG Handbook 2000.04, Consolidated Audit Guide for Audits of
HUD Programs.
17
(b) Accounting and Auditing Standards
18
19
20
21
The mortgagee must have prepared its financial statements in accordance with
Generally Accepted Accounting Principles (GAAP) and had its audit
performed in accordance with Generally Accepted Auditing Standards
(GAAS).
22
(c) Audit Period Covered
23
24
25
A mortgagee’s audited financial statements must cover 12 months of
operation. For companies operating for fewer than 12 months, the audited
financial statements must cover all months of operation.
26
27
28
29
30
31
32
33
34
35
The ending date of the audited financial reports must align with the
applicant’s fiscal year end, with the following exceptions:
 Audited financial reports over six months old—If the ending date for
the audited financial reports is more than six months old, the
mortgagee must also submit unaudited financial statements, signed by
a Corporate Officer, for the most recent interim accounting period
ending less than three months prior to submission of the application.
 New institution—If the mortgagee is a new institution and has had no
revenues or cash flow, the income statement and cash flow statement
are not required as part of the audited financial statements.
[June 30, 2014]
21
1
viii. Principal Activity of Nonsupervised Mortgagees
2
(A) Standard
3
4
5
6
A nonsupervised mortgagee must derive at least 50 percent of its annual gross
revenues from lending, investing, or servicing funds in real estate mortgages,
consumer installment notes, or similar advances of credit, or from the purchase of
consumer installment contracts.
7
8
9
The nonsupervised mortgagee must submit audited financial statements that reflect
the sources of its revenue.
10
11
ix. Funding Program
(A) Nonsupervised Mortgagees
12
(1) Standard
13
14
A nonsupervised mortgagee that originates FHA mortgages must maintain a
warehouse line of credit or other mortgage-funding program acceptable to FHA.
15
16
17
The mortgagee must have a minimum $1,000,000 warehouse line of credit or
funding program, and must ensure the funding program or warehouse line of
credit is sufficient to fund the mortgagee’s average 60-day origination operations.
18
19
20
21
The mortgagee must submit documentation that it either 1) has a line of credit
issued directly to the mortgagee or 2) has an agreement with a financial
institution.
22
(B) Investing Mortgagees
23
(1) Standard
24
25
26
An investing mortgagee must have available, or have arranged for, funds or a line
of credit sufficient to support a projected investment in FHA-insured mortgages
of at least $1,000,000.
27
28
29
30
The mortgagee must submit documentation that it either 1) has a line of credit
issued directly to the mortgagee or 2) has an agreement to support the projected
investment.
[June 30, 2014]
22
1
x. Fidelity Bond
2
(A) Standard
3
4
5
A mortgagee must have fidelity bond coverage that meets the minimum coverage
amount set by FHA. The mortgagee must ensure that its fidelity bond coverage is in a
form generally acceptable to secondary market agencies.
6
7
8
A government mortgagee will meet this requirement if it maintains alternative
insurance coverage that is approved by FHA and that assures the faithful performance
of the mortgagee’s responsibilities.
9
10
11
12
The mortgagee must submit documentation evidencing that is has acceptable fidelity
bond coverage.
xi. Errors and Omissions Insurance
13
(A) Standard
14
15
16
A mortgagee must have errors and omissions insurance that meets the minimum
coverage amount set by FHA. The mortgagee must have errors and omissions
insurance that is generally acceptable to the secondary market agencies.
17
18
19
A government mortgagee will meet this requirement if it maintains alternative
insurance coverage that is approved by FHA and that assures the faithful performance
of the mortgagee’s responsibilities.
20
21
22
The mortgagee must submit documentation evidencing that it has acceptable errors
and omissions insurance.
23
xii. Quality Control Plan
24
(A) Standard
25
26
A mortgagee that originates, underwrites, endorses, closes, or services FHA-insured
mortgages must have a Quality Control (QC) Plan that meets FHA’s requirements.
27
28
The mortgagee must submit a copy of its QC Plan.
[June 30, 2014]
23
1
d. Processing of Applications for Approval
2
3
4
5
6
7
FHA will review all completed applications for approval to determine whether the mortgagee
complies with all eligibility requirements. If FHA requires additional documentation or
clarifying information, FHA may request such additional information and provide the
mortgagee with a deadline for response. If the mortgagee does not submit a completed
application or provide the additional information requested by the specified deadline, FHA
may deny approval on this basis.
8
e. Approval of Application
9
10
11
12
If FHA approves the mortgagee’s application, FHA will provide notice via email and U.S.
mail. This notice will include the mortgagee’s assigned FHA Lender Identification Number
FHA Lender ID, which must be used by the mortgagee in all FHA computer systems and
official correspondence with FHA.
13
f. Application Denial
14
15
If FHA denies the mortgagee approval, FHA will provide written notice to the mortgagee
that includes an explanation of the reasons for the denial.
16
i. Appeal of Denial
17
18
The mortgagee may submit an appeal of the denial decision through the online
application within 30 Days of the date of the denial.
19
20
21
22
If the denial is sustained, the mortgagee may submit a second appeal through the online
application within 30 Days of the date the denial is sustained. If the denial of approval is
sustained a second time, the mortgagee will be ineligible to apply for FHA approval for a
period of 12 months.
23
ii. Reapplication
24
25
26
A mortgagee whose approval was denied may reapply after a period of 12 months. The
mortgagee will be required to pay an application fee at the time it submits its second
application for approval.
27
4. Branch Offices
28
a. Registration
29
30
31
32
The mortgagee must register all branch offices in which it conducts FHA business. The
mortgagee must register each branch office and pay branch office registration fees through
the Lender Electronic Assessment Portal (LEAP) which is accessed through FHAC. A 10digit FHA Lender ID will be assigned to each registered branch office.
[June 30, 2014]
24
1
2
3
4
The mortgagee cannot register a new branch office within a HUD Field Office jurisdiction in
which it has withdrawn a branch office in the last six months. The mortgagee must instead
reverse the withdrawal of the former branch office and reassign the former office’s FHA
Lender ID to the new branch.
5
b. Single Family Lending Area
6
i. Definition
7
8
9
10
11
An “Area Approved for Business” (AAFB) is the geographic area in which a mortgagee’s
home or branch office is permitted to originate or underwrite FHA mortgages. The AAFB
is subdivided into HUD Field Office jurisdictions and a branch office may be stripped of
its approval to operate in certain jurisdictions subsequent to a Credit Watch Termination
action.
12
13
The jurisdiction of each HUD Field Office can be verified on www.hud.gov/lenders
under the Mortgage Origination tab through the link titled “HUD office jurisdictions.”
14
ii. Standard
15
16
17
18
All branch offices registered by a mortgagee will initially be granted a nationwide AAFB.
The branch may only exercise its authority to originate or underwrite FHA mortgages in
those states where the mortgagee fully complies with state origination and/or
underwriting licensing and approval requirements.
19
20
c. Managers
i. Definition
21
(A) Branch Manager
22
23
A branch manager is an onsite manager for a branch office who manages one branch
office.
24
(B) Regional Manager
25
26
A regional manager is a manager who oversees the operation of multiple branch
offices.
27
ii. Standard
28
29
The mortgagee must have a separate branch manager or regional manager to oversee each
of its branch offices. A regional manager cannot be designated as a branch manager.
30
The mortgagee must not have a manager who has delinquent Federal Debt.
[June 30, 2014]
25
1
iii. Compensation
2
3
The mortgagee may provide a branch manager with a commission derived from the
branch’s “net” profit after the mortgagee has paid all expenses of the branch office.
4
iv. Required Documentation
5
6
7
The mortgagee must document that none of its managers has delinquent Federal Debt and
may utilize the Credit Alert Verification Reporting System (CAIVRS) to obtain
information on delinquent Federal Debt.
8
9
10
11
d. Net Branching Prohibition
The mortgagee must not engage an existing, legally-separate mortgage company, Series
LLC, or broker to function as the mortgagee’s branch office or DBA name or to conduct
FHA lending activities using the mortgagee’s FHA approval.
12
5. Supplemental Mortgagee Authorities
13
14
After a mortgagee is approved, the mortgagee can apply for additional supplemental mortgagee
authorities in accordance with the following requirements.
15
a. Title II Direct Endorsement Authority
16
i. Scope of Authority
17
18
19
20
21
Approval to participate in FHA’s Direct Endorsement (DE) Program permits a mortgagee
to underwrite Title II single family mortgages without FHA’s prior review and submit
them directly for FHA insurance endorsement. The mortgagee must obtain separate DE
approval for forward and Home Equity Conversion Mortgages (HECM) mortgage
programs.
22
(A) Definitions
23
(1) Conditional Authority
24
25
26
Conditional authority is the authority of a mortgagee that has applied for and
received basic FHA mortgagee approval as a supervised, nonsupervised, or
government mortgagee and has not entered the Test Case Phase.
27
(2) Test Case Phase
28
29
30
The Test Case Phase is when a mortgagee with Conditional authority is approved
by an FHA Homeownership Center (HOC) to submit a case for FHA underwriting
review.
[June 30, 2014]
26
1
(3) Unconditional DE Authority
2
3
4
Unconditional DE authority permits a mortgagee to underwrite and close Title II
single family mortgages prior to submitting them to FHA for FHA insurance
endorsement.
5
(B) Standard
6
7
8
To obtain Unconditional DE approval, the mortgagee must complete the Test Case
Phase, which permits FHA to evaluate the mortgagee’s qualifications, experience,
and expertise to underwrite mortgages that satisfy FHA requirements.
9
10
11
ii. Eligibility Requirements
A mortgagee must meet the following requirements in order to apply for and participate
in FHA’s DE Program.
12
(A) FHA Mortgagee Approval
13
14
A mortgagee must have FHA approval as a Title II supervised, nonsupervised, or
government mortgagee to be eligible to participate in the DE Program.
15
16
Mortgagees approved as investing mortgagees are not eligible to participate in the DE
Program.
17
(B) Experience
18
19
20
21
22
The mortgagee must have:
 at least five years of experience in the origination of single family mortgages;
or
 a Corporate Officer with at least five years of managerial experience in the
origination of single family mortgages.
23
(C) Personnel Requirements
24
The mortgagee must have on staff a full-time employee to serve as underwriter.
25
26
iii. Application and Approval
(A) Application
27
(1) Request to Enter into the Test Case Phase
28
29
30
The mortgagee must submit a written application for Unconditional DE authority
to the HOC with jurisdiction over the state where the mortgagee’s home office is
located.
[June 30, 2014]
27
1
2
3
4
5
6
7
8
The mortgagee’s DE application must contain the following:
 a letter signed by a Corporate Officer requesting entry into the Test Case
Phase that contains all DE underwriters’ names and the four-character,
FHA-assigned identification numbers issued to these underwriters; and
 a copy of the mortgagee’s FHA approval letter granting the mortgagee
FHA approval as a Title II supervised, nonsupervised, or government
mortgagee.
9
(B) Notification and Entrance Conference
10
11
12
13
14
If the mortgagee meets the requirements for Conditional authority and submits the
required documentation, the mortgagee will receive a Test Case Phase approval letter
from the HOC. The HOC will also provide reference materials and a list of the
specific requirements that must be met for the mortgagee to obtain Unconditional DE
authority.
15
16
The mortgagee must participate in an in-person or telephone entrance conference with
the HOC before it will be eligible to submit Test Cases.
17
(C) Test Case Phase
18
19
20
The mortgagee must submit a number of mortgage application “Test Cases” to FHA
for review during the Test Case Phase. FHA will review these cases for compliance
with FHA’s origination and underwriting requirements.
21
(1) Case Binder Submission
22
23
The mortgagee must submit all Test Case files to the Jurisdictional HOC
associated with the mortgagee’s home office.
24
(a) Pre-closing Submission
25
26
27
28
If the mortgagee submitted the case binder before closing, the HOC will either
issue a Firm Commitment (approval) or Firm Reject (denial). The mortgagee
may close and submit for insurance endorsement any mortgage that has
received a Firm Commitment.
29
(b) Post-closing Submission
30
31
32
33
34
35
If the mortgagee first submitted the case binder to FHA after closing, the HOC
will perform a Test Case review for compliance with FHA underwriting
guidelines. The HOC will either insure the mortgage or reject the mortgage
and return it to the mortgagee for correction. The mortgagee must make any
necessary corrections and provide any required documents to the HOC before
the loan can be insured.
[June 30, 2014]
28
1
2
If the mortgagee did not comply with FHA requirements and has not corrected
all errors, the HOC will reject the mortgagee’s request for insurance.
3
(2) Test Case Underwriting Report
4
5
6
7
8
The mortgagee, or its underwriter, must review the Underwriting Report
completed by the HOC available through FHAC on all Test Cases. Mortgagees
may request a change in an unacceptable rating for a mortgage by submitting a
request to the Test Case processing HOC. The mortgagee must include all
relevant documentation to support its request.
9
(3) Test Case Closing Package
10
11
12
13
The mortgagee must ensure that all required certifications are executed and
included with a complete case binder that is submitted to the HOC for
endorsement processing.
(D) Approval Decision
14
(1) Approval of Unconditional DE Authority
15
16
17
18
The mortgagee must receive a minimum of 15 Firm Commitments for forward
mortgage authority or five Firm Commitments for HECM mortgage authority
within a period of 12 consecutive months following the date of the entrance
conference in order to be granted Unconditional DE authority.
19
(2) Denial of Unconditional DE Authority
20
21
22
23
The mortgagee will be denied approval for Unconditional DE authority if, at any
time during the Test Case Phase, FHA determines that the mortgagee’s
submissions demonstrate a lack of knowledge of FHA requirements, or if FHA
identifies unacceptable practices.
24
(a) Denial Decision
25
26
FHA will provide the mortgagee with written notice of a denial of
Unconditional DE authority that specifies the reason for the denial.
27
(b) Denial Appeal
28
29
30
31
The mortgagee may appeal this denial by requesting an informal conference.
The mortgagee must submit its appeal in writing to the Test Case processing
HOC, which must receive the appeal within 30 Days of the date of the notice
of denial.
[June 30, 2014]
29
1
(c) Informal Conference
2
3
FHA will conduct an informal conference with the mortgagee, and its counsel
if any, no later than 60 Days from the date of the denial.
4
(i) Determination
5
6
7
FHA will issue a determination in writing following the informal
conference stating whether Unconditional DE authority is approved or
denied.
8
(d) Appeal Following Informal Conference
9
10
11
The mortgagee may appeal a denial following the informal conference to the
Deputy Assistant Secretary (DAS) for Single Family Housing or his or her
designee within 30 Days of the date of the denial determination.
12
13
14
15
The mortgagee is not entitled to any meeting or informal conference with the
DAS or designee. The mortgagee will be notified in writing of the decision of
the DAS or designee. The decision of the DAS or his or her designee
constitutes final agency action.
16
(3) Reapplication Following Denial
17
18
19
20
21
Any mortgagee who is denied Unconditional DE authority will not be permitted
to reapply until it has:
 demonstrated appropriate remedial education or action;
 supplied evidence to support such action; and
 waited a minimum of 180 Days.
22
iv. Unconditional DE Approval
23
24
After the mortgagee successfully completes the required Test Cases, FHA will grant the
mortgagee Unconditional DE approval.
25
26
The mortgagee will receive an approval letter and may begin submitting mortgages to
FHA for endorsement without prior review by FHA.
27
v. Principal/Authorized Agent Relationship
28
(A) Definition
29
30
31
A principal/authorized agent relationship is one in which a mortgagee with
Unconditional DE authority permits another DE-approved mortgagee to underwrite
mortgages on its behalf.
[June 30, 2014]
30
1
(B) Standard
2
3
4
5
A mortgagee with Unconditional DE authority (acting as the “principal”) can
designate another DE-approved mortgagee to act as its “authorized agent” for the
purpose of underwriting mortgages. A Third-Party Originator (TPO) may not act as a
principal or authorized agent.
6
(1) Required Authorities
7
8
9
The authorized agent must have Unconditional DE authority to underwrite the
type of mortgage that is being underwritten. The mortgagees must be approved as
follows.
10
11
12
13
14
To originate forward mortgages:
 the principal may have either Unconditional DE authority for forward or
HECM mortgages; and
 the authorized agent must have Unconditional DE authority for forward
mortgages.
15
16
17
18
19
To originate HECM mortgages:
 the principal may have either Unconditional DE authority for forward or
HECM mortgages; and
 the authorized agent must have Unconditional DE authority for HECM
mortgages.
20
(2) Process
21
22
23
The principal must originate the mortgage and the authorized agent must
underwrite the mortgage. The mortgage may close in either mortgagee’s name,
and either may submit the mortgage for insurance endorsement.
24
25
26
27
The relationship must be documented in FHAC by the authorized agent, and the
principal’s FHA Lender ID must be entered in the “Originator” field on the FHA case
file and in FHAC.
28
b. Title II Single Family Mortgagee Lender Insurance
29
i. Scope of Authority
30
31
32
Approval to participate in FHA’s Title II Single Family Mortgagee Lender Insurance (LI)
Program permits a mortgagee to endorse mortgages for insurance with no prior review by
FHA.
[June 30, 2014]
31
1
(A) Definitions
2
(1) LI Mortgagee
3
4
5
An LI mortgagee is a mortgagee with Title II Unconditional DE authority that has
been granted approval to endorse mortgages for insurance without prior review by
FHA.
6
(2) LI Compare Ratio
7
8
9
10
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.
11
(B) Standard
12
13
14
To obtain Title II Single Family Mortgagee Lender Insurance authority, the
mortgagee must meet the eligibility requirements as stated below and complete the
application and approval processes.
15
ii. Eligibility Requirements
16
(A) Standard
17
18
19
To obtain LI approval, the mortgagee must:
 be an FHA-approved mortgagee with Unconditional DE approval; and
 have an LI Compare Ratio that is below 150 percent.
20
21
(1) Exception for New Mortgagees Created by Merger, Acquisition, or
Reorganization Resulting in New FHA Lender Identification Number
22
23
24
25
26
27
28
29
30
31
If the mortgagee lacks an 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 DE approval;
 have had one or more LI-approved mortgagees participating in the merger,
acquisition, or reorganization at the time of the merger, acquisition or
reorganization;
 have had an acceptable LI Compare Ratio for all LI-approved mortgagees
participating in the merger, acquisition, or reorganization at the time of the
merger, acquisition or reorganization;
[June 30, 2014]
32

1
2
3
4
5
6
7

have an LI Compare Ratio that is derived from aggregating the claims and
defaults of all formerly FHA-approved mortgagees participating in the
merger, acquisition, or reorganization that is not more than 150 percent;
and
ensure that the management and staff who were involved with LI
processing for the FHA-approved mortgagee prior to the merger will
continue to exercise those responsibilities for the new mortgagee.
8
iii. Application and Approval
9
(A) First-Time Applicants
10
(1) Standard
11
12
13
The mortgagee must apply for LI approval through FHAC. Before application the
mortgagee must make a written determination that it will participate in the LI
program.
14
15
16
17
The mortgagee’s written determination to participate in the LI program must be
signed by a principal owner or Corporate Officer. The mortgagee must retain a
copy of such written determination and make it available to HUD upon request.
18
(3) Approval
19
20
FHAC will automatically approve or deny the mortgagee’s LI authority based on
the mortgagee’s DE approval status and LI Compare Ratio.
21
22
(B) Application from Mortgagee Created by Merger, Acquisition, or
Reorganization Resulting in New FHA Lender Identification Number
23
(1) Standard
24
25
26
27
28
29
30
31
32
33
Mortgagees created through mergers, acquisitions or reorganizations that are
issued a new FHA Lender ID will not be able to apply through the automated
process. Such mortgagees must submit a written application request to FHA
containing the following:
 a copy of the “Acknowledgment of Terms and Conditions for LI” screen
in FHAC, printed and signed by a Corporate Officer;
 the name and contact information of the LI contact person and, at the
discretion of the mortgagee, the name and contact information for the
back-up LI contact person;
 the name and the FHA Lender ID of the new mortgagee;
[June 30, 2014]
33

1
2
3
4
5
6
7

8
the names and FHA Lender IDs of the mortgagees participating in the
merger, acquisition, or reorganization; and
information identifying the management and staff experienced with LI
processing employed by the new mortgagee or transferring from a
mortgagee that previously held LI approval, and describing how the
management and staff will continue to exercise LI responsibilities for the
new mortgagee.
9
10
The mortgagee’s written application request must be submitted to FHA to the
appropriate address listed below.
11
(a) Application Submitted via U.S. Mail
12
13
14
15
U.S. Department of Housing and Urban Development
Lender Approval and Recertification Division
451 7th Street, SW, Room B-133/P3214
Washington, DC 20410
16
(b) Application Submitted via Courier
17
18
19
20
U.S. Department of Housing and Urban Development
Lender Approval and Recertification Division
490 L’Enfant Plaza East, SW, Suite 3214
Washington, DC 20024
21
c. Title I Manufactured Home Loan Direct Endorsement Authority
22
THIS SECTION PENDING – UNDER CONSTRUCTION
23
d. Title II Multifamily Accelerated Processing Authority
24
25
26
27
28
Title II Multifamily Accelerated Processing (MAP) authority permits mortgagees to
underwrite and close multifamily mortgages for FHA insurance without FHA’s review prior
to closing. The Office of Multifamily Housing grants this authority. Details on this authority
are in the Multifamily Accelerated Processing (MAP) Guide 4430.G, which is available in
HUD’s Client Information and Policy System (HUDCLIPS).
29
6.
Post-Approval Operations
30
a. Operating Requirements and Restrictions
31
32
33
A mortgagee must comply with the following operating requirements and restrictions for its
FHA business operations in addition to continuing to operate in full compliance with the
eligibility requirements outlined in the SF Handbook.
[June 30, 2014]
34
1
b. Compliance with Law
2
3
A mortgagee must ensure that its operations are compliant with all applicable federal, state,
and local laws.
4
c. Servicing of FHA Insured Mortgages
5
6
7
8
9
10
The servicing of FHA-insured loans must be performed by FHA-approved
mortgagees. FHA approved mortgagees that use a sub-servicer to service its FHA insured
mortgages must ensure the sub-servicer is also approved by FHA to service FHA-insured
mortgages. The servicing mortgagee is responsible for the actions of their subservicers. The costs associated with subservicing may not be imposed on the FHA borrower
or passed along to HUD in a claim for mortgage insurance benefits.
11
d. Employee Compensation
12
13
A mortgagee must ensure its employees continue to be compensated in accordance with the
requirements for FHA approval.
14
15
The mortgagee may not compensate an employee for participation in an FHA-insured
transaction if the employee will receive other compensation related to the transaction.
16
e. Conflicts of Interest
17
18
A mortgagee may not permit an employee to have multiple roles in a single FHA-insured
transaction.
19
f. Payment of Operating Expenses
20
i. Definition
21
22
Operating expenses are the costs associated with equipment, furniture, office rent,
overhead, employee compensation, etc.
23
ii. Standard
24
25
A mortgagee must pay all of its own operating expenses, including the expenses of its
home office and any branch offices where it conducts FHA business.
26
The mortgagee must maintain all accounts for operating expenses in its name.
27
g. Prohibited Payments
28
29
30
31
A mortgagee may not pay any fee, kickback, compensation or thing of value to any person or
Entity in connection with an FHA-insured mortgage transaction, except for services actually
performed and permitted by the Department. FHA mortgagees shall not pay a referral fee to
any person or Entity. A mortgagee is not permitted to:
[June 30, 2014]
35
1
2
3
4
5
6
7
8
9



advance funds to a real estate agent, real estate broker, mortgage broker, or packager
as an advance of anticipated commissions on sales to be financed with an FHAinsured mortgage to be provided by the mortgagee;
make low interest or no interest mortgages to a real estate broker, real estate agent,
mortgage broker, packager, builder or any other party from whom the mortgagee
accepts proposals involving FHA-insured mortgages; or
pay a gratuity or make a gift valued above items that are customarily distributed in
the normal course of advertising, public relations, or as a general promotion device, to
any person or Entity involved in the mortgagee’s FHA-insured mortgage transactions.
10
h. Staffing
11
12
A mortgagee must employ sufficient, experienced staff or engage, as permitted, the contract
support necessary to carry out the mortgagee’s FHA business.
13
14
15
The mortgagee must ensure each registered branch office has at least one full-time employee.
The mortgagee may not rely on a shared receptionist to satisfy this full-time employee
requirement.
16
i. Control and Supervision of Staff
17
(A) General Supervision and Control
18
19
20
21
A mortgagee is responsible for the actions of its staff that participates in FHA
transactions. The mortgagee must ensure that its Corporate Officers exercise control
over the management and supervision of such staff, which must include regular and
ongoing reviews of staff performance and of the work performed.
22
23
24
The mortgagee is responsible for ensuring compliance with the licensing and
registration requirements applicable to individual mortgage originators under the
SAFE Act.
25
(B) Use of Contractors
26
(1) Permissible Use
27
28
29
30
31
32
33
34
35
36
Provided the mortgagee ensures 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, a mortgagee may use contract support for
administrative 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 purchasing mortgagee);
 ministerial tasks in mortgage servicing (processing of a foreclosure action,
preservation and protection, and/or tax services);
[June 30, 2014]
36


1
2
legal functions; and
quality control.
3
4
5
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.
6
7
The mortgagee and its quality control contractor must have a valid contractual
agreement in place that specifies the roles and responsibilities of each party.
8
(2) Impermissible Use
9
10
11
The mortgagee may not contract with any Entities or person that is suspended,
debarred, under a relevant LDP, or who is otherwise excluded from participation
in FHA transactions.
12
A mortgagee cannot contract out management or underwriting functions.
13
i. Affiliates
14
i. Definition
15
16
Affiliates are contractors, agents, vendors, subservicers, and sponsored TPOs that
participate in FHA programs on behalf of an FHA-approved mortgagee.
17
ii. Standard
18
19
20
The mortgagee must ensure that its Affiliates are eligible and properly trained to
participate in FHA programs and that the Affiliates operate in compliance with FHA
requirements.
21
j. Branch Office Requirements
22
23
24
All branch offices must meet FHA’s staffing, office facilities, and operating requirements,
and all applicable licensing requirements. All branch offices must have an onsite branch
manager who manages only that branch.
25
k. Fair Housing Notice
26
27
28
A mortgagee must prominently display a fair housing poster at each office that participates in
activities related to Residential Real Estate-Related Transactions so as to be readily apparent
to all persons seeking services related to residential real estate or brokerage services.
[June 30, 2014]
37
1
2
l. Advertising
i. Definition
3
(A) Advertising
4
5
Advertising is any communication made to an outside Entity or individual that
describes or calls attention to a mortgagee’s FHA products or services.
6
(B) Advertising Device
7
8
An Advertising Device is a channel or instrument used to solicit, promote, or
advertise FHA products or programs.
9
ii. Standard
10
(A) Advertising
11
12
13
14
15
16
17
A mortgagee is solely responsible for the content of its advertising. This includes
advertising abuses by employees of the approved mortgagee, and any violations
committed by employees of Affiliates or companies that advertise or generate FHA
mortgage leads or other FHA business on behalf of the FHA-approved mortgagee.
The mortgagee must ensure that all of its advertising communications and
Advertising Devices, and the communications and Advertising Devices of its
Affiliates, comply with all applicable state licensing and regulatory requirements.
18
(B) Advertising Device
19
20
21
22
A mortgagee must not create the false impression that any of its Advertising Devices
are official government forms, notices, or documents or that otherwise convey the
false impression that an Advertising Device is authored, approved, or endorsed by
HUD or FHA.
23
24
25
26
The Advertising Device must be written, formatted, and structured in a manner that
clearly identifies the mortgagee as the sole author and originator of the Advertising
Device. The Advertising Device must reflect the mortgagee’s name, location, and
appropriate contact information.
27
(1) HUD and FHA Names and Acronyms
28
29
30
31
A mortgagee must not use the terms “Federal Housing Administration,”
“Department of Housing and Urban Development,” “Government National
Mortgage Association,” “Ginnie Mae,” the acronyms “HUD,” “FHA,” or
“GNMA” without prior written approval from HUD.
[June 30, 2014]
38
1
(2) HUD and FHA Logos
2
3
4
5
6
7
Other than permissible use of the official FHA-Approved Lending Institution logo
and the Equal Housing Opportunity logo, a mortgagee must not use the FHA or
HUD logos or seals, any other official seal or logo of the Department of Housing
and Urban Development, or any other insignia that imitates an official federal
seal. No person, party, company, or firm, including FHA-approved mortgagees,
may use these logos or seals on any Advertising Device.
8
(3) FHA-Approved Lending Institution Logo
9
(a) User Restrictions
10
11
12
13
Only an FHA-approved mortgagee may display the official FHA-Approved
Lending Institution logo on an Advertising Device for the purpose of
illustrating to the public the fact that the mortgagee originates FHA-insured
mortgage products.
14
15
The mortgagee must not permit its sponsored TPOs to use the official FHAApproved Lending Institution logo on any Advertising Device.
16
(b) Content Restrictions
17
18
19
The FHA-Approved Lending Institution logo must be displayed in a discreet
manner. The Advertising Device, when taken as a whole, must emphasize the
institution or DBA name of the mortgagee, and not the federal government.
20
21
22
23
24
25
26
When using the FHA-Approved Lending Institution logo on an Advertising
Device, the mortgagee must include a conspicuous disclaimer that clearly
informs the public that the mortgagee displaying the Advertising Device is not
acting on behalf of or at the direction of HUD, FHA, or the federal
government. The disclaimer must be prominently displayed in a location
proximate to where the FHA-Approved Lending Institution logo is displayed
on each Advertising Device.
27
28
The mortgagee may not alter or modify the FHA-Approved Lending
Institution logo in any way.
29
iii. Required Documentation
30
31
32
33
34
The mortgagee must retain copies of any Advertising Device it produces that is related to
FHA programs for a period of two years from the date that the Advertising Device is
circulated or used for advertisement, educational, or promotional purposes. Copies of
Advertising Devices related to FHA programs may be kept in either electronic or print
format and are to be provided to HUD upon request.
[June 30, 2014]
39
1
7. Post-Approval Changes
2
3
A mortgagee has an ongoing requirement to notify FHA of any changes to the information
outlined in its application for FHA approval or in FHA’s eligibility requirements.
4
5
a. Requirements for All Information Updates, Notices, and Requests
i. Definitions
6
(A) Information Update
7
8
An information update is any change to a mortgagee’s basic institution or branch
information in the FHA systems that can be directly managed by the mortgagee.
9
(B) Notice of Material Event
10
11
12
13
A notice of material event is the method of submitting a required notice to FHA of a
change to the information provided by the mortgagee at application as evidence of
approval eligibility or a change that affects the mortgagee’s standing as an FHAapproved mortgagee.
14
(C) Request
15
16
17
A request is the method of submitting an information update or business change that
requires FHA review and approval before acceptance. Any update or change that
cannot be made by the mortgagee directly is submitted as a request.
18
ii. Standard
19
20
21
22
A mortgagee must maintain accurate, up-to-date information in LEAP. The mortgagee
must provide notice or submit a request to FHA on any business change that affects its
standing as an FHA-approved mortgagee and submit any required documentation related
to the change.
23
24
25
Any change not specifically described in this SF Handbook that affects a mortgagee's
approval status or conduct of business with the Department must be reported to FHA with
a detailed explanation and supporting documentation.
26
27
Failure to make a required update, notice, or request by the prescribed deadline is
grounds for administrative action.
28
29
30
31
The mortgagee must:
 submit all information updates and business change notices and requests through
LEAP;
[June 30, 2014]
40
1
2
3
4
5
6
7
8
9
10




update information within 10 business days of an information change (unless
otherwise specified);
submit requests and notices to FHA on all business changes within 10 business
days of the change (unless otherwise specified);
include a cover letter signed by a Corporate Officer summarizing the business
change(s); and
submit any required documents as specified in Application and Eligibility
Requirements for Approval or as described in this section below.
b. Contact Information
i. Addresses
11
(A) Standard
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
The mortgagee must identify and update the addresses for its offices as follows:
 Mailing—address of home office;
 Geographic—street address(es) where its home and branch offices are
physically located;
 Administrative—street address to which HUD administrative notices from the
HOC Quality Assurance and Processing and Underwriting Divisions, Office
of Lender Activities and Program Compliance, MRB, Office of General
Counsel, and Office of Inspector General (OIG) is sent;
 Premium—address to which FHA insurance premium correspondence is sent;
 Payee—address to which FHA claim correspondence is sent;
 Servicing—street address for each servicing office. Mortgagees must indicate
which servicing functions (general, escrow administration, delinquency/loss
mitigation, foreclosure and quality control) are performed at each location;
 Computerized Homes Underwriting Management System (CHUMS)-address
to which FHA originating, underwriting, endorsing, and closing
correspondence is sent; and
 Endorsement—address to which all FHA mortgage endorsement
correspondence is sent, including the Mortgage Insurance Certificate (MIC).
30
31
32
The mortgagee must provide this information in LEAP, which is accessed through
FHAC.
33
(C) Relocation to a Different State
34
(1) Home Office
35
36
If the mortgagee is changing the geographic address of its home office to a
different state, the mortgagee must submit a request to FHA.
[June 30, 2014]
41
1
2
3
A nonsupervised mortgagee must include a copy of the state license, registration,
or equivalent documents evidencing their approval to operate a business in the
new state that has been signed by a Corporate Officer.
4
(2) Branch Office
5
6
7
8
9
10
If the mortgagee is changing the geographic address of a branch office to a
different state, the mortgagee must terminate the branch FHA Lender ID for the
original office and register the new location as a new branch office. The branch
FHA Lender ID for the original branch office will remain active for
approximately 45 Days to allow for the completion of processing of mortgages in
process under that identification number.
11
ii. All Other Contact Information
12
13
14
Mortgagees must submit and maintain accurate, up-to-date required contact and
identification information, including phone, fax, email, and NMLS identification
numbers.
15
c. Business Changes
16
i. Liquid Assets or Net Worth Deficiency
17
18
19
20
21
If at any time a mortgagee’s adjusted net worth or liquidity falls below the required
minimum, the mortgagee must notify FHA within 30 business days of the deficiency. The
mortgagee must submit a Corrective Action Plan that outlines the steps taken to mitigate
the deficiency and includes relevant information, such as contributions and efforts made
to obtain additional capital.
22
ii. Operating Loss
23
24
25
26
If a mortgagee experiences an operating loss of 20 percent or greater of its adjusted net
worth, the mortgagee must notify FHA within 30 business days of the loss. The 20
percent threshold applies to losses in any quarter during the fiscal year or losses that
exceed 20 percent on the financial statements submitted at recertification.
27
28
29
Following the initial notification, the mortgagee must submit financial statements every
quarter until it shows an operating profit for two consecutive quarters, or until it submits
its financial reports as part of its recertification.
30
iii. Fidelity Bond
31
32
33
A mortgagee must notify FHA of any significant change(s) to its fidelity bond coverage.
If a mortgagee loses its fidelity bond coverage it must obtain a new policy within 30
Days.
[June 30, 2014]
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1
iv. Errors and Omission Insurance
2
3
4
A mortgagee must notify FHA of any significant change(s) to its errors and omission
insurance. If a mortgagee loses its errors and omission insurance it must obtain a new
policy within 30 Days.
5
v. Principal Activity Change of Nonsupervised Mortgagee
6
7
8
9
If a nonsupervised mortgagee’s activities change such that it no longer meets the
principal activity requirement, it must notify FHA and submit a Corrective Action Plan
detailing the steps it will take to meet the principal activity requirement to maintain its
eligibility.
10
vi. Servicing for Investing Mortgagees
11
12
13
14
15
16
17
An investing mortgagee must submit a request after it has received FHA mortgagee
approval in order to service FHA mortgages. With its request, the mortgagee must:
 designate an Officer in Charge who meets the experience requirements for the
mortgagee’s servicing function;
 provide a resume for the Officer in Charge;
 provide a credit report for the Officer in Charge; and
 provide an updated QC plan that includes servicing.
18
19
FHA evaluates these requests on a case-by-case basis and reserves the right to request
additional documents necessary to determine the mortgagee’s servicing capabilities.
20
vii. Fiscal Year End Date
21
A mortgagee must submit a request to FHA to change its fiscal year end date.
22
23
24
25
Before approving the change, FHA may require the mortgagee to submit interim financial
reports to ensure the mortgagee’s next annual renewal financial reports cover no more
than 18 months. Change requests must be submitted at least 90 Days before the end of the
mortgagee’s current fiscal year, as reported to FHA.
26
viii. Supervision Change
27
28
If changing its supervising or regulatory agency, supervised mortgagees must notify FHA
and provide documentation of the change and the effective date.
29
ix. Business Form
30
31
32
A mortgagee must notify FHA if it reincorporates, changes its charter, changes the state
where it is incorporated, organized or chartered, or completes any other equivalent
business change.
[June 30, 2014]
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1
(A) Change Resulting in New Federal Taxpayer Identification Number
2
3
If a mortgagee receives a different federal TIN as a result of a business change, the
mortgagee must submit a new application for FHA mortgagee approval.
4
5
6
7
FHA will issue a new FHA Lender ID to the mortgagee upon approval. When the
new FHA Lender ID is issued, the old FHA Lender ID will remain active for
approximately 45 Days to allow for completion of processing of mortgages in process
under that identification number.
8
(B) Change Not Resulting in New Federal Taxpayer Identification Number
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
If the mortgagee does not receive a new federal TIN as a result of a business change,
then the mortgagee must submit the following documents to FHA:
 a business change notice in the form of a letter signed by a Corporate Officer
containing provisions with the following:
o providing a complete description of the business change;
o confirming that there has been no change in the federal TIN or depositor
insurance (in the case of a supervised mortgagee);
o stipulating that the institution will continue to comply with all FHA
approval requirements; and
o stipulating that the newly chartered Entity will continue to be responsible
for the assets and liabilities of the former Entity, including any problems
found subsequently by the Department in the origination or servicing of
any mortgages originated or serviced by the Entity prior to the business
change; and
 a copy of the Business Formation Documents.
24
x. Bankruptcy
25
(A) Business
26
27
28
29
A mortgagee that files a Chapter 11 bankruptcy petition must notify FHA and submit
with its notice, and quarterly thereafter, an internally prepared balance sheet and a
statement of adjusted net worth for as long as the petition is active. A mortgagee that
files a Chapter 7 bankruptcy petition must submit a business change notice to FHA.
30
31
32
The mortgagee must notify FHA of each change of status in the bankruptcy and FHA
reserves the right to require the mortgagee to submit additional information in order
to determine whether the mortgagee is eligible to maintain its FHA approval.
33
(B) Personal
34
35
36
A mortgagee must notify FHA if any Corporate Officer or principal owner
commences voluntary or involuntary bankruptcy. A current credit report for that
Corporate Officer or principal owner must be submitted with the business change
[June 30, 2014]
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1
2
notification. FHA must be notified of each change of status in the bankruptcy
proceedings.
3
xi. Lending License(s)
4
5
6
A mortgagee must notify FHA of any changes to its license(s). In the event of a lending
license surrender or revocation, the mortgagee must notify FHA which license(s) have
been surrendered and provide an explanation of each action.
7
xii. Mergers, Acquisitions, and Reorganizations
8
9
10
(A) Merger or Consolidation
FHA’s treatment of an FHA-approved mortgagee for approval purposes following a
merger will depend on the prior approval status of the surviving Entity.
11
(1) Duties of a Non-Surviving FHA-Approved Mortgagee
12
13
A non-surviving FHA-approved mortgagee is required to do the following for any
case in which they are merged or consolidated into another Entity.
14
(a) Standard
15
16
17
A non-surviving FHA-approved mortgagee that holds a portfolio of FHAinsured mortgages must transfer the mortgages within 45 Days to a mortgagee
approved by FHA to service FHA mortgages.
18
19
20
21
If a surviving FHA-approved mortgagee acquires all of the non-surviving
FHA-approved mortgagee's outstanding FHA mortgages, all of these
mortgages will be transferred in FHA systems to the surviving Entity when
the merger is processed.
22
23
24
25
A non-surviving mortgagee remains responsible for the payment of insurance
premiums and compliance with all other obligations associated with the FHA
mortgages until the mortgages are transferred and the mortgage record
changes are reported accurately to HUD through FHAC.
26
27
28
29
30
31
Once the non-surviving mortgagee ceases to exist or their approval is
terminated, whichever comes first, the non-surviving mortgagee must not:
 accept any applications for new FHA mortgages;
 hold FHA mortgages;
 service FHA mortgages; and
 submit claims to the Department.
[June 30, 2014]
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1
(b) Required Documentation
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
A non-surviving mortgagee is required to submit a business change request to
FHA containing the following:
 a letter, signed by a Corporate Officer, that informs FHA of the
merger. The letter must include information that:
o indicates which Entity will survive;
o provides the FHA Lender IDs for each FHA-approved mortgagee
involved;
o provides the date the merger occurred or will occur; and
o requests the withdrawal of the non-surviving mortgagee’s FHA
approval in accordance with FHA’s voluntary withdrawal
procedures;
 a copy of the legal document evidencing the merger;
 if a supervised mortgagee, a copy of the letter from the Federal
Banking Agency that approved the merger; and
 if applicable, a letter describing how the non-surviving mortgagee will
dispose of the FHA-insured mortgages that it held or serviced, and
which have not been acquired by a surviving FHA-approved
mortgagee, within 45 Days.
20
(2) Duties of a Surviving Entity
21
22
(a) FHA-Approved Mortgagee That Survives a Merger with a NonApproved Entity
23
24
25
26
27
28
29
30
An FHA-approved mortgagee that is the surviving Entity in a merger with a
non-approved Entity must submit a business change request to FHA
containing the following:
 a letter describing the merger;
 a copy of the legal document evidencing the merger; and
 if a supervised mortgagee, a copy of the letter from the Federal
Banking Agency or other supervisory authority that approved the
merger.
31
32
33
The surviving FHA-approved mortgagee must register each of the nonsurviving Entity's branch offices that will remain open under the auspices of
the surviving mortgagee and pay the branch office registration fee(s).
34
(b) Two or More FHA-Approved Mortgagees Merge
35
36
37
An FHA-approved mortgagee that is the surviving Entity in a merger with
another FHA-approved mortgagee must submit a business change request to
FHA containing the following:
[June 30, 2014]
46


1
2
3
4
a copy of the legal document evidencing the merger; and
if a supervised mortgagee, a copy of the letter from the Federal
Banking Agency or other supervisory authority that approved the
merger.
5
6
7
The surviving mortgagee must register each of the non-surviving mortgagee’s
branch offices that will remain open under the auspices of the surviving
mortgagee and pay the branch office registration fee(s).
8
9
10
If a surviving mortgagee acquires all of a non-surviving mortgagee's
outstanding FHA mortgages, FHA will reflect the transfer in FHA systems of
all mortgages to the surviving Entity when the merger is processed.
11
12
(c) Non-Approved Entity That Survives a Merger with an FHAApproved Mortgagee
13
14
15
16
17
18
A non-approved surviving Entity must become an FHA-approved mortgagee
in order to originate, underwrite, close, endorse, service, purchase, hold, or
sell FHA-insured mortgages, or to submit claims on mortgages to FHA,
including those previously held by the non-surviving mortgagee. To become
approved, the surviving Entity must follow the application and approval
procedures of this SF Handbook.
19
20
21
22
The surviving Entity must include with its application a letter, signed by a
Corporate Officer, describing the merger and, if applicable, its intentions
regarding the non-surviving mortgagee’s outstanding FHA-insured mortgages
and indemnifications.
23
24
25
Immediately after being approved, the mortgagee must register each of the
non-surviving Entity’s branch offices that will remain open under the auspices
of the surviving Entity and pay the branch registration fee(s).
26
27
28
29
30
The FHA Lender IDs of the non-surviving Entity’s branch offices will remain
active for up to 45 Days to allow for the completion of processing of
mortgages in process under these identification numbers. When new FHA
Lender IDs for these branch offices are issued, the mortgagee must cease
originating cases under the old numbers.
31
(B) Sale, Acquisition, or Disassociation
32
33
34
35
36
The sale or acquisition of an FHA-approved mortgagee may be through the
acquisition of stock, assets, operations, or some combination of these forms. FHA’s
treatment of the situation depends on whether the FHA-approved mortgagee
dissolves, continues as a subsidiary or corporate affiliation of the acquiring Entity, or
becomes an independent Entity.
[June 30, 2014]
47
1
(1) An FHA-Approved Mortgagee Is Acquired by Another Entity
2
(a) Dissolution of Acquired FHA-Approved Mortgagee
3
(i) Duties of Acquired FHA-Approved Mortgagee
4
i-1.
Standard
5
6
7
8
If an FHA-approved mortgagee being acquired will be dissolved into
another Entity, it must voluntarily withdraw its FHA approval. The
acquired mortgagee must transfer any FHA-insured mortgages in its
portfolio to a mortgagee approved to service FHA-insured mortgages.
9
10
11
12
The dissolving mortgagee must continue to pay insurance premiums
due and meet all other obligations associated with the FHA mortgages
until the mortgages are transferred and the mortgage record changes
are reported accurately to HUD in FHAC.
13
i-2.
14
15
16
17
The FHA-approved mortgagee being acquired must submit a request
to FHA in the form of a letter, signed by a Corporate Officer, that
informs FHA of the details regarding the acquisition and requests the
withdrawal of its FHA approval.
18
19
20
The mortgagee must submit a copy of the articles of dissolution, a
letter describing the acquisition, and, if applicable, how it will or has
disposed of FHA mortgages that it held or serviced.
Required Documentation
21
(ii) Duties of Acquiring Entity
22
23
24
An FHA-approved mortgagee that acquires and dissolves another FHAapproved mortgagee is required to submit a business change notification to
FHA through LEAP.
25
26
27
28
29
If a non-approved Entity is acquiring and dissolving an FHA-approved
mortgagee, the non-approved Entity must become an FHA-approved
mortgagee to originate, underwrite, close, endorse, service, purchase, hold,
or sell FHA-insured mortgages, or to submit claims on FHA mortgages,
including those previously held by the dissolved mortgagee.
30
31
32
33
34
If the acquired mortgagee will not be continuing as a subsidiary or
corporate affiliation, the acquiring Entity must submit a letter describing
the acquisition with its application, and, if applicable, its intentions
regarding the dissolved mortgagee’s outstanding portfolio of FHA
mortgages. Immediately after becoming approved, the mortgagee must
[June 30, 2014]
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1
2
register each of the dissolved mortgagee’s branch offices that will remain
open under the auspices of the acquiring Entity.
3
(b) Continuation as Subsidiary or Corporate Affiliation
4
(i) Acquisition by an FHA-Approved Mortgagee
5
i-1.
Standard
6
7
8
9
If the FHA-approved mortgagee being acquired will continue to
operate as a subsidiary or corporate affiliation of the acquiring FHAapproved mortgagee, the acquired mortgagee may continue to operate
under its existing FHA Lender ID as a separately approved mortgagee.
10
i-2.
11
12
13
14
15
Acquired FHA-Approved Mortgagee—The acquired mortgagee must
submit a business change request to FHA in the form of a letter, signed
by a Corporate Officer, informing FHA that it has been acquired and
will continue to operate as a subsidiary or corporate affiliation of the
acquiring FHA-approved mortgagee.
16
17
18
19
20
21
22
23
24
25
Acquiring FHA-Approved Mortgagee—The acquiring FHA-approved
mortgagee must submit a business change request to FHA in the form
of a letter, signed by a Corporate Officer that:
 describes the transaction;
 lists the names of all parties;
 lists the FHA Lender IDs of all parties;
 states the date of the acquisition; and
 stipulates that the acquired mortgagee will continue as a
subsidiary or corporate affiliation of the acquiring FHAapproved mortgagee.
26
(ii) Acquisition by a Non-Approved Entity
27
ii-1.
28
29
30
31
If the acquired FHA-approved mortgagee will continue to operate as a
subsidiary or corporate affiliation of the acquiring Entity, it may
continue to operate as an FHA-approved mortgagee under its own
name, whether or not the acquiring Entity becomes FHA-approved.
32
ii-2.
33
34
35
The mortgagee must submit a business change request to FHA in the
form of a letter describing the acquisition and its future operating
status.
[June 30, 2014]
Standard
49
1
(2) An FHA-Approved Mortgagee Acquires a Non-Approved Entity
2
3
4
If an FHA-approved mortgagee acquires a non-approved Entity, and the Entity is
dissolved, the mortgagee is required to submit a business change request to FHA
describing the acquisition.
5
6
7
8
If an FHA-approved mortgagee acquires a non-approved Entity and the acquired
Entity will operate as a subsidiary or corporate affiliation of the mortgagee, the
non-approved Entity must apply for separate approval to originate, underwrite,
close, endorse, service, purchase, hold, or sell FHA-insured mortgages.
9
(3) An FHA-Approved Mortgagee Becomes Independent
10
11
12
13
14
15
When an FHA-approved mortgagee that has been a subsidiary or part of a larger
Entity becomes independent, it must submit a business change request to FHA
and provide details of the change. FHA may require the mortgagee to submit
additional information following the initial notification. For changes in Corporate
Officers or principal owners, the mortgagee must submit the proper business
change notifications as described in this SF Handbook.
16
xiii. Conservatorship, Receivership, or Transfer of Control
17
18
19
A mortgagee must submit a business change request to FHA if it goes into
conservatorship, receivership, or is subject to a transfer of control to a federal or state
supervisory agency.
20
21
22
23
A mortgagee must submit a business change request to FHA of a change of status in any
of these situations and FHA reserves the right to require the mortgagee to submit
additional information in order to determine whether the mortgagee is eligible to maintain
its FHA mortgagee approval.
24
xiv. Unresolved Findings or Sanctions
25
26
27
28
29
30
31
A mortgagee must notify FHA and provide relevant documentation if it or any officer,
partner, director, principal, manager, supervisor, loan processor, loan underwriter, or loan
originator employed or retained by the mortgagee is subject to any sanctions or
unresolved findings contained in a governmental audit, investigation, or review
(including those conducted by the HUD OIG). A mortgagee must submit a business
change request to FHA of a change of status in any unresolved finding or sanction
previously reported.
[June 30, 2014]
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1
2
3
4
8. Annual Recertification
a. General Requirements
i. Standard
(A) Recertification Process
5
6
7
8
9
10
To retain its FHA approval, a mortgagee must, unless otherwise noted, complete
FHA’s recertification process on an annual basis. The mortgagee must submit the
following to recertify its FHA approval:
 online certification
 recertification fee
 financial data
11
(B) Filing Deadline
12
13
Each mortgagee must submit its recertification package within 90 Days after the
mortgagee’s fiscal year end.
14
(C) Exception for Recently Approved Mortgagees
15
16
17
18
19
20
21
22
Mortgagees approved using financial statements that covered a time period ending
within the six months before approval, are not required to submit a recertification
package after the close of that fiscal year. Instead, at the close of the first, full fiscal
year following receipt of FHA approval, the mortgagee must submit audited financial
statements covering the period from the ending date of the financial statements used
to obtain initial approval, and ending at the close of the mortgagee’s most recent
fiscal year. Mortgagees may not submit financial statements that cover a period of
more than 18 months.
23
ii. Required Documentation
24
The mortgagee must submit its FHA’s recertification package through LEAP.
25
26
A mortgagee that does not wish to retain its FHA approval must submit a request for
voluntary withdrawal of FHA approval.
27
b. Online Certification
28
i. Standard
29
30
The mortgagee, through a Corporate Officer, must make the following certifications at
each annual recertification.
[June 30, 2014]
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
(A) Supervised and Nonsupervised Mortgagees
1. I certify that I am a Corporate Officer of the above-mentioned Mortgagee
(hereinafter referred to as “the Mortgagee”); that I am duly authorized to execute
this certification on behalf of the Mortgagee; and that throughout the Certification
Period I have known, or been in the position to know, whether the operations of
the Mortgagee conformed to all applicable HUD-FHA regulations, handbooks,
Mortgagee Letters, Title I Letters, and policies.
2. I certify that the Mortgagee is fully responsible for all actions of its officers,
partners, directors, principals, managers, supervisors, loan processors, loan
underwriters, loan originators, and for the actions of its employees and contractors
conducting FHA business for the Mortgagee.
3. I certify that during the Certification Period, the Mortgagee was not, and did not
employ or retain any officer, partner, director, principal, manager, supervisor,
loan processor, loan underwriter, or loan originator who was subject to a current
suspension, debarment, limited denial of participation or other restriction imposed
under Part 24 of Title 24 of the Code of Federal Regulations, Part 180 of Title 2
of the Code of Federal Regulations as implemented by Part 2424 of Title 2, or any
successor regulations to such parts, or under similar provisions of any other
Federal agency.
4. I certify that during the Certification Period, the Mortgagee was not, and did not
employ or retain any officer, partner, director, principal, manager, supervisor,
loan processor, loan underwriter, or loan originator who was under indictment for,
or had been convicted of, an offense that reflects adversely upon the Mortgagee’s
integrity, competence or fitness to meet the responsibilities of an FHA-approved
Mortgagee; who had pled guilty or nolo contendere to a felony related to
participation in the real estate or mortgage loan industry during the seven-year
period preceding the first day of the Certification Period; and/or who had ever
pled guilty or nolo contendere to a felony related to participation in the real estate
or mortgage loan industry that involved an act of fraud, dishonesty, a breach of
trust, or money laundering.
5. I certify that during the Certification Period, the Mortgagee was not sanctioned by
any federal, state, or local government agency or by any other regulatory or
oversight entity with jurisdiction over the Mortgagee, except for those sanctions,
if any, the Mortgagee timely reported to HUD during the Certification Period and
for which the Mortgagee received explicit clearance from HUD to continue with
the certification process.
6. I certify that during the Certification Period, the Mortgagee was not subject to any
unresolved findings, except for those unresolved findings, if any, the Mortgagee
timely reported to HUD during the Certification Period and for which the
Mortgagee received explicit clearance from HUD to continue with the
certification process.
7. I certify that during the Certification Period, no officer, partner, director,
principal, manager, supervisor, loan processor, loan underwriter, or loan
originator employed or retained by the Mortgagee was subject to any sanctions or
unresolved findings, except for those sanctions or unresolved findings, if any, that
[June 30, 2014]
52
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
the Mortgagee timely reported to HUD during the Certification Period and for
which the Mortgagee received explicit clearance from HUD to continue with the
certification process.
8. I certify that during the Certification Period, the Mortgagee was not refused any
license necessary to conduct its normal operations in the real estate or mortgage
loan industry. I further certify that throughout the Certification Period, the
Mortgagee maintained compliance with all applicable provisions of the Secure
and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) (12
U.S.C. § 5101 et seq.) or its equivalent under state law, including all Nationwide
Mortgage Licensing System and Registry requirements.
9. I certify that to the best of my knowledge, and after having conducted a
reasonable investigation, that the Mortgagee does now, and did at all times
throughout the Certification Period, comply with all HUD-FHA regulations and
requirements applicable to the Mortgagee’s continued approval and operations,
including those contained in HUD handbooks, Mortgagee Letters, Title I Letters,
policies, and any agreements entered into between the Mortgagee and HUD.
10. Each of my certifications is true and accurate to the best of my knowledge and
belief. I understand that if I knowingly have made any false, fictitious, or
fraudulent statement(s), representation(s), or certification(s) on this form, I may
be subject to administrative, civil and/or criminal penalties, including debarment,
fines, and imprisonment under applicable federal law.
22
(B) Investing and Government Mortgagees
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
1. I certify that I am a Corporate Officer of the above-mentioned Mortgagee
(hereinafter referred to as “the Mortgagee”); that I am duly authorized to execute
this certification on behalf of the Mortgagee; and that throughout the Certification
Period I have known, or been in the position to know, whether the operations of
the Mortgagee conformed to all applicable HUD-FHA regulations, handbooks,
Mortgagee Letters, Title I Letters, and policies.
2. I certify that to the best of my knowledge, and after having conducted a
reasonable investigation, that the Mortgagee does now, and did at all times
throughout the Certification Period, comply with all HUD-FHA regulations and
requirements applicable to the Mortgagee’s continued approval and operations,
including those contained in HUD handbooks, Mortgagee Letters, Title I Letters,
policies, and any agreements entered into between the Mortgagee and HUD.
3. Each of my certifications is true and accurate to the best of my knowledge and
belief. I understand that if I knowingly have made any false, fictitious, or
fraudulent statement(s), representation(s), or certification(s) on this form, I may
be subject to administrative, civil and/or criminal penalties, including debarment,
fines, and imprisonment under applicable federal law.
40
41
42
The certification must be completed through LEAP by a Corporate Officer of the
mortgagee who has been granted the Certifying Official authorization in FHAC.
[June 30, 2014]
53
1
iii. Unable to Certify
2
(A) Standard
3
4
5
6
If a mortgagee is unable to truthfully certify to all of the statements set forth in the
online certification, the mortgagee must not make the certification. Instead, the
mortgagee must submit an explanation for each certification that it is unable to
complete.
7
8
9
If additional information is required as a result of the mortgagee’s explanation, FHA
will advise what additional information or documentation is required and provide a
due date for the submission of the requested information or documentation.
10
(B) FHA Review
11
12
13
FHA will review the mortgagee’s explanation and any additional information or
documentation requested by FHA within 15 Days and will render a final decision
regarding the mortgagee’s ability to complete the annual recertification process.
14
iv. Repercussion of False Certification
15
16
A mortgagee that submits a false certification to FHA and its certifying Corporate Officer
will be referred for criminal, civil, or administrative actions, as appropriate.
17
c. Annual Recertification Fee
18
i. Standard
19
20
21
The mortgagee must pay an annual recertification fee after its online certification has
been submitted and accepted. All fee payments must be made electronically. This
recertification fee is non-refundable and will not be prorated.
22
ii. Calculation of Fee Amount
23
24
25
26
The mortgagee will be assessed a fee for the mortgagee’s home office and for each
branch office registered with FHA. Fees are calculated based on the mortgagee’s program
approval(s), mortgagee type, and the number of FHA-approved branch offices as of the
last business day of the mortgagee’s annual reporting period.
27
28
29
30
31
A mortgagee that is terminating a branch office must do so on or before the last business
day of the annual reporting period in order to avoid paying the recertification fee for that
branch office for the next annual period. Mortgagees attempting to terminate a branch
office after the last day of their annual reporting period will not be permitted to do so
until the annual recertification fees have been paid in full.
[June 30, 2014]
54
1
iii. Exception for Government Mortgagees
2
Government mortgagees are not required to pay a recertification fee.
3
d. Financial Data Submission
4
5
Supervised, nonsupervised, and investing mortgagees must submit the financial data
described below. Government mortgagees are not required to submit financial information.
6
i. Small Supervised Mortgagees
7
8
A Small Supervised Mortgagee must submit a copy of its Unaudited Regulatory Report,
signed by a Corporate Officer, that aligns with its fiscal year end.
9
ii. Supervised, Nonsupervised, and Investing Mortgagees
10
(A) Audit of Financial Statements
11
12
13
The mortgagee must comply with the appropriate financial reporting procedures and
requirements set forth in the HUD OIG Handbook 2000.04, Consolidated Audit
Guide for Audits of HUD Programs.
14
(B) Accounting and Auditing Standards
15
16
17
18
The mortgagee must have prepared its financial statements in accordance with GAAP
and had its audit performed in accordance with the most currently effective
Government Accountability Office Generally Accepted Government Auditing
Standards (GAGAS), also referred to as the “Yellow Book,” and GAAS.
19
e. Failure to Recertify
20
21
A mortgagee may be referred to the MRB for failing to timely and satisfactorily complete the
annual recertification process.
22
9. Voluntary Withdrawal of FHA Mortgagee Approval
23
24
A mortgagee that does not wish to retain, or that is ineligible to retain, its FHA approval must
submit a request for voluntary withdrawal of FHA approval.
25
a. Standard
26
27
28
29
The mortgagee must satisfy all outstanding payable indemnification debts and mortgage
insurance premiums, and transfer the servicing and ownership of any FHA-insured
mortgages in its portfolio to an FHA-approved mortgagee prior to its request being approved,
and the mortgagee will remain obligated on any outstanding indemnification agreements.
[June 30, 2014]
55
1
2
3
FHA will not honor a mortgagee’s request to withdraw while there is a pending
administrative action or MRB action, or while the mortgagee has unpaid indemnification
claims or unsatisfied settlement agreement obligations owed to the Department.
4
b. Required Documentation
5
6
7
The mortgagee must submit a request for voluntary withdrawal in the form of a letter, signed
by a Corporate Officer, and submitted through LEAP. If applicable, the request must be
submitted within 10 business days of the change in the mortgagee’s eligibility status.
8
c. Reapproval
9
10
A mortgagee whose approval is voluntarily withdrawn may reapply for FHA approval any
time after its withdrawal.
[June 30, 2014]
56
B. Other Participants
1
B. OTHER PARTICIPANTS
2
1. Appraisers
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
2. Brokers
3. Consultants 203(k)
4. Direct Endorsement Underwriters
5. Housing Finance Agencies
6. Instrumentalities of Government
7. Title I Manufactured Housing Dealers
8. Nonprofits
9. Third-Party Originators
20
[June 30, 2014]
57
Glossary and Acronyms
1
2
GLOSSARY
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Advertising Device
An Advertising Device is a channel or instrument used to solicit, promote or advertise FHA
products or programs. Advertising Devices are present in the entire range of electronic and print
media utilized by FHA-approved mortgagees, including, but not limited to, websites, website
addresses, business names, aliases, DBA names, domain names, email addresses, direct mail
advertisements, solicitations, promotional materials and correspondence.
Affiliate
An Affiliate is a contractor, agent, vendor, subservicer, or sponsored Third-Party Originator that
participates in FHA programs on behalf of an FHA-approved mortgagee.
Articles of Organization
Articles of Organization refers to articles of incorporation, charter, articles of association,
constitution, trust instrument, or any other written instrument by which an organization is
created.
Business Formation Documents
Business Formation Documents are an Entity’s articles of incorporation, bylaws, organization
charter, operating agreement, partnership agreement, and similar documentation.
Corporate Officer
Corporate Officer refers to a natural person who is an Owner, President, Vice President, Chief
Operating Officer, Chief Financial Officer, Director, Corporate Secretary, Chief Executive
Officer, Chairman of the Board, or Member or Manager of a limited liability company.
Days
Days refers to calendar days.
Entity
Entity refers to a business Entity such as a corporation, trust, partnership, or sole proprietorship.
Federal Banking Agencies
The Federal Banking Agencies are the Federal Reserve System (FRS), Federal Deposit Insurance
Corporation (FDIC), and the Credit Union Administration (NCUA).
Federal Debt
Federal Debt refers to tax debt owed to the federal government for which regular payments are
required.
Finding
Finding refers to a final determination of defect by the mortgagee.
[June 30, 2014]
Glossary - 58
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
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18
19
20
21
22
23
24
25
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27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
Governmental Entity
Governmental Entity refers to any federal, state, or local government agency or instrumentality.
Investor
Investor refers to a Borrower(s) that will not occupy the home as a Principal or Secondary
Residence (non-owner occupant).
Jurisdictional HOC
Jurisdictional HOC refers to the homeownership center (HOC) whose jurisdiction includes the
state in which the property is located.
Lender Electronic Assessment Portal (LEAP)
The Lender Electronic Assessment Portal (LEAP) is an FHA system created to facilitate
automated lender approval application.
Manufactured Housing
Manufactured Housing refers to Structures that are transportable in one or more sections. They
are designed to be used as a dwelling when connected to the required utilities, which includes the
plumbing, heating, air-conditioning and electrical systems contained therein.
Residential Mortgage Credit Report (RMCR)
RMCR refers to a credit report that provides details on items that have been flagged in a merged
report as a result of combining reports from the three credit repositories (Equifax, Trans Union,
and Experian).
Residential Real Estate-Related Transactions
Residential Real Estate-Related Transactions are transactions related to the making or purchasing
of mortgages or providing other financial assistance to a mortgagor for purchasing, constructing,
improving, repairing, or maintaining a dwelling or securing residential real estate, and similar
transactions.
Small Supervised Mortgagee
A Supervised Mortgagee has consolidated assets below the threshold for audited financial
reporting established by the federal banking agency with oversight of the mortgagee. Thresholds
are codified at 12 CFR §§ 363.1(a), 562.4(b)(2), and 715.4(c) and are subject to change.
Test Case
Test Case refers to a mortgage loan used by a mortgagee when requesting an unconditional
Direct Endorsement (DE) approval. These loans must be processed per the Direct Endorsement
eligibility requirements and approved by HUD for endorsement.
Third-Party Originator (TPO)
A Third-Party Originator (TPO) is an Entity that originates FHA mortgages for an FHAapproved mortgagee. A TPO may be an FHA-approved Entity or a non-FHA-approved Entity.
[June 30, 2014]
Glossary - 59
1
2
3
4
5
6
7
8
9
Tri-Merged Credit Report (TRMCR)
TRMCR refers to a credit report that contains the data from all three credit repositories into one
report.
Unaudited Regulatory Report
An Unaudited Regulatory Report refers to a report of condition and income, also known as the
“call report,” which is submitted on the Federal Financial Institutions Examination Council
forms 031 and 041, or a consolidated or fourth quarter NCUA call report, submitted on NCUA
Form 5300 or 5310.
[June 30, 2014]
Glossary - 60
ACRONYMS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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31
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33
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35
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42
AAFB - Area Approved for Business
CAIVRS - Credit Alert Verification Reporting System
CEO - Chief Executive Officer
CFO - Chief Financial Officer
CHUMS - Computerized Homes Underwriting Management System
COO - Chief Operating Officer
DAS - Deputy Assistant Secretary
DBA - Doing Business As
DE - Direct Endorsement
FDIC - Federal Deposit Insurance Corporation
FHA - Federal Housing Administration
FHA Lender ID - FHA Lender Identification Number
FHAC - FHA Connection
FRS - Federal Reserve System
GAAP - Generally Accepted Accounting Principles
GAAS - Generally Accepted Auditing Standards
GAGAS - Generally Accepted Government Auditing Standards
HECM - Home Equity Conversion Mortgages
HOC - Homeownership Center
HUD - U.S. Department of Housing and Urban Development
HUDCLIPS - HUD’s Client Information and Policy System
IRC - Internal Revenue Code
IRS - Internal Revenue Service
LDP - Limited Denial of Participation
LEAP - Lender Electronic Assessment Portal
LI - Lender Insurance
LLC - Limited Liability Company
MAP - Multifamily Accelerated Processing
MIC - Mortgage Insurance Certificate
MRB - Mortgagee Review Board
NCUA - National Credit Union Administration
NMLS - Nationwide Mortgage Licensing System and Registry
OIG - Office of Inspector General
QC - Quality Control
RMCR - Residential Mortgage Credit Report
SAFE Act - Secure and Fair Enforcement for Mortgage Licensing Act of 2008
Series LLC - Series Limited Liability Company
SSN - Social Security Number
TIN - Taxpayer Identification Number
TPO - Third-Party Originators
TRMCR - Tri-Merged Credit Report
[June 30, 2014]
Acronyms - 61
ECTION
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER
May 27, 2014
Mortgagee Letter 2014-09
To
All FHA Approved Lenders and Mortgagees
Subject
Annual Recertification and Post-Approval Updates
Purpose
The purpose of this Mortgagee Letter is to inform lenders about changes to
FHA’s systems that alter the way lenders execute post-approval updates and
complete FHA’s annual recertification process.
Effective Date
The changes detailed in this Mortgagee Letter are effective May 27, 2014, with
the deployment of the Lender Electronic Assessment Portal (LEAP).
Affected
Topics
The following sections of HUD Handbook 4060.1, REV-2, are amended with
guidance provided in this Mortgagee Letter:
Handbook 4060.1, REV-2
Chapter 4
Section 4-4
Chapter 6
Section 6-1
LASS Submission of Annual Audited
Financial Statements
Reporting Business Changes
The substance of the remaining policies contained in Chapters 4 and 6 of
Handbook 4060.1 remain unchanged. However, the communication and
delivery methods for reporting business changes to FHA and for submitting a
lender’s annual recertification package discussed throughout these Chapters
will be impacted by LEAP.
Background
FHA continues to enhance its counterparty risk management framework by
refining existing processes and developing additional technological capacity.
Integral to this effort has been the development of the Lender Electronic
Assessment Portal (LEAP). LEAP consolidates all FHA lender approval and
recertification business processes and replaces the Lender Assessment
Subsystem (LASS). LEAP alters the way lenders execute post-approval
updates and complete FHA’s annual recertification process.
LEAP- Institution Manager
LEAP
Access
Lenders may access LEAP through FHA Connection. All Application
Coordinator and Standard User IDs and passwords remain intact.
Post-Approval
Updates &
Business
Changes
LEAP allows lenders to self-update their institution and branch profile
information. LEAP also automates the process for requesting business
changes and notifications required by Chapter 6 of HUD Handbook 4060.1
and Mortgagee Letters 2009-31, 2010-38, and 2011-34. These changes
include corporate officer changes, voluntary withdrawal, notification of
material events, adding branches, mergers, and branch bulk transfers and
acquisitions.
Accordingly, the following actions must now be completed using LEAP:
(1) all requests for business changes; (2) notifying FHA of any events
described in the above referenced Mortgagee Letters; and (3) the
corresponding upload of supporting documents.
LEAP- Annual Recertification
LEAP
Recertification
All activities associated with FHA’s annual recertification process have been
transitioned to LEAP. This includes completion of the online certifications,
financial data submissions, and the payment of recertification fees.
Financial Data
Templates, and
Agreed Upon
Procedures
All HUD-approved Title I and Title II supervised, nonsupervised, and
investing lenders and mortgagees must provide financial information to
HUD on an annual basis; unless requested, government mortgagees are not
required to submit such information.
FHA has replaced the Data Collection Form with Audit Related Questions.
Both the Audit Related Questions and Financial Data Templates have been
restructured by lender type. Based on lender type and financial information
provided in the lender’s previous filings, the LEAP system will direct
lenders to the correct Audit Related Questions and Financial Data Template
for the lender’s reporting structure. Audit Related Questions only apply to
lenders that are required to submit audited financial statements.
Supervised, nonsupervised, and investing lenders and mortgagees are
required to complete the Financial Data Template and upload all required
financial documents as described in Chapter 7 of HUD Handbook 2000.04,
Consolidated Audit Guide. All data entry and document upload functions
must be completed by the lender and may no longer be completed by a third
party such as the lender’s Independent Public Accountant (IPA).
2
FHA will provide tools that simulate the online Audit Related Questions and
Financial Data Templates in order to allow IPAs and lenders to create hard
copies of these documents prior to the lender’s data entry in LEAP. The hard
copies are not required to be submitted; the tools are intended to aid lenders
with data entry and document upload functions.
Application to
Small
Supervised
Lenders
Institutions identified as small supervised lenders (see 24 C.F.R.
§ 202.6(c)) are required to complete a Financial Data Template and submit
required financial documents using LEAP as part of their annual
recertification process.
Information
Collection
Requirements
Paperwork reduction information collection requirements contained in this
Mortgagee Letter have been approved by the Office of Management and
Budget (OMB) under the Paperwork Reduction Act of 1995
(44 U.S.C. § 3501-3520) and assigned OMB Control Number 2502-0005. In
accordance with the Paperwork Reduction Act, HUD may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a currently valid OMB Control
Number.
Questions
Please inquire about information provided in this Mortgagee Letter by
contacting FHA’s Resource Center at 1-800-CALLFHA (1-800-225-5342).
Persons with hearing or speech impairment may reach this number by calling
the Federal Information Relay Service at (1-800-877-8339). For additional
information on this Mortgagee Letter, please visit www.hud.gov/answers.
Signature
Carol J. Galante
Assistant Secretary for Housing-Federal Housing Commissioner
3
Memo 14-11: Electronic Issuer Application -- New Application Connection; Revised
MBS Issuer Eligibility Requirements (07/22/14)
To:
All Participants in Ginnie Mae Programs
From:
Theodore W. Tozer, President
Ginnie Mae is pleased to announce it is transitioning to an electronic process for Issuer applications.
Beginning September 1, 2014, applicants will be required to file applications for Ginnie Mae Issuer
approval electronically via Ginnie Mae's new Application Connection, which will be located on Ginnie
Mae's website at www.ginniemae.gov. Due to the transition from a paper-based to an electronic
application process, Ginnie Mae will not accept paper-based (hard copy) applications after July 31,
2014. The new Application Connection will be implemented and available starting September 1,
2014.
Ginnie Mae has also revised its minimum net worth requirements for applicants who wish to
participate in multiple Ginnie Mae program types (single-family, multifamily, home equity
conversion mortgages (HMBS), and/or Title I manufactured home loan-backed securities).
Beginning September 1, 2014 and thereafter, applicants seeking Ginnie Mae approval to participate
in multiple program types will be required to have an adjusted net worth equal to or greater than
the sum of the minimum net worth requirements for each program type in which the applicant
intends to participate. For example, an applicant seeking approval to participate in both the singlefamily and HMBS programs must have an adjusted net worth of at least $7,500,000.
Ginnie Mae strongly encourages applicants to complete the following two courses through Ginnie
Mae Online University: Ginnie Mae 101 and Applying to Ginnie Mae before starting an application for
Ginnie Mae MBS Issuer approval. Ginnie Mae's Online University is accessible from Ginnie Mae's
website and provides free access to training about Ginnie Mae, the role and responsibilities of a
Ginnie Mae Issuer, and how to apply for Ginnie Mae approval.
Once an applicant has registered on Application Connection, the applicant will have thirty days in
which to complete the application.
Ginnie Mae has revised Chapters 2, 3, 4 and 7 of the Ginnie Mae Mortgage-Backed Securities Guide
5500.3, Rev.1 (MBS Guide) to address the new application process and eligibility requirements.
Please direct any questions you may have about the application and Issuer eligibility for approval to
Ginnie Mae's application hotline at (202) 475-7826.
Press Releases
1 of 2
http://www.ginniemae.gov/media_center/Pages/PressReleaseDispPage.a...
Press Releases
Ginnie Mae Announces Changes in Issuer Requirements at 2014 MBA
Annual Convention
Contact: Gina B. Screen
(202) 475-7816
[email protected]
Published Date: 10/20/2014
Las Vegas, NV – Ginnie Mae today announced several new Issuer requirement changes, as well as a new Issuer scorecard as
part of a larger strategic effort to appropriately manage risk and resources within an evolving housing finance market. Ginnie
Mae President Ted Tozer said that the changes are part of an overall effort to ensure that Ginnie Mae’s Mortgage Backed
Securities (MBS) guarantee program continues to be flexible and available to as many entities as possible.
“The market is changing rapidly in terms of the types of Issuers and counterparties that Ginnie Mae is dealing with. We have an
obligation to be diligent in monitoring risk and ensure that our Issuers are successful. But we also want to attract global capital
into the mortgage market and ensure that our model is flexible and available and able to attract capital into the market, which will
provide access to credit to all qualified borrowers. Both the new Issuer net worth and liquidity requirement and the demonstrated
participation requirement support Ginnie Mae’s continued efforts to effectively monitor risk and appropriately evaluate the
financial strength, performance and stability of Issuers,” said President Tozer. “These new requirements, along with the expertise
of our staff, will ensure the success of our Issuers, allow Ginnie Mae to continue protecting American taxpayers from market
volatility, while attracting capital into the mortgage market and providing further stability to the U.S. housing industry.”
Ginnie Mae announcements include:
Issuer Operational Performance Profile (IOPP)
The IOPP is essentially a “scorecard” that will:
Enable Issuers to better understand and comply with Ginnie Mae expectations;
Provide Issuers with a framework and methodology from which they can gauge their effectiveness against a
pre-determined set of Ginnie Mae expectations (metrics) as well as how they rank against their peers.
Issuers will be scored monthly, based on a series of formulae. Applying weighting algorithms and in some cases, adjusting for
certain control factors, each issuer will be rated against a pre-defined peer group. The end result will be two scores – one for
operational management and one for delinquency management.
New Issuer Net Worth and Liquidity Requirements
The modification adjusts minimum adjusted net worth and liquid asset requirements for Single-Family Issuers and Issuers
participating in more than one MBS program. The new requirements include:
Single-Family Issuer Minimum Net Worth: Single-Family Issuers’ minimum adjusted net worth requirement of $2,500,000
plus 0.20% (20 basis points) of the Issuer's total effective outstanding Single-Family obligations will be increased to
$2,500,000 plus 0.35% (35 basis points) of the Issuer's total effective outstanding Single-Family obligations.
Single-Family Issuer Minimum Liquidity: Single-Family Issuers’ minimum liquid assets requirement of 20% of required net
worth will be changed to the greater of $1,000,000 or 0.10% (10 basis points) of the Issuer's outstanding Single-Family
securities.
Issuers Approved for More Than One Program Minimum Net Worth and Liquidity: Issuers who are approved to participate
in more than one program type (Single-Family, Multifamily, Manufactured Home, and/or HECM MBS) will have to meet a
minimum adjusted net worth and liquid assets requirement equal to or greater than the sum of the minimum requirements
for all the program types in which the Issuer is approved to participate, as opposed to the highest program requirement.
“Since our inception, Ginnie Mae has provided stability to the U.S. housing finance system, particularly during times of economic
stress,” said President Tozer. “We want to do everything possible to ensure that issuers who enter the MBS program are
successful and can continue to be successful.”
Applicants seeking Issuer approval will be required to meet these new requirements beginning on January 1, 2015. Additional
new requirement effective dates include:
Issuers approved on or before December 31, 2014 will be required to meet the new requirements beginning December 31,
2015.
Beginning January 1, 2015, in order for a mortgage-servicing rights (MSRs) bulk transfer, or “a transfer of Issuer
responsibilities,” to be approved by Ginnie Mae, the acquiring Issuer will have to meet the new requirements.
Beginning January 1, 2015, in order for a new Pool Issuance for Immediate Transfer (PIIT), or MSR flow transfer,
arrangement to be approved by Ginnie Mae, the acquiring Issuer will have to meet the new requirements.
Ginnie Mae expects that Issuers will actively participate in the program by issuing, acquiring issuer responsibility for, or
subservicing Ginnie Mae MBS. However, the number of Issuers, particularly newly approved Issuers, who fail to do so, is rising.
Ginnie Mae expends significant resources in the review, analysis and compliance monitoring of applicants and approved Issuers.
Additionally, long-term lack of participation calls into question whether an Issuer continues to possess the operational capability
to service Ginnie Mae MBS. Therefore, Ginnie Mae may withdraw Issuer’s program approval if it has not participated in the
above activities in the preceding 18 months, or if a newly approved Issuer has not begun to participate within 18 months of
approval.
11/26/2014 11:51 AM
Press Releases
2 of 2
http://www.ginniemae.gov/media_center/Pages/PressReleaseDispPage.a...
Effective January 1, 2015, Issuers must demonstrate participation by issuing, acquiring, or subservicing MBS in the program(s)
for which they are approved in the preceding 18 months. Issuers approved after July 1, 2013 must demonstrate participation
within 18 months of their approval date. An Issuer that fails to demonstrate compliance with this requirement may either
voluntarily withdraw from the program or request an extension of time in order to comply with the requirement.
These participation requirements were developed as a result of Ginnie Mae’s notable expenditures in the review and analysis of
applications for Issuer approval, a key component of which is operational capability.
“As part of our risk management efforts, Ginnie Mae devotes a significant amount of time and energy to the review and analysis
of applications for Issuer approval,” said President Tozer. “Our new demonstrated participation requirements will ensure that we
are able to continue practicing strong financial discipline by deploying our resources effectively.”
About Ginnie Mae
Ginnie Mae is a wholly-owned government corporation within the U.S. Department of Housing and Urban Development. Ginnie
Mae raises capital from investors in the global credit markets to ensure liquidity for affordable rental and homeownership
opportunities across the country. Through its MBS, Ginnie Mae finances housing mortgage insurance programs run by the
Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Office of Public and Indian Housing (PIH),
and the Department of Agriculture’s Rural Development (RD) Housing and Community Facilities Program. Learn more about our
products and programs at our website: www.ginniemae.gov
Last Modified: 10/21/2014 08:52 AM
11/26/2014 11:51 AM
ECTION
VI. Quality Control, Oversight and Compliance
Table of Contens
1
2
TABLE OF CONTENTS
3
VI.
QUALITY CONTROL, OVERSIGHT AND COMPLIANCE ................1
4
A. QUALITY CONTROL........................................................................................................... 1
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
1. Quality Control Program Overview.......................................................................................... 1
a. Purpose of Quality Control Program .................................................................................. 1
b. Definitions........................................................................................................................... 1
i. Quality Control Program............................................................................................... 1
ii. Quality Control Plan ..................................................................................................... 1
iii. Loan Administration ..................................................................................................... 1
c. Standard .............................................................................................................................. 2
d. Required Documentation .................................................................................................... 2
2. Institutional Quality Control Program Requirements ............................................................... 2
a. Who May Perform Quality Control .................................................................................... 2
i. Employees..................................................................................................................... 2
ii. Contractors.................................................................................................................... 3
b. Operational Compliance ..................................................................................................... 3
i. Personnel....................................................................................................................... 3
(A) Training................................................................................................................... 3
(1) Loan Administration and Quality Control Processes..................................... 3
(a) Standard ...................................................................................................... 3
(b) Required Documentation ............................................................................ 3
(2) Access to FHA Guidance............................................................................... 3
(a) Standard ...................................................................................................... 3
(b) Required Documentation ............................................................................ 3
(B) Restricted Participation........................................................................................... 4
(1) Standard ......................................................................................................... 4
(2) Required Documentation ............................................................................... 4
ii. Affiliate Quality Control Reviews ................................................................................ 4
(A) Standard .................................................................................................................. 4
iii. Fair Lending.................................................................................................................. 4
(A) Rejected Borrower Applications............................................................................. 5
(1) Standard ......................................................................................................... 5
(B) Fair Housing Logo .................................................................................................. 5
(1) Standard ......................................................................................................... 5
(C) Fair Housing or Discrimination Violations............................................................. 5
(1) Standard ......................................................................................................... 5
iv. Escrow Funds................................................................................................................ 6
(A) Standard .................................................................................................................. 6
[June 30, 2014]
i
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
v. Mortgage Insurance Premiums ..................................................................................... 6
(A) Standard .................................................................................................................. 6
vi. Timely and Accurate Submission for Insurance........................................................... 6
(A) Standard .................................................................................................................. 6
vii. Advertising.................................................................................................................... 7
(A) Standard .................................................................................................................. 7
c. Identifying Patterns............................................................................................................. 7
i. Standard ........................................................................................................................ 7
ii. Required Documentation .............................................................................................. 7
d. Fraud, Misrepresentation, and Other Findings ................................................................... 7
i. Standard ........................................................................................................................ 7
ii. Definitions..................................................................................................................... 8
(A) Findings................................................................................................................... 8
(B) Materiality............................................................................................................... 8
(C) Mitigated or Resolved............................................................................................. 8
iii. Required Documentation .............................................................................................. 8
iv. Internal Reporting to Senior Management.................................................................... 8
(A) Timeframe for Reporting ........................................................................................ 8
(B) Corrective Action Plan............................................................................................ 8
(C) Follow Up ............................................................................................................... 9
v. External Reporting to FHA........................................................................................... 9
(A) Fraud and Material Misrepresentation .................................................................... 9
(B) Material Findings .................................................................................................... 9
(C) Mitigated and Resolved Findings ........................................................................... 9
(D) Timeframe for Reporting ........................................................................................ 9
(E) Corrective Action Plan............................................................................................ 9
(F) Method of Reporting............................................................................................... 9
(G) Suspected HUD Involvement ............................................................................... 10
3. Loan Level Quality Control Program Requirements .............................................................. 10
a. Loan File Selection ........................................................................................................... 10
i. Timeframe for Selection and Review ......................................................................... 10
ii. Scope........................................................................................................................... 10
iii. Sample Size Standard ................................................................................................. 10
(A) 3,500 or Fewer FHA-Insured Mortgages Per Year............................................... 10
(B) More Than 3,500 FHA-Insured Mortgages Per Year ........................................... 11
iv. Required Documentation ............................................................................................ 11
v. Sample Composition Standard.................................................................................... 11
(A) Random ................................................................................................................. 11
(B) Early Payment Defaults ........................................................................................ 11
(1) Definition ..................................................................................................... 11
(2) Standard ....................................................................................................... 11
(3) Timeframe for Review................................................................................. 11
[June 30, 2014]
ii
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
(C) Discretionary......................................................................................................... 12
b. Loan Sample Risk Assessment ......................................................................................... 12
i. Standard ...................................................................................................................... 12
ii. Risk Categories ........................................................................................................... 12
(A) Low Risk............................................................................................................... 12
(B) Moderate Risk....................................................................................................... 12
(C) Material Risk......................................................................................................... 12
c. Origination and Underwriting Loan File Compliance Review......................................... 13
i. Minimum Requirements ............................................................................................. 13
ii. Document Review and Reverification ........................................................................ 13
(A) Credit Report......................................................................................................... 13
(B) Income, Employment, and Asset Information ...................................................... 14
(1) Reverification............................................................................................... 14
(a) Standard .................................................................................................... 14
(2) Discrepancies ............................................................................................... 14
(a) Standard .................................................................................................... 14
(C) Occupancy............................................................................................................. 14
(1) Standard ....................................................................................................... 14
(2) Required Documentation ............................................................................. 15
(D) Appraisals ............................................................................................................. 15
(1) Standard ....................................................................................................... 15
(2) Sample.......................................................................................................... 15
(3) Exceptions.................................................................................................... 15
(4) Required Documentation ............................................................................. 16
d. Quality Control Reviews of Specialized Mortgage Programs.......................................... 16
i. Standard ...................................................................................................................... 16
e. Servicing Loan File Compliance Review ......................................................................... 16
i. Minimum Requirements ............................................................................................. 16
f. Ineligible Participants ....................................................................................................... 17
i. Mortgage Transaction ................................................................................................. 17
(A) Standard ................................................................................................................ 17
ii. Assumption of Mortgage ............................................................................................ 17
(A) Standard ................................................................................................................ 17
4. Data Integrity .......................................................................................................................... 17
a. Standard ............................................................................................................................ 17
i. Origination and Underwriting Information................................................................. 18
ii. Servicing Information ................................................................................................. 18
b. Required Documentation .................................................................................................. 18
45
B. MORTGAGEE MONITORING ......................................................................................... 18
[June 30, 2014]
iii
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
1. Mortgagee Monitoring Goals.................................................................................................. 18
2. Cooperation with HUD Investigations and Reviews .............................................................. 18
3. Institutional Mortgagee Monitoring........................................................................................ 18
a. Neighborhood Watch ........................................................................................................ 18
i. Overview..................................................................................................................... 18
ii. Purpose........................................................................................................................ 19
iii. Access ......................................................................................................................... 19
(A) Public Site ............................................................................................................. 19
(B) FHA-Approved Mortgagee Site............................................................................ 19
b. Mortgagee Performance Reports ...................................................................................... 19
i. Overview..................................................................................................................... 19
ii. Purpose........................................................................................................................ 20
iii. Access ......................................................................................................................... 20
c. Title I Lender Monitoring Reviews .................................................................................. 20
d. Title II Mortgagee Monitoring Reviews ........................................................................... 20
i. Notice.......................................................................................................................... 20
ii. Scope........................................................................................................................... 20
iii. Findings Letters .......................................................................................................... 21
e. Servicer Monitoring/Tier Ranking System II ................................................................... 21
4. Loan Level Monitoring ........................................................................................................... 21
a. Title I Loan Level Reviews............................................................................................... 21
b. Title II Post Endorsement Technical Reviews.................................................................. 21
i. Scope........................................................................................................................... 21
ii. Lender Insurance Program Case Binder Reviews ...................................................... 22
iii. Targeting ..................................................................................................................... 22
iv. Ratings ........................................................................................................................ 22
(A) Definitions............................................................................................................. 22
(1) Conforming .................................................................................................. 22
(2) Deficient....................................................................................................... 22
(3) Unacceptable................................................................................................ 22
(4) Mitigated ...................................................................................................... 22
(B) Standard ................................................................................................................ 23
v. Findings....................................................................................................................... 23
(A) Notice.................................................................................................................... 23
(B) Mortgagee Response............................................................................................. 23
(C) FHA Evaluation .................................................................................................... 23
(1) Adequate Mortgagee Response.................................................................... 23
(2) Inadequate Mortgagee Response or Failure to Respond.............................. 23
39
C. MONITORING OF OTHER PARTICIPANTS ................................................................ 23
40
D. ENFORCEMENT ................................................................................................................. 24
41
42
43
44
1. Referrals for Non-Compliance................................................................................................ 24
2. Employee Improprieties Attributed to the Mortgagee ............................................................ 24
3. Program Office Actions and Sanctions................................................................................... 24
a. Actions and Sanctions Against Mortgagees ..................................................................... 24
[June 30, 2014]
iv
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
i. Probation of Direct Endorsement Approval ............................................................... 24
(A) Scope..................................................................................................................... 25
(1) Training........................................................................................................ 25
(2) Post Endorsement Technical Reviews ......................................................... 25
(3) Mortgagee Audit and Monitoring Review................................................... 25
(4) Quality Control Plan .................................................................................... 25
(5) Pre-Closing Review Status .......................................................................... 25
(a) Timeframe................................................................................................. 25
(b) Mandatory Return to Pre-Closing Review Status..................................... 25
(6) Additional Elements..................................................................................... 25
(B) Notice.................................................................................................................... 26
(C) Effective Date ....................................................................................................... 26
ii. Withdrawal of Direct Endorsement Approval ............................................................ 26
(A) Scope..................................................................................................................... 26
(B) Notice and Appeal................................................................................................. 26
(1) Informal Conference .................................................................................... 26
(2) Determination .............................................................................................. 26
(3) Appeal and Final Agency Action................................................................. 26
iii. Credit Watch Termination .......................................................................................... 27
(A) Frequency and Scope ............................................................................................ 27
(B) Cause..................................................................................................................... 27
(C) Notice and Appeal................................................................................................. 27
(2) Mitigating Factors........................................................................................ 27
(3) Determination .............................................................................................. 28
(4) Waiver of Appeal......................................................................................... 28
(D) Effect of Termination............................................................................................ 28
(1) Case Status ................................................................................................... 28
(a) Definition .................................................................................................. 28
(b) Standard .................................................................................................... 28
(2) Public Notice................................................................................................ 28
(E) Reinstatement........................................................................................................ 28
(1) Waiting Period ............................................................................................. 28
(2) Independent Review..................................................................................... 29
(3) Corrective Action Plan................................................................................. 29
(4) Application for Reinstatement ..................................................................... 29
iv. Suspension or Termination of Lender Insurance Authority ....................................... 29
(A) Definition .............................................................................................................. 29
(B) Frequency and Scope ............................................................................................ 29
(C) Cause..................................................................................................................... 29
(D) Notice and Appeal................................................................................................. 30
(2) Determination .............................................................................................. 30
(3) Waiver of Appeal......................................................................................... 30
(E) Effect of Suspension or Termination .................................................................... 30
(F) Reinstatement........................................................................................................ 30
[June 30, 2014]
v
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
(1) Waiting Period ............................................................................................. 30
(2) Claim and Default Rate................................................................................ 30
(3) Application for Reinstatement ..................................................................... 31
b. Loan Level Actions and Sanctions ................................................................................... 31
i. Indemnification Agreements....................................................................................... 31
(A) Scope..................................................................................................................... 31
(1) Serious and Material Violations................................................................... 31
(2) Fraud or Misrepresentation .......................................................................... 31
(B) No Causation Requirement ................................................................................... 31
(C) Notice.................................................................................................................... 32
ii. Principal Reductions ................................................................................................... 32
iii. Refunds ....................................................................................................................... 32
4. Mortgagee Review Board Actions and Sanctions .................................................................. 32
a. Actions and Sanctions....................................................................................................... 32
i. Letter of Reprimand.................................................................................................... 32
(A) Case Status ............................................................................................................ 33
(B) Duration ................................................................................................................ 33
(C) Appeal ................................................................................................................... 33
ii. Probation ..................................................................................................................... 33
(A) Case Status ............................................................................................................ 33
(B) Duration ................................................................................................................ 33
(C) Appeal ................................................................................................................... 33
iii. Suspension .................................................................................................................. 33
(A) Effective Date ....................................................................................................... 33
(B) Case Status ............................................................................................................ 34
(C) Duration ................................................................................................................ 34
(D) Appeal ................................................................................................................... 34
iv. Withdrawal of FHA Approval .................................................................................... 34
(A) Effective Date ....................................................................................................... 34
(B) Case Status ............................................................................................................ 35
(C) Duration ................................................................................................................ 35
(D) Appeal ................................................................................................................... 35
v. Civil Money Penalties................................................................................................. 35
(A) Complaint.............................................................................................................. 35
(B) Maximum Civil Money Penalties ......................................................................... 35
(C) Mitigating and Aggravating Factors ..................................................................... 35
vi. Settlement Agreements ............................................................................................... 36
b. Procedures......................................................................................................................... 36
i. Notice of Violation ..................................................................................................... 36
(A) Mortgagee Response............................................................................................. 36
(B) Preservation of Documents ................................................................................... 36
ii. Notice of Administrative Action................................................................................. 37
iii. Appeal ......................................................................................................................... 37
(A) Request for Hearing .............................................................................................. 37
(B) Hearing Process and Procedures ........................................................................... 37
(C) Waiver of Appeal.................................................................................................. 37
[June 30, 2014]
vi
Table of Contens
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
iv. Public Notice............................................................................................................... 37
(A) Federal Register .................................................................................................... 37
(B) Agency Notifications ............................................................................................ 37
5. Actions and Sanctions Against Individuals and Other Program Participants......................... 38
a. Limited Denial of Participation ........................................................................................ 38
i. Definition .................................................................................................................... 38
ii. Cause........................................................................................................................... 38
iii. Effective Date ............................................................................................................. 38
iv. Duration ...................................................................................................................... 38
v. Processing and Appeals .............................................................................................. 38
vi. Public Notice............................................................................................................... 38
b. Suspension ........................................................................................................................ 39
i. Definition .................................................................................................................... 39
ii. Cause........................................................................................................................... 39
iv. Duration ...................................................................................................................... 39
c. Debarment......................................................................................................................... 40
i. Definition .................................................................................................................... 40
ii. Cause........................................................................................................................... 40
iv. Duration ...................................................................................................................... 40
d. Civil Money Penalties....................................................................................................... 41
e. Specific Program Participants........................................................................................... 41
i. Appraisers ................................................................................................................... 41
ii. Consultants.................................................................................................................. 41
iii. Real Estate Brokers..................................................................................................... 42
iv. Nonprofits ................................................................................................................... 42
30
GLOSSARY................................................................................................................................. 43
31
ACRONYMS ............................................................................................................................... 47
32
[June 30, 2014]
vii
A. Quality Control
1
VI.
2
A. QUALITY CONTROL
3
1. Quality Control Program Overview
4
QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
a. Purpose of Quality Control Program
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Quality Control (QC) Programs must be designed to:
 ensure compliance with FHA and mortgagee policy and guidelines related to FHA
Loan Administration;
 protect FHA, the Borrower, and the mortgagee from unacceptable risk;
 guard against errors, omissions, negligence, and fraud from those involved in the
mortgagee’s Loan Administration;
 determine the root cause of any deficiencies and to identify potential internal and
external control weaknesses;
 alert mortgagee management to patterns of deficiencies with respect to process and
personnel;
 ensure timely and appropriate corrective action;
 ensure the existence of required documentation (e.g., credit, loan, and appraisal
information) that is the basis of underwriting and servicing decisions; and
 ensure mortgages are secured by properties with values sufficient to support the
mortgage.
20
b. Definitions
21
i. Quality Control Program
22
23
24
A Quality Control (QC) Program is the process and written procedures through which the
mortgagee seeks to ensure that FHA operations and loan quality are in compliance with
all applicable requirements.
25
ii. Quality Control Plan
26
27
A Quality Control (QC) Plan is a written plan that sets forth a mortgagee’s procedures for
ensuring quality control. A QC Plan is the written element of a mortgagee’s QC Program.
28
iii. Loan Administration
29
30
31
Loan Administration refers to all aspects of the FHA mortgage lifecycle, including
origination, underwriting, closing, endorsement, and servicing of FHA-insured mortgages
that are governed by FHA policies and procedures.
[June 30, 2014]
1
A. Quality Control
1
c. Standard
2
3
4
5
6
7
The mortgagee must adopt and implement a QC Program that fully complies with the
requirements of this Single Family Housing Policy Handbook (SF Handbook), and, where
applicable, the additional Multifamily QC requirements outlined in the Multifamily
Accelerated Processing (MAP) Guide, 4430.G. The mortgagee must maintain and update its
QC Program as needed to ensure it is fully compliant with all applicable FHA requirements
at all times.
8
9
10
The QC Program must cover the lifecycle of an FHA-insured mortgage, including
origination, underwriting, closing, endorsement, and servicing functions that are conducted
by the mortgagee.
11
12
13
The QC Program must cover all policies and procedures, whether performed by the
mortgagee or outsourced to a contractor, to ensure full compliance with FHA requirements
for Loan Administration.
14
15
16
The QC Program must provide the mortgagee’s management with information sufficient to
adequately monitor and oversee the mortgagee’s compliance and measure performance as it
relates to FHA mortgage activity.
17
d. Required Documentation
18
19
The mortgagee must document the existence of its QC Program and evidence of its
implementation, including written procedures, QC reports, and corrective action plans.
20
21
22
23
The mortgagee must retain all QC review results, including all selection criteria, review
documentation, Findings, and actions taken to mitigate or resolve Findings, for a period of
two years. The mortgagee must make all documentation relating to its QC Program available
to FHA at any time upon request.
24
2. Institutional Quality Control Program Requirements
25
a. Who May Perform Quality Control
26
27
The mortgagee may use employees or contractors to perform QC functions in accordance
with the following requirements.
28
i. Employees
29
30
31
32
33
The mortgagee must ensure that employees who perform QC Program functions are, at
all times, independent of all Loan Administration processes and do not directly
participate in any of the Loan Administration processes represented in the QC Plan. The
mortgagee must ensure QC employees are not within any chain of reporting or
management that is connected to Loan Administration staff.
[June 30, 2014]
2
A. Quality Control
1
ii. Contractors
2
3
4
5
6
7
8
9
The mortgagee may contract with outside vendors to perform QC functions if:
 the mortgagee assumes full responsibility for the contractor’s conduct of QC
reviews in compliance with FHA requirements;
 the mortgagee and the contractor have a valid contractual agreement in place that
specifies the roles and responsibilities of each party; and
 the mortgagee acknowledges that the existence of such contract for the provision
of QC services does not satisfy the mortgagee’s obligation to have a written QC
Plan that fully complies with FHA requirements.
10
b. Operational Compliance
11
The mortgagee must ensure that its QC Plan provides for the following required reviews.
12
13
i. Personnel
(A) Training
14
(1) Loan Administration and Quality Control Processes
15
(a) Standard
16
17
18
The mortgagee must train all staff involved in FHA Loan Administration and
QC processes to ensure that staff know all current FHA requirements for the
FHA Loan Administration practices for which the mortgagee is responsible.
19
20
21
The mortgagee must maintain a list of all trainings provided to staff. For each
training, the mortgagee must include a summary of the content covered.
22
(2) Access to FHA Guidance
23
(a) Standard
24
25
26
The mortgagee must provide all Loan Administration and QC staff with
access to current FHA guidance including Handbooks, Mortgagee Letters,
Frequently Asked Questions (FAQ), and other guidance issued by FHA.
27
28
29
The mortgagee must confirm that all Loan Administration and QC staff have
access to the Internet or to hard copies of current FHA guidance.
[June 30, 2014]
3
A. Quality Control
1
(B) Restricted Participation
2
(1) Standard
3
4
5
6
The mortgagee must confirm it verified, through each of the following systems,
that all of its employees and Affiliates associated with the Loan Administration
process were permitted to participate in FHA programs. Checks to verify
employee eligibility must be conducted at least semiannually.



7
8
9
10
11
12

System for Award Management (SAM) Excluded Parties List
Limited Denial of Participation (LDP)
National Mortgage Licensing System and Registry (NMLS) (unless
excluded from NMLS requirements by law or regulation)
Credit Alert Verification Reporting System (CAIVRS) via FHA
Connection (FHAC) (for branch managers and underwriters only)
13
14
15
Mortgagees must maintain copies of each employee’s eligibility verification printout with the mortgagee’s QC results.
16
ii. Affiliate Quality Control Reviews
17
(A) Standard
18
19
20
21
22
The mortgagee must perform QC reviews of its Affiliates in the same manner and
under the same conditions as required for the mortgagee’s own operations. At a
minimum, Affiliate monitoring must include a periodic (semiannual at a minimum)
reverification of Affiliates’ compliance with all applicable laws related to licensing,
qualification, eligibility, or approval to originate home mortgages.
23
24
25
26
27
The mortgagee must document the methodology used to review Affiliates, the results
of each review, and any corrective actions taken as a result of review Findings. The
procedures used to review and monitor a mortgagee’s Affiliates must be included in
the mortgagee’s QC Plan.
28
29
30
31
32
33
iii. Fair Lending
The mortgagee must verify that its operations comply with applicable state and
federal fair lending laws, including the following:
 Fair Housing Act (42 U.S.C. 3601 et seq.)
 Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.)
 Federal Truth in Lending Act (15 U.S.C. 1601 et seq.)
[June 30, 2014]
4
A. Quality Control
1
(A) Rejected Borrower Applications
2
(1) Standard
3
4
5
6
7
8
9
10
11
12
13
The mortgagee must review at least 5 percent of rejected applications, or a
statistical random sample that provides a 95 percent confidence level with 2
percent precision, within 90 Days from the end of the month in which the decision
was made. Reviews must be conducted on a monthly basis and ensure that:
 the reasons given for rejection were valid;
 each rejection has the concurrence of an officer or senior staff person of
the company, or a committee chaired by a senior staff person or officer;
 the requirements of the Equal Credit Opportunity Act are met and
documented in each file; and
 no civil rights violations were committed in the rejection of the
application.
14
15
Where possible discrimination is noted, the mortgagee must take immediate
corrective action.
16
17
18
19
20
The mortgagee must document the methodology used to review rejected Borrower
applications, the results of each review, and any corrective actions taken as a
result of review Findings. The procedures used to review rejected Borrower
applications must be included in the mortgagee’s QC Plan.
21
(B) Fair Housing Logo
22
(1) Standard
23
24
25
The mortgagee must verify that fair housing and equal opportunity signs and
logos are prominently displayed in the mortgagee’s offices and on stationery and
documents distributed by the mortgagee to the public.
26
27
28
29
30
The mortgagee must confirm that the fair housing and equal opportunity logo is
prominently displayed in the mortgagee’s office. The mortgagee must retain
copies of any stationery and documents it produces that use the fair housing and
equal opportunity logo.
31
(C) Fair Housing or Discrimination Violations
32
(1) Standard
33
34
Potential fair housing violations or instances of discrimination must be reported to
HUD’s Office of Fair Housing and Equal Opportunity (FHEO) as soon as
[June 30, 2014]
5
A. Quality Control
1
2
possible, but no later than one year after a potential violation or instance of
discrimination has occurred.
3
4
5
6
Fair housing violations and complaints may be reported online using the HUD
Form 903 Online Complaint, in hard copy or over the telephone to the appropriate
FHEO Regional Office.
7
8
iv. Escrow Funds
(A) Standard
9
10
11
The mortgagee must verify that escrow funds received from Borrowers were used
only for the purpose for which they were received, and are in compliance with all
Consumer Financial Protection Bureau (CFPB) escrow requirements.
12
13
14
The mortgagee must retain the results of each review and any corrective actions taken
as a result of review Findings.
15
v. Mortgage Insurance Premiums
16
(A) Standard
17
18
19
20
The mortgagee must verify that FHA Mortgage Insurance Premiums (MIP) were
remitted to FHA within the required time period or, if not, that the remittance
included late charges and interest penalties. Mortgagees must address any pattern of
late submissions and promptly take corrective measures.
21
22
23
24
vi. Timely and Accurate Submission for Insurance
25
(A) Standard
26
27
The mortgagee must verify that mortgages are being submitted to FHA for insurance
within the required timeframes.
28
29
30
[June 30, 2014]
6
A. Quality Control
1
vii. Advertising
2
(A) Standard
3
4
5
6
The mortgagee must review all advertisements generated by the mortgagee or on its
behalf to verify compliance with HUD/FHA advertising requirements. The mortgagee
must take prompt corrective action upon discovering any violation of advertising
requirements described in this SF Handbook.
7
8
9
10
11
12
The mortgagee must retain copies of any Advertising Device it produces that is
related to FHA programs. The mortgagee must retain samples of the advertising
reviewed, the results of each review, and any corrective actions taken as a result of
review Findings.
c. Identifying Patterns
13
i. Standard
14
15
The mortgagee must review its loan performance data to identify any patterns of noncompliance.
16
17
18
19
20
The mortgagee must document the methodology used to review patterns of noncompliance, the results of each review, and any corrective actions taken as a result of
review Findings. The procedures used to review patterns of non-compliance must be
included in the mortgagee’s QC Plan.
21
22
Mortgagees may use HUD’s Neighborhood Watch Early Warning System
(Neighborhood Watch) to assist with identifying patterns.
23
d. Fraud, Misrepresentation, and Other Findings
24
i. Standard
25
26
27
The mortgagee must monitor all FHA-insured mortgages it originates, underwrites,
services, or purchases, including those mortgages originated by sponsored Third-Party
Originators, for potential fraud, material misrepresentations, or other Material Findings.
28
29
30
31
Suspected instances of fraud, material misrepresentations, and other Material Findings
must be investigated and documented by the mortgagee’s QC team who must determine
whether or not fraud or material misrepresentation actually occurred, or whether Material
Findings exist.
[June 30, 2014]
7
A. Quality Control
1
ii. Definitions
2
(A) Findings
3
A Finding is a final determination of defect by the mortgagee.
4
(B) Materiality
5
6
7
In the context of mortgage origination and underwriting, a Finding is Material if
disclosure of the Finding would have altered the mortgagee’s decision to approve the
mortgage or to endorse or seek endorsement from FHA for insurance of the mortgage.
8
9
In the context of mortgage servicing, a Finding is Material if it has a financial impact
on the property, the Borrower, and/or FHA.
10
(C) Mitigated or Resolved
11
12
13
A Finding has been Mitigated or Resolved if the mortgagee has adequately addressed
the deficiencies underlying the Finding, and such deficiencies have been remedied so
that the mortgage presents an acceptable level of risk to the mortgagee and to FHA.
14
15
16
17
documentation, Findings, and actions taken to mitigate or resolve Findings, for a period
of two years.
18
iv. Internal Reporting to Senior Management
19
20
21
The mortgagee’s written QC Plan must contain a process for QC staff to report Findings
identified through the QC process to senior management that complies with the following
requirements.
22
(A) Timeframe for Reporting
23
24
Initial review Findings must be reported to the mortgagee’s senior management
within 30 Days of completion of the initial Findings report.
25
(B) Corrective Action Plan
26
27
28
29
Mortgagee senior management must review and respond to each instance of fraud,
material misrepresentation, or other Material Finding. The mortgagee’s final report
must identify the corrective or curative actions being taken, the timetable for
completion, and any planned follow-up activities.
[June 30, 2014]
8
A. Quality Control
1
(C) Follow Up
2
3
The mortgagee must discuss all Findings with the responsible party(ies) in order to
ensure corrective action and to prevent similar Findings from occurring in the future.
4
v. External Reporting to FHA
5
(A) Fraud and Material Misrepresentation
6
7
The mortgagee must report to FHA all Findings of fraud and material
misrepresentation.
8
(B) Material Findings
9
10
11
The mortgagee must report any Material Findings concerning the origination,
underwriting, or servicing of a mortgage that the mortgagee is unable to mitigate or
otherwise resolve.
12
(C) Mitigated and Resolved Findings
13
14
Findings that do not involve fraud or material misrepresentation and were already
Mitigated or Resolved by the mortgagee do not have to be reported to FHA.
15
16
Mortgagees cannot independently resolve or mitigate any Findings involving fraud or
material misrepresentation.
17
(D) Timeframe for Reporting
18
19
The mortgagee must report any Findings of fraud or material misrepresentation to
FHA immediately.
20
21
22
The mortgagee must report all other Material Findings to FHA no later than 30 Days
after the mortgagee has completed its own internal evaluation, or within 60 Days of
initial discovery, whichever occurs first.
23
(E) Corrective Action Plan
24
25
26
For all Findings that must be reported, the mortgagee must identify what actions have
been taken to attempt to mitigate or resolve each Finding, and report any planned or
pending follow-up activities.
27
(F) Method of Reporting
28
29
30
31
The mortgagee must use the Lender Reporting feature in Neighborhood Watch to
report Findings to FHA. FHA may request supporting documentation, including the
endorsement case binder, the QC report, and any other documentation necessary for
FHA to fully evaluate the Finding.
[June 30, 2014]
9
A. Quality Control
1
(G)Suspected HUD Involvement
2
3
4
5
6
If the mortgagee suspects HUD employees or contractors were involved in fraud or
material misrepresentation, the mortgagee must refer the matter directly to HUD’s
Office of Inspector General (OIG) through the HUD OIG website, by sending a
written referral to HUD OIG Hotline at 451 7th Street, SW, Room 8254, Washington,
DC 20410, or by fax at (202) 708-4829.
7
8
9
3. Loan Level Quality Control Program Requirements
a. Loan File Selection
i. Timeframe for Selection and Review
10
11
Mortgagees must perform QC reviews of FHA-insured mortgages it originates,
underwrites, or services, on a monthly basis.
12
13
Mortgages selected for pre-funding review must be reviewed not more than seven Days
prior to funding.
14
15
16
With the exception of Early Payment Defaults (EPD), mortgages selected for post-closing
review must be selected within 30 Days from the closing date and must be reviewed
within 60 Days of the closing date.
17
ii. Scope
18
19
20
21
The mortgagee’s QC Plan must provide for the thorough evaluation of all Loan
Administration functions for which the mortgagee is responsible. The mortgagee must
expand the scope of the QC review as appropriate when fraud or patterns of deficiencies
are uncovered.
22
iii. Sample Size Standard
23
24
25
The mortgagee’s QC Plan must provide for a combination of both pre-funding and postclosing reviews. Pre-funding reviews should not comprise more than 10 percent of the
mortgagee’s QC sample.
26
27
The mortgagee’s QC Plan must provide for review of an appropriately sized, statistically
valid sample that complies with the following:
28
(A) 3,500 or Fewer FHA-Insured Mortgages Per Year
29
30
31
Mortgagees that originate, underwrite, and/or service 3,500 or fewer FHA-insured
mortgages per year must review a minimum of 10 percent of the FHA-insured
mortgages the mortgagee originates, underwrites, or services.
[June 30, 2014]
10
A. Quality Control
1
(B) More Than 3,500 FHA-Insured Mortgages Per Year
2
3
4
5
6
7
Mortgagees that originate, underwrite, and/or service more than 3,500 FHA
mortgages per year must review either 10 percent of the FHA-insured mortgages the
mortgagee originates, underwrites, or services, or a stratified random sample that
provides a 95 percent confidence level with a 2 percent statistically valid confidence
interval. The stratification should be based on mortgage product type and the source
of origination.
8
iv. Required Documentation
9
The mortgagee must document how the sample size and selections were determined.
10
v. Sample Composition Standard
11
12
13
14
The mortgagee’s QC Plan must contain provisions to select FHA-insured mortgages for
review via random, EPDs, and discretionary sample selection methods that meet the
following conditions. Only random and discretionary samples may be included in the
sample size standard.
15
(A) Random
16
17
18
19
20
The mortgagee must select FHA-insured mortgages through the use of statistical
sampling such that each of the mortgagee’s FHA-insured mortgages has an equal
chance of being selected. The random sample must be drawn from all of the
mortgagee’s FHA-insured mortgages, regardless of origination source or program
type.
21
(B) Early Payment Defaults
22
(1) Definition
23
24
EPDs are all mortgages that become 60 Days Delinquent within the first six
payments.
25
(2) Standard
26
27
28
The mortgagee must review all EPDs underwritten by the mortgagee, regardless
of which mortgagee services the mortgage. Mortgagees may use Neighborhood
Watch to assist with identifying EPDs.
29
(3) Timeframe for Review
30
31
Mortgagees must perform reviews of EPDs within 30 Days from the end of the
first month in which the mortgage was reported as being 60 Days past due.
[June 30, 2014]
11
A. Quality Control
1
(C) Discretionary
2
3
4
The mortgagee must focus discretionary samples on programs, participants, or
sources that represent a high level of risk, including disproportionate loan volume,
default rates, new relationships, or concentration in soft market areas.
5
b. Loan Sample Risk Assessment
6
i. Standard
7
8
9
Mortgagees are required to establish a system of evaluating loans selected for QC on the
basis of the severity of the violations found during QC reviews. At a minimum, the
system must include the categories of risk described below.
10
11
The mortgagee must compare one month’s QC sample to previous QC samples in order
to conduct trend analysis.
12
ii. Risk Categories
13
(A) Low Risk
14
15
No issues or minor variances were identified with the origination, underwriting, or
servicing of the mortgage.
16
(B) Moderate Risk
17
18
19
20
21
The records contained significant unresolved questions or missing documentation.
Issues were identified pertaining to processing, documentation, or decisions made
during Loan Administration, but none were material to the creditworthiness,
collateral, security, or insurability of the mortgage. Failure to resolve these issues
created a moderate risk to the mortgagee and to FHA.
22
(C) Material Risk
23
24
The issues identified during the review contained Material Findings which represent
an unacceptable level of risk.
25
26
27
The mortgagee must document the methodology used to establish the loan risk
assessment system and conduct trend analysis.
[June 30, 2014]
12
A. Quality Control
1
2
c. Origination and Underwriting Loan File Compliance Review
i. Minimum Requirements
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
At a minimum, mortgagees must include the following areas in their QC review to ensure
they meet the requirements outlined in section II.B.1. Origination Through PostClosing/Endorsement:
 mortgage application, eligibility, and underwriting documents
 verifications of employment and deposit
 self-employed Borrowers
 credit reports
 outstanding debt obligations
 Borrower’s source of funds
 signatures on mortgage documents
 mortgage origination and closing documents
 appraisal
 prohibited restrictive covenants
 underwriting accuracy and completeness, including compensating factors
 Settlement Statement or other similar legal document and Good Faith Estimate
 Qualified Mortgage (QM)
 condition clearance and closing
 timely submission for insurance
 Property Flipping restrictions
 transfer of property at or soon after closing
 discrepancies in the loan file
24
ii. Document Review and Reverification
25
26
27
A mortgagee’s QC Plan for origination and underwriting must provide for the review and
reverification of the following information on all FHA-insured mortgages selected for
review.
28
(A) Credit Report
29
30
31
32
33
34
35
Except for non-credit qualifying Streamline Refinances, the mortgagee must obtain a
new Residential Mortgage Credit Report (RMCR), a Tri-Merged Credit Report
(TRMCR), or, when appropriate, a business credit report for each Borrower whose
FHA-insured mortgage is selected for review. The new credit report must comply
with the credit report standards described in this SF Handbook for Title II Forward
Mortgages. The mortgagee must compare the credit reports obtained and determine
whether any discrepancies exist between the reports.
36
37
The mortgagee must obtain a second, full RMCR from a different credit source when
the in-file report reveals discrepancies with the original credit report.
[June 30, 2014]
13
A. Quality Control
1
(B) Income, Employment, and Asset Information
2
(1) Reverification
3
(a) Standard
4
5
6
7
8
9
10
11
12
The mortgagee must analyze the validity and sufficiency of all documents
contained in the loan file. The mortgagee must reverify, in writing or
electronically if available, the following:
 employment;
 income;
 assets;
 gift funds;
 mortgage or rental payments; and
 source of funds.
13
14
If a written or electronic reverification request is not returned to the
mortgagee, the mortgagee must conduct a telephone reverification.
15
16
The mortgagee must retain evidence of the written or electronic verification.
17
(2) Discrepancies
18
(a) Standard
19
20
21
22
23
24
25
The mortgagee must evaluate all discrepancies to ensure that the original
documents (except blanket verification releases) were completed before being
signed, were as represented, were not handled by Interested Parties, and that
all corrections were proper and initialed. All conflicting information in the
original documentation must be resolved with the underwriter. Discrepancies
in documentation discovered during prefunding reviews must be resolved
prior to closing.
26
27
28
The mortgagee must document any discrepancies and retain copies of
information used to resolve such discrepancies.
29
(C) Occupancy
30
(1) Standard
31
The mortgagee must determine whether the Borrower is occupying the property.
[June 30, 2014]
14
A. Quality Control
1
2
The mortgagee must retain evidence of the written or electronic verification.
3
(D) Appraisals
4
(1) Standard
5
6
The mortgagee must conduct a review of the property appraisal for all FHAinsured mortgages chosen for a QC review.
7
8
9
10
11
12
13
At a minimum, mortgagees must include the following areas in their QC review
of the property appraisal:
 the appraisal data;
 the validity of the comparables;
 the value conclusion (as required by FHA guidance);
 any changes made by the underwriter; and
 the overall quality of the appraisal.
14
(2) Sample
15
16
17
18
19
20
21
22
23
24
25
26
27
28
The mortgagee must perform field reviews on 10 percent of the FHA-insured
mortgages selected for the QC sample, as well as on all EPDs. The mortgagee
must select mortgages for appraisal reviews based on the factors used for
discretionary targeting, as well as the following characteristics:
 property complaints received from Borrowers;
 discrepancies found during QC reviews;
 large adjustments or variances to value;
 comparable sales more than six months old;
 excessive distances from comparables to the subject property;
 repetitive sales activity for the subject property;
 Investor-sold properties;
 identity-of-interest conflicts between Borrower and seller;
 seller identity differs from owner of record; and
 vacant properties.
29
30
Field reviews must be performed by licensed appraisers listed on FHA’s Roster of
Appraisers.
31
(3) Exceptions
32
33
34
Property appraisal reviews do not have to be performed for Streamline Refinances
without an appraisal, or for HUD Real Estate Owned (REO) sales chosen for QC
review.
[June 30, 2014]
15
A. Quality Control
1
2
3
4
The mortgagee must retain all QC review results, including all selection criteria,
review documentation, Findings, and actions taken to mitigate or resolve
Findings.
5
d. Quality Control Reviews of Specialized Mortgage Programs
6
i. Standard
7
8
9
QC reviews of specialized mortgage programs (e.g., 203(k), Home Equity Conversion
Mortgages (HECM), energy efficient mortgages, etc.) must monitor compliance with
FHA requirements specific to those programs.
10
11
12
documentation, Findings, and actions taken to mitigate or resolve Findings.
13
e. Servicing Loan File Compliance Review
14
i. Minimum Requirements
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Mortgagees must review all aspects of their servicing operations, including a review of
subserviced mortgages and activities as they relate to FHA-insured mortgages, to
guarantee that all FHA servicing and loss mitigation requirements are being met. At a
minimum, mortgagees must include the following elements in their QC review to ensure
they meet the requirements outlined in HUD Handbooks 4330.1, 4330.2, and 4330.4:
 servicing records
 transfer of servicing notification and records
 documentation of purchased or acquired mortgages
 MIPs
 Mortgage Record Changes
 qualifying assumptions
 Borrower requests, complaints, and escalated cases
 escrow account functions
 fees
 Adjustable Rate Mortgages notifications and calculations
 force-placed insurance
 Section 235 recertifications
 collection activities
 Single Family Default Monitoring System Reports
 reporting to credit repositories
 loss mitigation
 disaster moratorium requirement
 Servicemembers Civil Relief Act (SCRA)
[June 30, 2014]
16
A. Quality Control
1
2
3
4
5
6
7
8
9
10
11
12










foreclosure proceedings
property preservation and conveyance
claims without conveyance of title
deficiency judgments
claims for insurance benefits
prepayments
close out procedures
document retention and legibility
servicing of 203(k) mortgages
servicing of HECM
f. Ineligible Participants
i. Mortgage Transaction
13
(A) Standard
14
15
16
17
The mortgagee must verify that none of the participants in the mortgage transactions
reviewed (excluding the seller of a Principal Residence) were debarred, suspended,
under an LDP for the FHA program and jurisdiction, or otherwise ineligible to
participate in an FHA transaction.
18
19
The mortgagee must confirm that it verified each participant’s eligibility.
20
ii. Assumption of Mortgage
21
(A) Standard
22
23
24
25
The mortgagee must verify that no participants in an assumption transaction
(excluding the seller of a Principal Residence) were debarred, suspended, under an
LDP for the FHA program and jurisdiction, or otherwise ineligible to participate in an
FHA transaction.
26
27
The mortgagee must confirm that it verified each participant’s eligibility.
28
4. Data Integrity
29
a. Standard
30
31
32
The mortgagee’s QC program must include a review of the completeness and accuracy of the
information obtained for each mortgage for all aspects of the Loan Administration process
for which a QC sample is selected.
[June 30, 2014]
17
B. Mortgagee Monitoring
1
i. Origination and Underwriting Information
2
3
4
5
For origination and underwriting, the review must validate all data elements submitted
through Automated Underwriting System (AUS), Technology Open To Approved
Lenders (TOTAL) Mortgage Scorecard, and FHAC, and validate that documentation
exists in the loan file to support all data used to underwrite the mortgage.
6
ii. Servicing Information
7
8
9
For servicing, the review must validate mortgage information submitted to the Single
Family Default Monitoring System (SFDMS) or Home Equity Reverse Mortgage
Information Technology (HERMIT), as applicable.
10
b. Required Documentation
11
12
The mortgagee must retain the results of each review and any corrective actions taken as a
result of review Findings.
13
B. MORTGAGEE MONITORING
14
1. Mortgagee Monitoring Goals
15
16
17
18
FHA continually monitors mortgagee performance in order to:
 reduce the risk of defaults and claims to FHA;
 apply appropriate remedies to non-complying mortgagees; and
 improve mortgagee performance.
19
2. Cooperation with HUD Investigations and Reviews
20
21
22
23
Mortgagees must fully cooperate with any investigation(s) or review(s) undertaken by HUD.
Mortgagees must make all Corporate Officers and employees available for interviews and
promptly provide information and documents requested by HUD in the format requested. Failure
to fully cooperate may result in administrative or civil action being taken against the mortgagee.
24
3. Institutional Mortgagee Monitoring
25
a. Neighborhood Watch
26
i. Overview
27
28
29
30
31
The Neighborhood Watch Early Warning System (Neighborhood Watch) is a web-based
application that provides comprehensive data querying, reporting, and analytical
capabilities for tracking the performance of mortgages originated, underwritten, and
serviced by FHA-approved mortgagees. Neighborhood Watch performance data is
updated monthly.
[June 30, 2014]
18
1
ii. Purpose
2
3
4
5
Mortgagees may use Neighborhood Watch to self-police their performance and analyze
weaknesses. The system is designed to highlight exceptions so that potential problems are
easily recognized. The system can also be used to locate and analyze mortgage programs
and geographic areas that are performing well.
6
iii. Access
7
8
9
There are two ways for a mortgagee to access Neighborhood Watch:
 through the public site; and
 through the mortgagee site via FHAC.
10
(A) Public Site
11
12
13
The public site provides general information and is accessible by anyone in the
general public. It does not provide access to loan-level data, and delinquent case
details include a limited amount of information.
14
(B) FHA-Approved Mortgagee Site
15
16
17
18
19
20
The site for FHA-approved mortgagees is accessible via FHAC. The mortgagee site
provides granular, loan-level data to mortgagees who originate, sponsor, or service
the specific mortgages. Access to this site is limited to employees of the querying
mortgagee and requires a user identification and password issued by HUD. Details on
obtaining a user identification and password and on using Neighborhood Watch are
contained in the Single Family Housing portion of the FHAC Guide.
[June 30, 2014]
19
Single Family FHA
Neighborhood Watch
Neighborhood Watch
Neighborhood Watch allows all FHA-approved lenders to identify and analyze the patterns (by
geographic area, originating lender, or loan characteristics) of cases that became delinquent within the
first two years of loan origination. Patterns may be identified by a specific area (e.g., by city, MSA, state,
or HOC) or across the nation. Additionally, various lender data may be researched and accessed. Case
details are available only for lenders who originate, sponsor, and/or service the loans. Neighborhood
Watch is designed to highlight exceptions so that potential problems are readily identifiable.
Available Information
The following information can be accessed by authorized lender personnel within the Neighborhood
Watch function:
Early Warnings enables you to generate report listings for cases that are 30 days or more delinquent
as of the last reporting cycle updated in Neighborhood Watch, as well as for cases with defaults within
the first and second years. This assists you in detecting problems and/or unusual activities. You may
request the period in which the report information is provided, enter geographic comparison
specifications, and sort the information by various options that reveal areas or programs with the most
volume or greatest problem area(s). An Early Warnings report may be requested by:
•
All Lenders/Area (request reports for Originator by Institution or Branch, Brokers/Sponsors,
Direct Endorsement Lenders, Principals/Agents, or Areas)
•
Single Lender (access lender information by entering the first few letters of the lender’s name or
by entering the five-digit lender ID)
•
All Appraisers/Area (request reports for Originator by Institution or Branch, Brokers/Sponsors,
Direct Endorsement Lenders, Principals/Agents, or Areas)
•
Single Appraiser (access appraiser information by entering the first few letters of the appraiser's
last name or the six character Appraiser ID)
Servicing enables you to generate reports summarizing servicer or originator FHA-insured loan
portfolios, as well as reports that highlight lenders’ HUD/FHA loss mitigation and claims activity. You may:
•
Request reports for All Servicers or a Single Servicer
•
Select report type options that include: Portfolio Summary, Loss Mitigation - Current Defaults
Reported, or Loss Mitigation – Incentive Claims Paid
•
Request lender comparison ratio information and compare the foreclosure claim rate to the
foreclosure claim rate of a selected area
•
Request reports via the default report queries that provide delinquent loan counts and loan details
by report day/month for the servicing lender that reported to the Single Family Default Monitoring
System (SFDMS). Reports may be requested by servicer ID or FHA case number.
Analysis enables you to generate reports to assist you in quickly spotting large discrepancies and
monitor lender activities. Reports may be requested by:
•
Default/Claim Comparison (provides comparisons of two lenders and/or geographic areas
within the US)
•
HECM Activity (enables you to view HECM activity during the past three years for a specific
area, single lender, or all lenders)
Updated: 09/2009
Neighborhood Watch - 1
Single Family FHA
Neighborhood Watch
Details enables you to quickly access various Neighborhood Watch-related summarized information
that is provided in an easy-to-read report format. The two types of Details reports currently available are:
•
Lender Details (access lender information (e.g., lender type, branch office information) by
entering the first few letters of the lender’s name or by entering the five-digit lender ID)
•
Program Profiles (select either Show ADP Codes in Program or Programs associated with ADP
Code to view program information)
Queries enables you to access case level details on loans originated, sponsored, or serviced
by your lending institution. The available queries include:
•
Case Status provides details on the user-specified FHA case number. The information is
extracted monthly from HUD’s Single Family Data Warehouse and includes details for the
following categories:
o
Borrower/Property/Loan Identification
o
Originator/Sponsor Information
o
Loan Origination Information
o
Underwriter’s Ratings – Post Endorsement Reviews
o
Loan Status
o
Default Information Reported by the Servicer
o
Claim Information
•
Default Cases lists delinquent loan case details and counts for lenders that report to the Single
Family Default Monitoring System (SFDMS) within the first three years of the life of the loan.
•
HUD Pipeline/Uninsured lists uninsured FHA loans for which HUD has received the upfront
mortgage insurance premium (UFMIP) payment.
•
Indemnification lists FHA-insured cases for which the lender and HUD have entered into an
indemnification agreement in an attempt to reduce the possibility of a claim.
•
Late UFMIP (upfront mortgage insurance premium) lists cases for which HUD received a late
UFMIP payment, i.e., 10 or more days after the mortgage loan closing date. Information includes
but is not limited to Closing Date, UFMIP Payment Date, late and interest information, number of
days between closing and UFMIP payment receipt, and between closing and closing package
receipt.
•
Late Endorsement lists cases for which HUD received the endorsement package more than 60
days after the closing date.
•
Title 1 Case Status provides details on the user-specified FHA Title 1 case number.
Lender Reporting enables you to save and/or view previously saved detailed case report
information. You may save/view information for a single case or for multiple cases in your FHA
portfolio.
Accessing Neighborhood Watch
Access to, and content presented on, Neighborhood Watch pages is based on your FHA Connection
authorization. See the FHA Connection Guide modules provided in Getting Started for additional
information regarding accessing the FHA Connection.
1. After sign on to the FHA Connection, select Single Family FHA from the menu.
2. On the Single Family FHA Business Areas menu, select Neighborhood Watch. The
Neighborhood Watch page appears (Figure 1).
Updated: 09/2009
Single Family FHA
Neighborhood Watch
Place your mouse pointer over
each of the options to display the
pull-down menus
Figure 1: Neighborhood Watch page with Early Warning drop-down menu displayed
Note: You may also access Neighborhood Watch directly, without accessing the FHA Connection, by
entering: https://entp.hud.gov/sfnw/nw/. However, you are still prompted to enter your FHA Connection
user ID and password before going directly to Neighborhood Watch.
3. To return to the FHA Connection, place your mouse pointer over the Help/About option and then
select FHA Connection from the pull-down menu (Figure 2). The Single Family FHA Business
Areas menu is displayed.
Select FHA Connection from
the pull-down menu to return to
the FHA Connection
Figure 2: Neighborhood Watch page with FHA Connection menu option
Updated: 09/2009
Single Family FHA
Neighborhood Watch
Requesting Neighborhood Watch Information
The process of requesting a Neighborhood Watch report for Early Warning, Analysis, and Details is
similar. When requesting a report, you may choose the appropriate options to tailor the information to
your specific needs. You are prompted to enter or select information based upon the desired report.
The instructions and sample pages below use an Early Warnings Current Defaults – By Institution
example to illustrate how to use the Neighborhood Watch functions.
1. After signing on to the FHA Connection, go to Neighborhood Watch as described in Accessing
Neighborhood Watch.
2. Select Early Warnings on the Neighborhood Watch Early Warning System page (Figure 3).
Select Early
Warnings then
select All
Lenders/Areas
Figure 3: Neighborhood Watch page with Early Warnings pull-down menu options
3. Select All Lenders/Areas from the Early Warnings menu (Figure 3). The Early Warnings – All
Lenders/Areas (initial) page appears (Figure 4).
4. Ensure that the Originator by Institution (default) option is highlighted in the Mortgagee/Area
Selections list box (Figure 4).
5. Click the State radio button to specify a focus area (United States, HUD Office, State, MSA, HOC)
(Figure 4). Only one focus area is allowed per request. Select Hawaii from the State drop-down list,
and click
Updated: 09/2009
. The Early Warnings – All Lenders/Areas (focus) page appears.
Single Family FHA
Neighborhood Watch
Click after you have selected
all desired options
To focus on a specific area, select the state
Figure 4: Neighborhood Watch page with Early Warnings pull-down menu options
6. On the Early Warnings – All Lenders/Areas (focus) page, ensure that the Current Defaults (default)
option is highlighted in the Default Choices list box.
7. Click
Updated: 09/2009
. The Originating Lenders in Hawaii report appears. (See Figure 5.)
Single Family FHA
Neighborhood Watch
Review the information requested
Summary information
Figure 5: Neighborhood Watch – Originating Lenders page
Help Information Available for Neighborhood Watch
The Help/About pull-down menu (Figure 2) provides you with additional Neighborhood Watch
information (Figure 6). A brief description of each of the available help options is provided below:
Help provides access to additional information about each of the Neighborhood Watch options, as well
as links to other information regarding how to use Neighborhood Watch, recent updates, frequently
asked questions, etc. Upon selecting Help from the Help/About menu (Figure 2), a selection page is
displayed providing a summary of each available topic (Figure 6). Click the topic link (provided at the left
of the table) to view more details.
Updated: 09/2009
Single Family FHA
Neighborhood Watch
Summary of available
information
Click a keyword term to access more
information about a specific topic
Figure 6: Partial page sample of Neighborhood Watch – Help selection page
For example, if you click Early Warnings, a help page appears with more details on the Early Warning
menu options (Figure 7).
Field descriptions,
navigation instructions,
and other information
concerning the selected
topic are provided
Figure 7: Partial page sample of Neighborhood Watch – Help page
About is an overview of the Neighborhood Watch function. It provides a summary of the system’s
intended use and a brief description of the information that is available using this function.
What’s New provides a summary of each update made to Neighborhood Watch. The information is
listed in chronological order according to when the update was released and provides a brief summary of
each enhancement to the system. Links to previous year’s information are provided at the end of this
page and are grouped according to the calendar year in which the updates were released.
Updated: 09/2009
Single Family FHA
Neighborhood Watch
Frequently Asked Questions is a compilation of various key questions and answers regarding
Neighborhood Watch. The information is separated into six categories which include: Basics,
Origination, Servicing, Credit Watch, Queries, and Miscellaneous. Each listed question links to the
specific answer.
Latest Refresh Date provides the date the Neighborhood Watch data was last updated (refreshed)
and the date range for which the information is provided. In addition, the date for the next anticipated data
refresh (update) is listed.
Feedback provides an electronic form that the user can complete and submit with comments and/or
questions concerning Neighborhood Watch. Representatives respond to comments/questions
accordingly.
www.hud.gov is a link to HUD’s Homes & Communities website where you may access information
concerning HUD and the various programs available to the public. You can return to the Neighborhood
Watch page by using your Internet browser’s Back button.
FHA Connection is a link back to the Single Family FHA Business Areas menu of the FHA
Connection. You may be required to re-enter your FHA Connection’s user ID and password to continue
working in the FHA Connection. You may return to Neighborhood Watch by selecting the
Neighborhood Watch link on the menu or using your browser’s Back button.
Updated: 09/2009
21
b. Mortgagee Performance Reports
22
i. Overview
23
24
25
26
27
28
29
30
FHA generates a monthly report that is available to mortgagees with DE approval, which
details the performance of each DE mortgagee’s underwriting and operations. The report
provides:
 summary information based on Post Endorsement Technical Reviews (PETR);
 information on the endorsement performance of each branch office within the
local jurisdiction; and
 information on the mortgagee’s overall performance, based on the results of the
PETRs, both locally and nationally.
31
32
33
34
The report is divided into subsections with information for:
 the last month;
 the two months prior to the last reporting month; and
 the first nine months of the reporting period.
[June 30, 2014]
19
1
ii. Purpose
2
3
4
Mortgagees with DE approval may use Mortgagee Performance Reports to monitor their
performance and analyze weaknesses. Mortgagee Performance Reports are designed to
identify underwriting Findings on FHA-insured mortgages selected for PETRs.
5
iii. Access
6
7
8
9
10
Mortgagee Performance Reports can be viewed and downloaded in FHAC. Access to the
reports is limited to employees of the querying mortgagee and requires a user
identification and password issued by HUD. Details on obtaining a user identification and
password and on using Mortgagee Performance Reports are contained in the Single
Family Housing portion of the FHAC Guide.
11
c. Title I Lender Monitoring Reviews
12
13
d. Title II Mortgagee Monitoring Reviews
14
15
16
17
18
The following provides general information about the processes and procedures normally
employed by FHA in its monitoring activities. The following is provided for informational
purposes only and does not represent any waiver of any authority of FHA, HUD, or the
federal government to carry out its oversight responsibilities in connection with FHA’s
Single Family programs.
19
i. Notice
20
21
22
23
24
Mortgagees are given notice prior to monitoring reviews. Mortgagees must have the files
requested by FHA monitors available for review. When loan files are requested by FHA,
the mortgagee must provide all files related to the loans selected for review, including
any and all files, whether hard copy or stored, in the mortgagee’s systems that include
data or information on the specific loans identified.
25
ii. Scope
26
27
28
29
30
31
32
33
34
35
36
HUD monitors the performance of a mortgagee’s origination, underwriting, and servicing
of single family insured mortgages. Monitoring reviews may be conducted on-site or offsite and may consist of:
 interviews with mortgagee officials and employees regarding the mortgagee’s
operation and risk mitigation strategies;
 interviews with mortgage participants, including employers, gift donors,
Borrowers, and appraisers;
 an analysis of the mortgagee’s FHA-insured portfolios;
 an assessment of the mortgagee’s origination, underwriting, and/or servicing
policies;
 reviews of individual case files and documentation;
[June 30, 2014]
20
1
2


reviews of the mortgagee’s QC Program; and
an exit conference.
3
4
5
6
7
FHA will, in its sole discretion, determine the scope of any monitoring review. FHA may
conduct limited reviews or more comprehensive reviews that include not just a
mortgagee’s files, records, and practices, but also the mortgagee’s overall operations and
policies with respect to mortgagee relationships, quality control and risk management,
escrow administration, wholesale mortgages, and certain FHA product lines.
8
iii. Findings Letters
9
10
11
12
13
At the conclusion of a monitoring review, FHA will discuss any Findings with the
mortgagee and prepare a letter that:
 outlines any deficiencies or other Findings;
 requires the mortgagee to respond to any identified Findings; and
 specifies any mortgages for which remedies are required.
14
e. Servicer Monitoring/Tier Ranking System II
15
16
4. Loan Level Monitoring
17
a. Title I Loan Level Reviews
18
19
b. Title II Post Endorsement Technical Reviews
20
21
22
FHA performs PETRs on selected cases in order to evaluate the risk that the selected
mortgages represent to FHA’s insurance funds, as well as the mortgagee’s compliance with
underwriting and documentation requirements.
23
i. Scope
24
25
26
27
28
29
30
31
32
PETRs consist of, but are not limited to, the following:
 an assessment of whether the mortgage represents an unacceptable level of risk to
the FHA insurance funds; and
 an assessment of how well the underwriter:
o arrived at their decisions;
o addressed inconsistencies;
o made reasonable conclusions, based on the information and documentation in
the case file; and
o complied with FHA guidelines.
[June 30, 2014]
21
1
ii. Lender Insurance Program Case Binder Reviews
2
3
4
FHA will notify mortgagees daily via email of its intent to review the mortgagee’s
Lender Insurance (LI) case binders. The mortgagee must provide the requested case
binder(s) within 10 business days of FHA’s transmittal of a request.
5
6
7
Failure to submit five or more requested case binders to the applicable Homeownership
Center (HOC) may result in a suspension of the mortgagee’s LI authority until the
mortgagee submits the case binders in a manner satisfactory to FHA.
8
iii. Targeting
9
10
FHA performs PETRs on selected mortgages underwritten by unconditional Direct
Endorsement (DE) mortgagees based on FHA’s risk-based criteria.
11
iv. Ratings
12
(A) Definitions
13
(1) Conforming
14
15
16
17
18
A Conforming Rating means the mortgage presents an acceptable level of risk,
and no documentation deficiencies or processing errors were identified. No
Findings were identified in FHA’s review of the credit, capacity, capital, and
collateral in the file. The basic eligibility of the Borrower and/or property for
FHA mortgage insurance is not questioned.
19
(2) Deficient
20
21
22
23
A Deficient Rating means one or more Findings were identified in FHA’s review
that do not present a risk to FHA, or may indicate documentation or processing
errors, but such Findings and errors did not affect the approval and/or insurability
of the mortgage.
24
(3) Unacceptable
25
26
27
An Unacceptable Rating means Findings were identified in FHA’s review that
indicated the file should not have been approved and/or insured, and that resulted
in a significant increase in mortgage risk to FHA.
28
(4) Mitigated
29
30
31
32
33
A Mitigated Rating means an initial rating of unacceptable was issued, and the
mortgagee was subsequently able to provide documentation that mitigated the
risk. If more than one risk factor was cited to support the issuance of an
Unacceptable Rating, the rating will only be changed to Mitigated if all risk
factors have been mitigated.
[June 30, 2014]
22
C. Monitoring of Other Participants
1
(B) Standard
2
3
4
FHA will initially rate each mortgage reviewed as part of the PETR process as
Conforming, Deficient, or Unacceptable. FHA may revise an Unacceptable Rating to
Mitigated after follow-up reviews.
5
6
7
FHA will post the overall mortgage credit and valuation ratings, Findings codes, and
narrative, outlining the results of the review in the Underwriter Review Section of
FHAC for each mortgage reviewed.
8
9
v. Findings
(A) Notice
10
11
12
FHA will issue a notice of Findings for each mortgage that receives an initial rating
of Unacceptable; the notice will identify the specific Findings upon which the
Unacceptable Rating was based.
13
(B) Mortgagee Response
14
15
16
The mortgagee may provide a written response to the Findings within the time period
specified in the notice and must include any explanations or documentation
explaining the mortgagee’s decision to approve the mortgage.
17
(C) FHA Evaluation
18
19
FHA will review the mortgagee’s response and documentation and take one of the
following actions.
20
(1) Adequate Mortgagee Response
21
22
23
24
FHA will change the Unacceptable Rating to Mitigated in the Underwriter
Review System (URS) if it believes that the mortgagee has adequately addressed
the Findings. Mortgagees can view the change in rating in the Underwriter
Review Section of FHAC.
25
(2) Inadequate Mortgagee Response or Failure to Respond
26
27
28
FHA may take enforcement action against a mortgagee where it finds the
mortgagee’s response to the Findings to be inadequate, or if the mortgagee does
not provide a response.
29
C. MONITORING OF OTHER PARTICIPANTS
30
[June 30, 2014]
23
D. Enforcement
1
D. ENFORCEMENT
2
3
4
5
6
The following provides general information about the processes and procedures normally
employed by FHA in its enforcement activities. The following is provided for informational
purposes only and does not represent a waiver of any authority of FHA, HUD, or the federal
government to carry out enforcement activities to the full extent of its authorities in connection
with FHA’s Single Family programs.
7
1. Referrals for Non-Compliance
8
9
10
11
12
13
14
15
16
17
FHA may refer any Finding for administrative action in its discretion. Referrals may be made to
any appropriate body, including:
 HUD’s Mortgagee Review Board (MRB);
 HUD’s Office of Fair Housing and Equal Opportunity (FHEO) (fair lending issues);
 HUD’s Departmental Enforcement Center (DEC) (suspension or debarment actions);
 HUD’s Office of Inspector General (OIG) (suspected fraud or illegal activities);
 the Consumer Financial Protection Bureau (CFPB);
 the Department of Justice; and/or
 state licensing agencies (e.g., Secretary of State, Real Estate Commissioner, Appraisal
Review Board, Department of Banking, Bar Association, etc.).
18
2. Employee Improprieties Attributed to the Mortgagee
19
20
21
22
23
Criminal, fraudulent, or other seriously improper conduct by an officer, director, shareholder,
partner, employee, or other individual associated with a mortgagee may be attributed to the
mortgagee with which the individual is connected when the improper conduct occurred in
connection to the individual’s performance of duties for or on behalf of the mortgagee, or with
the mortgagee’s knowledge, approval, or acquiescence.
24
3. Program Office Actions and Sanctions
25
26
FHA’s Office of Single Family Housing is authorized to take the following enforcement actions
against mortgagees that do not comply with FHA requirements.
27
a. Actions and Sanctions Against Mortgagees
28
i. Probation of Direct Endorsement Approval
29
30
31
32
33
34
FHA may place a mortgagee on DE probation for a specified period of time for the
purpose of evaluating the mortgagee’s compliance with the requirements of the DE
Program. The scope of the probation depends upon the seriousness of the problems and
deficiencies exhibited by the mortgagee. For additional information on this authority, see
24 CFR § 203.3(d)(1). This action is separate and apart from probation imposed by the
MRB.
[June 30, 2014]
24
D. Enforcement
1
(A) Scope
2
(1) Training
3
4
The mortgagee’s underwriter, or other technical staff, may be required to attend
training sessions, as appropriate.
5
(2) Post Endorsement Technical Reviews
6
FHA may increase the percentage of the mortgagee’s cases subject to PETRs.
7
(3) Mortgagee Audit and Monitoring Review
8
9
10
11
FHA may require the mortgagee to perform a review or audit of its underwriting
processes, or to hire an independent third party to assess the mortgagee’s
operational controls and systems, and report the results to FHA. FHA may also
conduct an on-site monitoring review of the mortgagee.
12
(4) Quality Control Plan
13
FHA may require the mortgagee to make changes to its Quality Control Plan.
14
(5) Pre-Closing Review Status
15
16
17
FHA may place a mortgagee back in pre-closing review status and subject the
mortgagee’s cases to technical underwriting reviews and firm commitment
processing prior to endorsement.
18
(a) Timeframe
19
20
Pre-closing review status continues until the mortgagee corrects its
underwriting deficiencies or until the mortgagee’s DE approval is withdrawn.
21
(b) Mandatory Return to Pre-Closing Review Status
22
23
24
25
26
27
28
A return to pre-closing status may result from, but is not limited to, the
following circumstances:
 PETR final review results that demonstrate a mortgagee’s failure to
follow FHA requirements;
 a pattern of fraud identified by FHA, of which the mortgagee was
aware, or should have been aware; or
 the results of on-site or other reviews of the mortgagee.
29
(6) Additional Elements
30
31
32
FHA may impose additional elements of probation reasonably related to the
mortgagee’s underlying violations that allow FHA to monitor the mortgagee and
assist FHA with bringing the mortgagee into compliance with FHA regulations.
[June 30, 2014]
25
D. Enforcement
1
(B) Notice
2
3
4
FHA will send a written notice of probation to the mortgagee. The probation notice
will list the violations that precipitated the probation and explain the elements being
applied to the mortgagee’s probation.
5
(C) Effective Date
6
7
Probation is effective immediately upon the receipt of the notice of probation by the
mortgagee.
8
9
10
11
12
ii. Withdrawal of Direct Endorsement Approval
FHA may withdraw the DE approval of any mortgagee that demonstrates a pattern or
practice of failing to comply with FHA underwriting guidelines or program requirements.
This action is separate and apart from the termination action described in the Credit
Watch Termination section.
13
(A) Scope
14
15
FHA may terminate a mortgagee’s approval to participate in the DE program in a
particular jurisdiction or on a nationwide basis.
16
(B) Notice and Appeal
17
18
19
FHA will provide the mortgagee with written notice of the proposed withdrawal that
identifies the grounds for the action and advises the mortgagee of its right to an
informal conference.
20
(1) Informal Conference
21
22
23
FHA will expeditiously arrange for a conference where the mortgagee may
present information and argument in opposition to the proposed withdrawal. The
mortgagee may be represented by counsel.
24
(2) Determination
25
26
After consideration of the material presented, FHA will issue a decision in writing
stating whether the proposed termination is rescinded, modified, or affirmed.
27
(3) Appeal and Final Agency Action
28
29
30
The mortgagee may appeal the decision to the Deputy Assistant Secretary (DAS)
for Single Family Housing or his or her designee. A decision by the DAS for
Single Family Housing or his or her designee constitutes final agency action.
[June 30, 2014]
26
D. Enforcement
1
iii. Credit Watch Termination
2
3
4
5
6
HUD may terminate a mortgagee’s authority to originate or underwrite FHA-insured
single family mortgages in any geographic area where the mortgagee has an excessive
rate of early defaults and claims in accordance with the Credit Watch Termination
regulations at 24 CFR § 202.3(c)(2). Credit Watch Termination is separate and apart from
any action that may be taken by the MRB.
7
(A) Frequency and Scope
8
9
10
11
12
FHA reviews the rate of default and claims of its FHA-insured single family
mortgages on a quarterly basis. FHA compares the rate of each participating
mortgagee with the rates of other mortgagees in the same geographic area. The
review is limited to mortgages with an amortization date within the preceding 24
months.
13
(B) Cause
14
15
16
17
FHA may terminate the origination or underwriting authority of any mortgagee
whose default and claim rate exceeds both the national default and claim rate and 200
percent of the default and claim rate within the geographic area served by a HUD
field office.
18
(C) Notice and Appeal
19
20
21
22
23
FHA will issue a Proposed Credit Watch Termination Notice to the mortgagee prior
to terminating the mortgagee’s approval. The mortgagee may appeal the proposed
termination by submitting a written request for an informal conference with the DAS
for Single Family Housing or his or her designee within 30 Days of receipt of the
Notice.
24
25
26
27
28
The mortgagee or its representative may make an oral and/or written presentation
to oppose the proposed termination. FHA will only consider presentations that
specifically address relevant mitigating factors and present facts and
circumstances to explain the mortgagee’s poor performance.
29
(2) Mitigating Factors
30
31
32
33
34
FHA will consider relevant mitigating factors in deciding whether to terminate a
mortgagee’s origination and/or underwriting authority. Mitigating factors may
include volume, number of mortgages in Underserved Census Tracts, type of
mortgage products, results of FHA QC reviews, historical default and claim
patterns, and the mortgagee’s comparative performance by product type.
[June 30, 2014]
27
D. Enforcement
1
(3) Determination
2
3
4
5
After the informal conference, FHA will make a determination whether to sustain
or withdraw the termination. FHA will notify the mortgagee of its decision in
writing via a Final Notice of Determination. If sustained, the termination will not
take effect until the mortgagee receives the Final Notice.
6
(4) Waiver of Appeal
7
8
9
10
If a mortgagee does not request an informal conference within 30 Days of
receiving the Proposed Credit Watch Termination Notice, the mortgagee has
waived its appeal and its authority will be terminated 60 Days from the date of the
Proposed Credit Watch Termination Notice without further notice from HUD.
11
(D) Effect of Termination
12
13
14
15
A mortgagee whose authority has been terminated under Credit Watch is prohibited
from originating or underwriting FHA-insured single family mortgages within the
area of the HUD field office(s) listed in the Notice. The mortgagee’s general FHA
approval and supplemental authorities remain unaffected.
16
(1) Case Status
17
(a) Definition
18
19
An Approved Mortgage is a mortgage underwritten and approved by a DE
underwriter, or covered by a firm commitment issued by HUD.
20
(b) Standard
21
22
23
24
25
Mortgages that closed or were approved before the termination became
effective may be endorsed. Cases at earlier stages of processing cannot be
submitted for insurance by the terminated mortgagee; however, the cases may
be transferred for completion of processing and underwriting to another
mortgagee authorized to underwrite FHA-insured mortgages in that area.
26
(2) Public Notice
27
28
29
HUD will publish a list of mortgagees who have had their authority terminated in
the Federal Register and on HUD’s website with a general explanation of the
cause and effect of the termination. This list is published on a regular basis.
30
(E) Reinstatement
31
(1) Waiting Period
32
33
A terminated mortgagee may request to have its authority reinstated no earlier
than six months after the effective date of the termination.
[June 30, 2014]
28
D. Enforcement
1
(2) Independent Review
2
3
4
5
6
7
8
The mortgagee must obtain an independent review of the terminated area’s
operation and mortgage origination or underwriting, specifically including the
FHA-insured mortgages cited in the termination notice. The analysis must
identify the underlying cause for the mortgagee’s high default and claim rate. The
review must be conducted and issued by an independent Certified Public
Accountant (CPA) qualified to perform audits under Government Auditing
Standards as set forth by the General Accounting Office.
9
(3) Corrective Action Plan
10
11
12
13
The mortgagee must submit a corrective action plan to address each of the issues
identified in the CPA’s report, along with evidence that the plan has been
implemented. FHA reserves the right to impose additional requirements for
reinstatement.
14
(4) Application for Reinstatement
15
16
17
The application for a new authority must be submitted through Lender Electronic
Assessment Portal (LEAP), which is accessed through FHAC. The application
must be accompanied by the CPA’s report and the corrective action plan.
18
iv. Suspension or Termination of Lender Insurance Authority
19
(A) Definition
20
21
22
23
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.
24
(B) Frequency and Scope
25
26
27
28
On a quarterly basis, FHA monitors mortgagees participating in the LI program
whose LI Compare Ratios exceed 150 percent. Mortgagees newly approved for LI
will be reviewed quarterly starting in the first full quarter following the quarter in
which they were approved.
29
(C) Cause
30
31
32
FHA may terminate or temporarily suspend a mortgagee’s LI authority for any cause
set forth in 24 CFR § 203.4(d) and in accordance with the procedures set forth in that
section, which are summarized below.
[June 30, 2014]
29
D. Enforcement
1
(D) Notice and Appeal
2
3
4
5
FHA will provide written notice to any mortgagee whose LI authority has been
suspended or terminated. Mortgagees may appeal the suspension or termination by
requesting an informal conference with the DAS for Single Family Housing or his or
her designee.
6
7
8
9
10
The suspension or termination letter will provide the address to which the request
for an informal conference may be sent and the timeframe for the informal
conference. The informal conference must be requested in writing within 30 Days
of the notice of suspension or termination.
11
(2) Determination
12
13
14
15
16
The DAS or the designee will issue a decision in writing after the informal
conference to either affirm the suspension or termination, or reinstate the
mortgagee’s LI authority. This decision represents a final agency action pursuant
to section 256(d) of the National Housing Act (12 U.S.C. § 1715z-21(d)) and is
not subject to further appeal or judicial review.
17
(3) Waiver of Appeal
18
19
20
If a mortgagee does not request an informal conference within 30 Days of
receiving the suspension or termination letter, the mortgagee has waived its right
to appeal.
21
(E) Effect of Suspension or Termination
22
23
24
A mortgagee’s DE authority is not affected by the suspension or termination of its LI
authority. Mortgagees who have had their LI authority suspended or terminated may
continue to underwrite and close FHA mortgages without prior review by HUD.
25
(F) Reinstatement
26
(1) Waiting Period
27
28
A mortgagee whose LI authority has been terminated is prohibited from applying
for reinstatement of its LI authority for six months from the date of termination.
29
(2) Claim and Default Rate
30
31
32
33
At the time of the application for reinstatement, the mortgagee must have
unconditional DE approval and a two-year claim and default rate that does not
exceed 150 percent of the aggregate claim and default rate for the states in which
it underwrote mortgages.
[June 30, 2014]
30
D. Enforcement
1
(3) Application for Reinstatement
2
3
4
5
6
7
8
9
10
11
12
Applications for reinstatement of LI authority must be submitted to FHA through
LEAP, which is accessed through FHAC. The application must include:
 a copy of the Acknowledgment of Terms and Conditions for LI page from
FHAC signed by an authorized official registered with HUD;
 a corrective action plan identifying the changes in internal policies and
procedures that address the issues that resulted in the termination of LI
authority; and
 documentation evidencing that the mortgagee has implemented the
corrective action plan.
b. Loan Level Actions and Sanctions
i. Indemnification Agreements
13
(A) Scope
14
15
16
17
When fraud, misrepresentation, or other serious violations of FHA policies and
procedures are uncovered during the course of mortgagee monitoring, FHA may
demand indemnification from a mortgagee with LI authority or request
indemnification from a mortgagee without such authority.
18
(1) Serious and Material Violations
19
20
21
22
23
FHA will pursue indemnification from any mortgagee who knew or should have
known of a serious and material violation of HUD requirements in connection
with an FHA-insured mortgage. The mortgagee indemnifying HUD will be
responsible for any loss associated with the mortgage that occurs within a
proscribed period of time from the mortgage insurance endorsement date.
24
(2) Fraud or Misrepresentation
25
26
27
28
29
FHA will pursue indemnification from any mortgagee who knew or should have
known of fraud or misrepresentation in connection with an FHA-insured
mortgage. The mortgagee indemnifying HUD will be responsible for any loss
associated with the mortgage that occurs within a proscribed period of time from
the mortgage insurance endorsement date.
30
(B) No Causation Requirement
31
32
33
Indemnification may be required regardless of the risk recommendation provided by
the TOTAL Mortgage Scorecard and/or whether or not the violation actually leads to
default.
[June 30, 2014]
31
D. Enforcement
1
(C) Notice
2
3
4
Notices demanding indemnification are issued to mortgagees that are part of FHA’s
LI program in accordance with the provisions of 24 CFR § 203.255(g). The notice is
mandatory and LI mortgagees must comply.
5
ii. Principal Reductions
6
7
FHA may request a principal reduction where the mortgagee’s response to certain
Findings is inadequate, or if the mortgagee does not provide a response.
8
iii. Refunds
9
10
11
FHA may request a refund of unallowable fees or charges where the mortgagee’s
response to certain Findings is inadequate, or if the mortgagee does not provide a
response.
12
4. Mortgagee Review Board Actions and Sanctions
13
14
15
16
17
The MRB is authorized to impose civil money penalties and take administrative action against
any FHA-approved mortgagee that does not comply with HUD and FHA statutory, regulatory,
and Handbook requirements, Real Estate Settlement Procedure Act (RESPA), or the nondiscrimination requirements of the Equal Credit Opportunity Act, the Fair Housing Act, or
Executive Order 11063 on Equal Opportunity in Housing.
18
a. Actions and Sanctions
19
20
21
22
23
24
The following actions and sanctions may be imposed by the MRB:
 a letter of reprimand;
 probation;
 suspension;
 withdrawal of FHA approval; and
 civil money penalties.
25
The MRB may also enter into settlement agreements with non-complying mortgagees.
26
27
28
29
30
The following are general descriptions of the types of actions and sanctions that may be
taken by the MRB and are for informational purposes only. The specific requirements for and
procedures applicable to these actions are set forth in sections 202(c) and 536 of the National
Housing Act (12 U.S.C. §§ 1708(c) and 1735f-14), and Parts 25 and 30 of Title 24 of the
Code of Federal Regulations.
31
i. Letter of Reprimand
32
33
34
The MRB may issue a letter of reprimand to inform a mortgagee of its violation of FHA
requirements. A letter of reprimand is effective upon receipt of the letter by the
mortgagee.
[June 30, 2014]
32
D. Enforcement
1
(A) Case Status
2
3
A letter of reprimand has no impact on the lender’s authority to originate or service
FHA-insured mortgages.
4
(B) Duration
5
There is no time duration associated with a letter of reprimand.
6
(C) Appeal
7
The mortgagee has no right to appeal a letter of reprimand within HUD.
8
9
10
11
12
ii. Probation
The MRB may place a mortgagee on probation for violation of FHA requirements. The
MRB will specify the scope, terms, and conditions of the probation, which are designed
to allow FHA to monitor the mortgagee and assist FHA with bringing the mortgagee into
compliance with FHA regulations.
13
(A) Case Status
14
15
Unless specified in the terms of the probation, a mortgagee on probation retains its
origination and servicing authorities, as applicable.
16
(B) Duration
17
The MRB may place a mortgagee on probation for a period of up to six months.
18
(C) Appeal
19
20
The mortgagee has the right to appeal a probation action in accordance with the
provisions of 24 CFR Parts 25 and 26.
21
iii. Suspension
22
23
24
25
26
Suspension is a temporary measure that is applied to a mortgagee when there is adequate
evidence that the interests of the Department or the public would not be served by
continuing to allow the mortgagee to participate in FHA programs, pending the
completion of any investigation, other review, or legal or administrative proceedings the
mortgagee is involved in.
27
(A) Effective Date
28
29
30
If the MRB determines there is adequate evidence that immediate action is required to
protect the financial interests of the Department or the public, the MRB is authorized
to suspend a mortgagee’s FHA approval immediately upon issuance of the notice of
[June 30, 2014]
33
D. Enforcement
1
2
suspension and without prior issuance of a Notice of Violation as set forth in 24 CFR
§ 25.7(d).
3
4
Any other suspension is effective upon the mortgagee’s receipt of the notice of
suspension as set forth in 24 CFR § 25.5(d).
5
(B) Case Status
6
7
8
During the period of suspension, HUD will not endorse any mortgage originated by
the suspended mortgagee unless it was an Approved Mortgage prior to the date of
suspension.
9
10
The mortgagee must transfer all other applications in process to another FHAapproved mortgagee for completion of processing, submission, and endorsement.
11
(C) Duration
12
13
14
Suspension is generally imposed for a period of six months to one year, but may be
extended for an additional six months in accordance with the provisions of 24 CFR
Part 25.
15
(D) Appeal
16
17
The mortgagee has the right to appeal a suspension in accordance with the provisions
of 24 CFR Parts 25 and 26.
18
iv. Withdrawal of FHA Approval
19
20
Only the MRB may withdraw a mortgagee’s FHA approval. Withdrawal of FHA
approval applies to all offices of the mortgagee.
21
(A) Effective Date
22
23
24
25
If the MRB determines there is adequate evidence that immediate action is required to
protect the financial interests of the Department or the public, the MRB is authorized
to withdraw a mortgagee’s FHA approval immediately; in this case, the withdrawal is
effective upon the mortgagee’s receipt of the notice of withdrawal.
26
27
28
29
30
Any other withdrawal is effective upon either:
 the expiration of the 30-day appeal period, if the mortgagee does not request a
hearing; or
 the receipt of the Administrative Law Judge’s final decision, if the mortgagee
does request a hearing within the 30-day appeal period.
[June 30, 2014]
34
D. Enforcement
1
(B) Case Status
2
3
HUD will not endorse any mortgage originated by the withdrawn mortgagee unless it
was an Approved Mortgage prior to the date of withdrawal.
4
5
Withdrawn FHA approval means that the mortgagee may not originate, underwrite,
service, or purchase any FHA-insured mortgages.
6
(C) Duration
7
8
9
10
The MRB’s withdrawal of a mortgagee’s FHA approval will be for a reasonable,
specified period of time, but not less than one year. The MRB may permanently
withdraw a mortgagee’s FHA approval if it finds the mortgagee’s violations to be
egregious or willful.
11
12
13
A withdrawn mortgagee’s approval is not reinstated at the end of the period of
withdrawal. The mortgagee may reapply for FHA approval after the period of
withdrawal has expired.
14
(D) Appeal
15
16
The mortgagee has the right to appeal a withdrawal of its FHA approval by the MRB
in accordance with the provisions of 24 CFR Parts 25 and 26.
17
v. Civil Money Penalties
18
19
The MRB may impose civil money penalties against any FHA-approved mortgagee who
knowingly and materially violates FHA requirements as set forth in 24 CFR § 30.35.
20
(A) Complaint
21
22
23
If the MRB elects to seek civil money penalties against a mortgagee, the Department
will file a complaint to initiate legal action. A civil money penalty may be imposed
against a mortgagee in addition to any other administrative action taken by the MRB.
24
(B) Maximum Civil Money Penalties
25
26
27
28
29
The MRB is authorized to impose a civil money penalty, in accordance with the
provisions of 24 CFR Part 30, against a party that knowingly and materially violates
FHA program regulations or requirements. A civil money penalty may be imposed
with respect to each insured mortgage or other separate occurrence of a violation up
to the maximum permitted under Part 30.
30
(C) Mitigating and Aggravating Factors
31
32
33
In determining the amount of a civil money penalty, the MRB will consider the
following factors:
 the seriousness and extent of the violations;
[June 30, 2014]
35
D. Enforcement








1
2
3
4
5
6
7
8
9
10
11
12
13
14
the degree of the mortgagee’s responsibility for the occurrences;
whether the violations were egregious or willful;
the mortgagee’s history of prior offenses;
the mortgagee’s ability to pay the penalty;
the injury to the public;
the benefits received by the mortgagee and by others from the violation;
deterrence of future violations; and
other mitigating or aggravating factors that may exist.
vi. Settlement Agreements
The MRB is authorized to enter into settlement agreements with non-complying
mortgagees at any time in order to resolve grounds for an administrative sanction or civil
money penalty, as set forth in 12 U.S.C. § 1708(c)(3)(E) and 24 CFR § 25.5(a). Failure
by the mortgagee to comply with the terms of a settlement agreement may result in a
suspension or withdrawal of the mortgagee’s FHA approval.
15
b. Procedures
16
17
The following is a brief summary of the procedures of the MRB under 24 CFR Parts 25, 26,
and 30.
18
i. Notice of Violation
19
20
The MRB will send the mortgagee a Notice of Violation (NOV) detailing the
mortgagee’s alleged violations.
21
(A) Mortgagee Response
22
23
24
25
The mortgagee may provide the MRB with a written response within 30 Days of
receiving the NOV. The MRB will consider the mortgagee’s response, as well as
other relevant material, when deciding which administrative action to take, if any, and
whether to seek civil money penalties against the mortgagee.
26
27
If the mortgagee fails to respond to the NOV within 30 Days, the MRB will make a
final determination based upon the information available to it.
28
(B) Preservation of Documents
29
30
31
Upon receipt of the NOV, the mortgagee is required to preserve and maintain all
documents and data, including electronically stored data, within the mortgagee’s
possession or control that may relate to the violations alleged in the NOV.
[June 30, 2014]
36
D. Enforcement
1
ii. Notice of Administrative Action
2
3
4
If the MRB decides to take administrative action against the mortgagee, the MRB will
issue a Notice of Administrative Action to the mortgagee describing the nature and
duration of the action and setting forth the basis for the action being taken.
5
iii. Appeal
6
(A) Request for Hearing
7
8
9
10
Mortgagees may appeal a probation, suspension or withdrawal action by the MRB by
submitting a written request for a hearing within 30 Days of receipt of the Notice of
Administrative Action. The mortgagee’s request for a hearing must specifically
respond to the violations set forth in the Notice of Administrative Action.
11
(B) Hearing Process and Procedures
12
13
Hearings are conducted before an impartial administrative law judge in accordance
with the procedures set forth in 24 CFR Part 26, Subpart B.
14
(C) Waiver of Appeal
15
16
If a mortgagee fails to request a hearing within the 30-day period, the MRB action
becomes final.
17
iv. Public Notice
18
(A) Federal Register
19
20
21
22
23
Pursuant to the National Housing Act (12 U.S.C. § 1708(c)(5)), HUD publishes a
description of and the cause for each administrative action against an FHA-approved
mortgagee in the Federal Register. The Federal Register notices include details on
any MRB action, including letters of reprimand, probations, suspensions, withdrawals
of FHA approval, settlement agreements, and civil money penalties.
24
(B) Agency Notifications
25
26
27
28
29
30
31
32
33
34
If the MRB suspends or withdraws the approval of a mortgagee, FHA is required to
notify certain state, federal, and other interested agencies that interact with the
mortgagee, including:
 Conference of State Bank Supervisors/NMLS
 CFPB
 Fannie Mae
 Federal Deposit Insurance Corporation
 Federal Reserve
 Freddie Mac
 Ginnie Mae
[June 30, 2014]
37
D. Enforcement




1
2
3
4
National Credit Union Administration
Office of the Comptroller of the Currency
U.S. Department of Agriculture Rural Development Housing Authority; and
U.S. Department of Veterans Affairs.
5
5. Actions and Sanctions Against Individuals and Other Program Participants
6
7
HUD may also impose civil money penalties and take administrative action against individuals
and other program participants for violations of FHA mortgage insurance program requirements.
8
9
a. Limited Denial of Participation
i. Definition
10
11
12
An LDP is an action that excludes a party from further participation in a specified HUD
program area for a period of up to one year based on the participant’s failure to comply
with HUD program standards.
13
14
LDPs are issued under the authority of 2 CFR § 2424.1100 and are effective immediately
upon issuance.
15
ii. Cause
16
17
An LDP may be issued against an individual or other program participant based upon
adequate evidence of any of the causes listed in 2 CFR § 2424.1110.
18
iii. Effective Date
19
An LDP is effective immediately upon issuance of the notice by the authorizing official.
20
iv. Duration
21
The LDP sanction may be imposed for a period not to exceed 12 months.
22
v. Processing and Appeals
23
24
25
26
An individual or other program participant may appeal the LDP by requesting an
informal conference with the authorizing official or a hearing before the Departmental
Hearing Officer within 30 Days of receipt of the notice of LDP. LDP processing and
appeal procedures are set forth in 2 CFR §§ 2424.1100 through 2424.1165.
27
vi. Public Notice
28
29
A list of individuals and other program participants who have received LDPs is available
publicly on the HUD website, as well as through FHAC.
[June 30, 2014]
38
D. Enforcement
1
b. Suspension
2
3
Violations of statutes or serious or repeated violations of FHA requirements may lead to the
suspension of an individual or other FHA program participant.
4
i. Definition
5
6
7
Suspension is a government-wide action that temporarily renders an individual ineligible
to participate in most federal government programs pending the completion of an
investigation or legal proceedings.
8
ii. Cause
9
10
11
12
13
14
15
FHA may suspend an individual for the reasons listed in 2 CFR § 180.700, including:
 the existence of an indictment for, or other adequate evidence to suspect, an
offense listed under 24 CFR § 180.800(a); or
 the existence of adequate evidence to suspect any other cause for debarment listed
under § 180.800(b) through (d); and
 the suspending official makes a determination that immediate action is necessary
to protect the public interest.
16
iii. Effective Date
17
A suspension is effective when the suspending official signs the decision to suspend.
18
iv. Duration
19
20
21
22
23
24
If legal or debarment proceedings are initiated at the time of, or during a suspension, the
suspension may continue until the conclusion of those proceedings. If proceedings are not
initiated, a suspension may not exceed 12 months. The suspending official may extend
the 12-month limit for an additional six months under limited circumstances described in
2 CFR § 180.760. In no event may a suspension exceed 18 months without initiating
legal or debarment proceedings.
25
26
27
28
29
An individual may appeal a proposed suspension by providing the suspending official
with information in opposition to the suspension within 30 Days of receipt of the notice
of suspension. Information may be provided orally or in writing; important information
provided orally must also be submitted in writing for the official record.
30
31
Suspension processing and appeal procedures are set forth in 2 CFR §§ 180.700 through
180.760.
[June 30, 2014]
39
D. Enforcement
1
c. Debarment
2
3
Violations of statutes or serious or repeated violations of FHA requirements may lead to the
debarment of an individual or other FHA program participant.
4
i. Definition
5
6
7
8
Debarment is a final determination by an authorizing official that the individual has
engaged in prohibited conduct and is not presently responsible. Debarment excludes an
individual from participating in most federal government programs for a specified period
of time.
9
ii. Cause
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
FHA may debar an individual for the reasons listed in 2 CFR § 180.800, including, but
not limited to:
 criminal conviction or civil judgment for commission of fraud in connection with
obtaining, attempting to obtain, or performing a public or private agreement or
transaction;
 criminal conviction or civil judgment for commission of embezzlement, theft,
forgery, bribery, falsification or destruction of records, making false statements,
tax evasion, receiving stolen property, making false claims, or obstruction of
justice;
 criminal conviction or civil judgment for violation of federal or state antitrust
statutes;
 criminal conviction or civil judgment for the commission of any other offense
indicating a lack of business integrity or business honesty that seriously and
directly affects the individual’s present responsibilities;
 violation of the terms of a public agreement or transaction so serious as to affect
the integrity of an agency program;
 knowingly doing business with an ineligible person;
 failure to pay a single substantial debt, or a number of outstanding debts owed to
any federal agency or instrumentality; or
 any other serious or compelling cause that affects the present responsibility of the
individual.
31
iii. Effective Date
32
33
34
A debarment is not effective until the individual has received a notice of proposed
debarment and has had an opportunity to contest the proposed debarment. After the
debarring official issues a decision, the debarment is effective immediately.
35
iv. Duration
36
37
The period of debarment is based on the seriousness of the cause(s) upon which the
debarment is based. Generally, the period of debarment should not exceed three years.
[June 30, 2014]
40
D. Enforcement
1
2
However, if circumstances warrant, the debarring official may impose a longer period of
debarment.
3
4
5
6
7
An individual may appeal a proposed debarment by providing the debarring official with
information in opposition to the debarment within 30 Days of receipt of the notice of
debarment. Information may be provided orally or in writing; important information
provided orally must also be submitted in writing for the official record.
8
9
Debarment processing and appeal procedures are set forth in 2 CFR §§ 180.800 through
180.885.
10
d. Civil Money Penalties
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
The Assistant Secretary for Housing - Federal Housing Commissioner or his or her designee
is authorized to pursue civil money penalties against any principal, officer, or employee of a
mortgagee, or other participants in a mortgage insured by FHA, including, but not limited to:
 sellers
 Borrowers
 closing agents
 title companies
 real estate agents
 mortgage brokers
 appraisers
 sponsored Third-Party Originators
 dealers
 consultants
 contractors
 subcontractors
 inspectors
27
28
29
The Assistant Secretary for Housing - Federal Housing Commissioner or his or her designee
is authorized to pursue civil money penalties against program participants who knowingly
and materially violate FHA requirements as set forth in 24 CFR § 30.36.
30
e. Specific Program Participants
31
i. Appraisers
32
33
ii. Consultants
34
[June 30, 2014]
41
D. Enforcement
1
iii. Real Estate Brokers
2
3
iv. Nonprofits
4
5
[June 30, 2014]
42
1
2
GLOSSARY
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) refers to a mortgage in which the interest rate can change
annually based on an index plus a margin.
Advertising Device
An Advertising Device is a channel or instrument used to solicit, promote or advertise FHA
products or programs. Advertising Devices are present in the entire range of electronic and print
media utilized by FHA-approved mortgagees, including, but not limited to, websites, website
addresses, business names, aliases, DBA names, domain names, email addresses, direct mail
advertisements, solicitations, promotional materials and correspondence.
Affiliate
An Affiliate is a contractor, agent, vendor, subservicer, or sponsored Third-Party Originator that
participates in FHA programs on behalf of an FHA-approved mortgagee.
Approved Mortgages
An Approved Mortgage is a mortgage underwritten and approved by a DE underwriter, or
covered by a firm commitment issued by HUD.
Conforming Rating
A Conforming Rating means the mortgage presents an acceptable level of risk, and no
documentation deficiencies or processing errors were identified. No Findings were identified in
FHA’s review of the credit, capacity, capital, and collateral in the file. The basic eligibility of the
Borrower and/or property for FHA mortgage insurance is not questioned.
Corporate Officer
Corporate Officer refers to a natural person who is an Owner, President, Vice President, Chief
Operating Officer, Chief Financial Officer, Director, Corporate Secretary, Chief Executive
Officer, Chairman of the Board, or Member or Manager of a limited liability company.
Deficient Rating
A Deficient Rating means one or more Findings were identified in FHA’s review that do not
present a risk to FHA, or may indicate documentation or processing errors, but such Findings
and errors did not affect the approval and/or insurability of the mortgage.
Early Payment Defaults (EPD)
Early Payment Defaults refer to mortgages that become 60 Days delinquent within the first six
payments.
[June 30, 2014]
Glossary - 43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
Excluded Parties
Excluded Parties refers to business parties that have been suspended and/or debarred from
further participation in HUD and other federal government programs due to unethical business
practice.
Finding
Finding refers to a final determination of defect by the mortgagee.
Interested Parties
Interested Parties include, but are not limited to, sellers, real estate agents, builders, and
developers.
Investor
Investor refers to a borrower(s) that will not occupy the home as a principal or secondary
residence (non-owner occupant).
Judgment
Judgment refers to any debt or monetary liability of the borrower, and the borrower’s spouse in a
community property state unless excluded by state law, created by a court, or other adjudicating
body.
Lender Electronic Assessment Portal (LEAP)
The Lender Electronic Assessment Portal (LEAP) is an FHA system created to facilitate
automated lender approval application.
Lender Insurance (LI) Compare Ratio
The LI Compare (LI) 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.
Loan Administration
All aspects of the FHA mortgage lifecycle, including origination, underwriting, closing,
endorsement, and servicing of FHA-insured mortgages that are governed by FHA policies and
procedures.
Material Finding
In the context of mortgage origination and underwriting, a Finding is Material if disclosure of the
Finding would have altered the mortgagee’s decision to approve the mortgage or to endorse or
seek endorsement from FHA for insurance of the mortgage. In the context of mortgage servicing,
a Finding is Material if it has a clear financial impact on the property, the Borrower, and/or FHA.
Mitigated or Resolved Finding
A Finding has been Mitigated or Resolved if the mortgagee has adequately addressed the
deficiencies underlying the Finding, and such deficiencies have been remedied through updated
and accurate documentation, calculations, or other actions taken by the mortgagee so that the
mortgage presents an acceptable level of risk to the mortgagee and to FHA.
[June 30, 2014]
Glossary - 44
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
Mitigated Rating
A Mitigated Rating means an initial rating of Unacceptable was issued, and the mortgagee was
subsequently able to provide documentation that mitigated the risk. If more than one risk factor
was cited to support the issuance of an Unacceptable Rating, the rating will only be changed to
Mitigated if all risk factors have been mitigated.
Mortgages Delinquent within the First Two Years
Mortgages Delinquent within the First Two Years are mortgages that were reported to HUD as
90 Days or more delinquent in the 24-month period; this delinquent status includes mortgages
that went into default but have subsequently cured.
Principal Residence
Principal Residence refers to a dwelling where the borrower maintains or will maintain his or her
permanent place of abode and typically spends or will live in the home the majority of the
calendar year. A person may have only one principal residence at any one time. A person in
military service must meet the requirements of 24 CFR 203.31.
Property Flipping
Property Flipping refers to a practice whereby recently acquired property is resold for a
considerable profit with an artificially inflated value, often abetted by a mortgagee’s collusion
with an appraiser.
Quality Control (QC) Plan
A Quality Control (QC) Plan is a written plan that sets forth a mortgagee’s procedures for
ensuring quality control. A QC Plan is the written element of a mortgagee’s QC Program.
Quality Control (QC) Program
A Quality Control (QC) Program is the process and written procedures through which the
mortgagee seeks to ensure that FHA operations and loan quality are in compliance with all
applicable requirements.
Residential Mortgage Credit Report (RMCR)
RMCR refers to a credit report that provides details on items that have been flagged in a merged
report as a result of combining reports from the three credit repositories (Equifax, Trans Union,
and Experian).
Streamline Refinance
Streamline refinance refers to the refinance of an existing FHA mortgage requiring limited
borrower credit documentation and underwriting. There are two different streamline options
available.
Third-Party Originator (TPO)
A Third-Party Originator (TPO) is an entity that originates FHA mortgages for an FHAapproved mortgagee. A TPO may be an FHA-approved entity or a non-FHA-approved entity.
[June 30, 2014]
Glossary - 45
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
TOTAL
TOTAL refers to “Technology Open To Approved Lenders.” FHA’s TOTAL Mortgage
Scorecard evaluates the overall creditworthiness of the borrower, based on a number of credit
variables and, when combined with the functionalities of the Automated Underwriting System
(AUS), indicates a recommended level of underwriting and documentation to determine a loan’s
eligibility for insurance by the FHA.
Tri-merged Credit Report (TRMCR)
TRMCR refers to a credit report that contains the data from all three credit repositories into one
report.
Unacceptable Rating
An Unacceptable Rating means Findings were identified in FHA’s review that indicated the file
should not have been approved and/or insured, and that resulted in a significant increase in
mortgage risk to FHA.
Underserved Census Tracts
Underserved Census Tracts are those areas identified by HUD as meeting the definition found at
24 CFR § 81.2. Underserved Census Tract areas are: 1) tracts in metropolitan areas a) having a
median income of no more than 90 percent of the area as a whole, or b) having a median income
of no more than 120 percent and minorities comprise at least 30 percent of the tract’s population;
2) all tracts in any nonmetropolitan area which a) have a median income of no more than 95
percent of the nonmetropolitan part of the state or nation, whichever is greater, or b) have a
median income of no more than 120 percent and minorities comprise at least 30 percent of the
area’s population.
[June 30, 2014]
Glossary - 46
ACRONYMS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
ARM - Adjustable Rate Mortgage
AUS - Automated Underwriting System
CAIVRS - Credit Alert Verification Reporting System
CFPB - Consumer Financial Protection Bureau
CFR - Code of Federal Regulations
CPA - Certified Public Accountant
DAS - Deputy Assistant Secretary
DE - Direct Endorsement
DEC - Departmental Enforcement Center
EPD - Early Payment Default
FAQ - Frequently Asked Questions
FHAC - Federal Housing Administration Connection
FHEO - Office of Fair Housing and Equal Opportunity
HECM - Home Equity Conversion Mortgage
HERMIT - Home Equity Reverse Mortgage Information Technology
HOC - Homeownership Center
LEAP - Lender Electronic Assessment Portal
LDP - Limited Denial of Participation
LI - Lender Insurance
MAP - Multifamily Accelerated Processing
MIP - Mortgage Insurance Premium
MRB - Mortgage Review Board
NMLS - National Mortgage Licensing System and Registry
NOV - Notice of Violation
OIG - Office of Inspector General
PETR - Post Endorsement Technical Review
QC - Quality Control
QM - Qualified Mortgage
REO - Real Estate Owned
RESPA - Real Estate Settlement Procedure Act
RMCR - Residential Mortgage Credit Report
SAM - System for Award Management
SCRA - Servicemembers Civil Relief Act
SFDMS - Single Family Default Monitoring System
TOTAL - Technology Open To Approved Lenders
TRMCR - Tri-Merged Credit Report
URS - Underwriter Review System
U.S.C. - United States Code
[June 30, 2014]
Acronyms - 47
ECTION
AHACPA Presentation
CFPB - Capital Impairment Risk
December 8, 2014
Theresa Marie, CIO
Managing Director
Metric Banking Solutions
[email protected]
Andrew J. Schell, CPA/CFF, CMB
Managing Partner
Mortgage Banking Solutions
Host of “The Profit Doctor”
[email protected]
IT IS A BRAVE NEW CFPB WORLD
FHA-Lender Update
1
December 2014
CFPB Enforcement Action
Overview of Presentation:
•  Capital Impairment Risk
•  CFPB Focus
•  CFPB Fines
•  CFPB Bulletins
•  Servicing
•  TPM
•  QWR
•  Mini-Corr
•  QM
•  Complaint
•  Conclusion
Capital Impairment Risk
•  Pending or Threatened Litigation
•  Repurchase Demands
•  Indemnification Requests
•  And now - Regulatory Enforcement Actions
FHA-Lender Update
2
December 2014
CFPB Targeted Enforcement
• 
• 
• 
• 
• 
• 
Deception (esp. marketing) did consumer understand?
Loan Servicing, Debt collection and credit reporting
Discrimination – disparate impact theory
Compliance management – all the new rules
Marketing agreements
HMDA
•  Fair Lending
•  LO Comp
•  UDAAP
CFPB Focus from Weiner Brodsky Kider – Troy Garris
CFPB Enforcement Tools
•  Required to take corrective action and report back
•  Resolution promising to take specific corrective action
•  Consent Orders (public)
•  Cease and Desist (public)
•  Sued in court (public)
•  Individuals named personally
•  Related Persons
CFPB Focus from Weiner Brodsky Kider – Troy Garris
FHA-Lender Update
3
December 2014
CFPB Fines
•  2014 - Flagstar Bancorp fined $37.5 million for violating
the CFPB’s mortgage servicing rules, “by illegally
blocking borrowers’ attempts to save their homes,” the
CFPB said.
•  2014 – Castle & Cook fined $19 million for violating LO
Comp rules. Specifically named the President and VP
Secondary Marketing.
•  Relating Solely to not properly managing Third Party
Service Providers
•  Capital One – $210 million fine
•  Discover – $214 million fine
•  AMEX – $112.5 million fine
CFPB Penalty Impact
Unique Combination of Impact
•  Fine
•  Potential Catastrophic Capital Impact
•  Impact Warehouse Funding
Reputational risk
•  Public Event
•  Perception of Out of Business
°  Realtors stop
°  Originators quit
°  Failure becomes “Self-filling Prophecy”
Unrecoverable Impact
FHA-Lender Update
4
December 2014
Audit Risk from Enforcement Actions
•  If a company is flagrantly not preparing to follow the rules,
there is a higher probability of an enforcement action.
•  An Enforcement Action can put a company out of
business.
•  Does management’s regulatory compliance perspective
impact your engagement and your opinion?
CFBP Enforcement Risk did not exist 3 years ago
New CFPB Requirements
•  Servicing – Bulletin 2013-10
•  TPM – Bulletin 2012-03
•  Mini-Correspondent – Notice – 7-17-2014
•  QM – Bulletin 2013-08
•  QWR – Bulletin 2013-10
•  Complaint Management Bulletin 2013 – 10
•  New origination disclosure requirements
FHA-Lender Update
5
December 2014
CFPB OVERSIGHT
Details of the
CFPB Bulletins
Auditors Should Understand
FHA-Lender Update
6
December 2014
Servicing
CFPB Bulletin 2013-12 - -Effective January 10, 2014
Impacts Virtually All Mortgage Loan Servicing Activity
Important Note: Interim Servicing is Servicing
Mortgage banks collecting first payments is Interim Servicing
and is subject to all federal regulations of servicers and
specifically:
•  FDCPA
•  FCRA
•  CFPB Servicing Rules
Servicing Rules from CFPB 2013-12
Monthly billing statements – Periodic Statements
•  Servicers are required to provide additional loan
information in customers’ monthly billing statements.
•  If these statements aren’t clear and concise, customers can
be confused and overwhelmed about the information they
receive
FHA-Lender Update
7
December 2014
Adjusted rate mortgage (ARM) loan notices
•  The first rate change notice, must be sent to customers 210
days before the payment change is due.
•  Note: In some cases, the information provided to the
customer will be only an estimate.
QWR – Qualified Written Response
Error notice (resolution) and information Requests –
•  Within 5 days, acknowledge the request or notice of error.
•  Within 30 to 45 days, correct the error and provide the
consumer written notification of the correction, or conduct
an investigation and provide the consumer written
notification that no error occurred.
•  Within 30 to 45 days, provide the information or conduct a
reasonable search for the requested information and
provide the consumer with a written notification
explaining why the information is not available.
FHA-Lender Update
8
December 2014
Loss Mitigation Procedures
•  Work with consumers to address loss mitigation options
•  Evaluate loss mitigation applications within 30 days
•  Inform consumers of whether the servicer will offer the
consumer a loss mitigation option and,
•  if the consumer is denied a loan modification option, of the
reasons for the denial
•  Evaluate timely appeals submitted by eligible consumers
by different personnel who denied the application
•  Halt all foreclosure process during modification process
Prompt Payment Crediting and Payoff Statements
•  Periodic payments must be promptly credited as of the day
of receipt.
•  If you receive a payment that is less than the amount due
for a periodic payment, you may place the payment in a
suspense account.
•  In addition, creditors, assignees, and servicers must
provide an accurate payoff balance to a consumer no later
than 7 business days after receipt of a written request from
the consumer for that information.
FHA-Lender Update
9
December 2014
Forced Placed Insurance
•  You must have a reasonable basis to believe that a
consumer has failed to maintain required hazard insurance
before charging for force-placed insurance.
•  You must send 2 notices to the consumer that you have not
received evidence before you charge for force-placed
insurance.
•  You must cancel force-placed insurance within 15 days of
receiving evidence that the consumer has required hazard
insurance in place and refund to the consumer any fees or
charges for periods of overlapping coverage.
Early Intervention with Delinquent Customers
•  Services must make a good faith efforts to establish live
contact with consumers by the 36th day of their
delinquency and,
•  promptly inform them of loss mitigation options that may
be available
•  In addition, servicer must provide the consumers with
written information about any available loss mitigation
options by the 45th day of delinquency
•  The rules contain model language servicers may use for
the written notice.
FHA-Lender Update
10
December 2014
Continuity of contact with Delinquent Customers
•  Servicers must assign personnel to delinquent consumers
by the 45th day of the consumers’ delinquency.
•  Help the consumer to pursue loss mitigation options and
applicable timelines.
•  Servicers must retrieve the complete record of the
consumer’s payment history and all of the written
information for evaluating a consumer loss mitigation
options.
•  Servicers must provide a timely live response to consumers
who call and leave a message
Servicing Policies and Procedures
•  Accessing and providing timely and accurate information
•  Properly evaluating loss mitigation applications
•  Facilitating oversight of, and compliance by, service
providers - TPM
•  Facilitating transfer of information during servicing
transfers
•  Informing consumers of the written error resolution and
information request procedures
•  Record retention
•  Servicing file creation
FHA-Lender Update
11
December 2014
Servicing Exemptions
•  CFPB rules exempt small servicers
•  Less than 5,000 loans
•  Do not servicing for anyone else
•  Items never exempt
•  QWR – Error resolution
•  Force Placed insurance
•  Several other items
FAILURE TO COMPLY
FHA-Lender Update
12
December 2014
CFPB Bulletin 2012-03
Third Party Management
CFPB Focus - Protect Consumers from Covered Person
The CFPB is acutely focused on protecting consumers from financial risk
associated with the mortgage lending operation.
Two key terms from the CFPB TPM bulletin
•  A Covered Person is a mortgage lender offering financial product.
•  A Service Provider is defined in US Code - Title 12. Chapter 53.
Section 5481.26 - also known as the Dodd-Frank Act - as “any
person that provides a material service to a covered person in
connection with the offering of a consumer financial product”
FHA-Lender Update
13
December 2014
MBS’ “Best Practices” Definition of Service Provider
Unofficial definition of Service Provider is:
a “service provider” is a company or person who provides a material
service to a mortgage lender offering a consumer financial product
including anyone who:
•  talks to the borrower about personal information,
•  has access to borrower information,
•  transmits and holds borrower data,
•  reviews borrower data or
•  in any other way can access or capture borrower information
Identifying Service Providers
If a Vendor can see a social security number, then they are a CFPB Service
Provider because they could potentially harm a consumer.
A Vendor may be considered a Service Provider if they are placed in a position
to potentially harm the consumer arising out of data/communications they
received about the customer/mortgagor’s financial distress received directly or
indirectly from Mortgage Lender
The Mortgage Lender is responsible to protect borrowers from harm by
validating that third party service providers (Vendors) have the ability to
comply with all federal consumer protection laws.
Service Providers are an extension of the Lender as it relates to compliance
with federal consumer laws.
FHA-Lender Update
14
December 2014
Which vendors are subject to CFPB TPM?
CFPB Service Providers access to protected data including:
•  Sub-servicer,
•  Contract processing,
•  Third party underwriting support,
•  QC function (if outsourced)
•  Property inspection company
•  Title company, Investor, LOS
A vendor with low risk does not have access to the consumer data like the Janitor,
unless they do have access to the protected data because loan files are
left out, computers are left on, or the file cabinet is unlocked.
What about your CPA firm?
If the CPA firm reviews a loan file containing protected data then they
could be a CFPB Service Provider.
There is an exemption in Section 5481.26.B.i that addresses exceptions
to Service Providers that could exempt CPA firms from the rule.
To be safe, obtain a Letter of Assurance from the CPA firm
representing they follow the requirements of the CFPB relating to
consumer protection laws
FHA-Lender Update
15
December 2014
Risk Weighting of CFPB Service Providers
Risk weight all vendors based on:
•  the probability of an occurrence and
•  the consequence upon occurrence.
What is the likelihood of something bad happening and
if the bad thing does happen,
what is the:
•  operational,
•  financial,
•  reputational, and
•  regulatory risk.
Vendor Life-Cycle
The most common six steps in a vendor life-cycle include:
•  Identification
•  Planning
•  Due Diligence
•  Contracting
•  Monitoring
•  Termination
Expect to create 10 to 20 tasks within each of these six main sections.
FHA-Lender Update
16
December 2014
Due Diligence
Maze of Uncertainty
Due Diligence Overview
The definition of ”enough” due diligence is when you are confident you know
the vendor is able to protect consumer data and fully comply with all consumer
laws.
The CFPB requires an evaluation of the vendor’s policies and procedures
relating to consumer protection.
In most cases vendors will allow a due diligence team access to review certain
policies onsite without the ability to copy the policies.
Performing on-site due diligence requires a significant degree of
• structure,
• process, and
• the ability to capture, identify and review confidential data.
FHA-Lender Update
17
December 2014
Due Diligence Scope of Work
Primary Objective: protecting consumers from harm.
•  Obtain a Letter of Assurance from the vendor representing that they
follow the requirements of the CFPB relating to consumer protection
•  Review Vendor’s Procedures, Internal Controls and Training
•  Test Vendor’s Compliance with Procedures
The CFPB bulletin says that you must:
•  1) conduct Due Diligence of the vendor’s operation to verify they
understand and are capable of complying with federal law and
•  2) review their Policies and Procedures, their Internal Controls, and their
Training relating to protecting consumer data.
On-Site or Remote Due Diligence
High-risk vendor due diligence assessment must:
•  result in obtaining reasonable assurance that the Vendor has
the wherewithal to comply with consumer protection laws,
•  confirm the vendor has implemented procedures based on best
practices in the industry to comply with consumer financial
protection laws,
•  test to validate that the vendor has implemented testing to
identify violations of consumer financial protection laws.
The FFIEC rules require Due Diligence is unique to:
•  The Covered Person and
•  The Specific Service Provider
FHA-Lender Update
18
December 2014
Vendor Agreements
Basic Rule of Vendor Management:
• 
Never hire a vendor without a well documented vendor agreement
• 
Never have a vendor agreement without a well-documented vendor
assessment including due diligence of the vendor.
The CFPB has a number of requirements to include in the agreement
beginning with:
•  1) Performance Standards and KPIs
•  2) Consequence for non-performance and
•  3) Termination of the agreement for non-performance and
•  4) The right to audit their operation for compliance with federal consumer laws.
Existing Service Level Agreements must be augmented or completely replaced
to comply with the provisions of the CFPB TPM bulletin.
Vendor Monitoring
CFPB requires:
•  The creation of Internal Controls and Vendor Monitoring
procedures to assess the vendors ongoing compliance with
Federal Consumer Law and,
•  Lender must take Prompt Action if any vendor fails a
compliance test including potentially terminating the
relationship
Vendor monitoring is how we determine if the vendor is complying
with KPIs included in the service level agreement.
Track all CFPB vendor’s activity and provide monitoring reports for
management.
FHA-Lender Update
19
December 2014
Vendor Contingency Planning
We are responsible to protect consumer’s from harm including
protecting them from Service Providers we hire to support our business.
What if:
•  LOS gets hacked
•  Sub-servicer employee gets mad
•  FEDEX Box gets lost
•  Courier has car accident
•  Temp service employees
•  Cleaning staff’s friend clean steals data
What if your QC firm from 5 years ago releases protect consumer data?
TPM - Conclusion
Action Items –
•  Review Policy for oversight of Service Providers
•  Confirm List of your CFPB Service Providers
•  Review Due Diligence Finding
•  Confirm Performance Metrics for Service Providers
•  Review SLA for all Service Providers
•  Review Management Reporting of all Service Providers
FHA-Lender Update
20
December 2014
More CFPB Bulletins
Don’t Underestimate Complexity of CFPB Rules
Mortgage Broker to Mini-Correspondent
•  Some mortgage brokers may be shifting to the minicorrespondent to avoid the disclosure of mortgage broker
compensation.
•  Regulation X requires that the lender's compensation to the
mortgage broker be disclosed on the Good-Faith Estimate
and HUD-1 Settlement Statement.
•  Correspondent lender payments from an investor as “gain
on sale” compensation is not disclosed.
•  If compensation is not disclosed and the transaction is
deemed to be between a broker and wholesale lender, the
failure to disclose compensation will be a violation of
federal law.
FHA-Lender Update
21
December 2014
QM – Ability to Repay
•  Qualified Mortgages or QMs
•  Lender applied good-faith and reasonable effort to validate
borrower’s ability to repay the loan
•  The loan cannot include:
•  negative amortization or
•  capitalized interest
•  The maximum total DTI is 43 percent or less
Complaint Management
•  Similar to QWR
•  Must have structured process to respond to complaint
•  Must track all request in database
•  Must monitor response
•  Must demonstrate the complaint was resolved
•  Within 5 days, provide written acknowledgement of the
complaint
•  Within 30 to 45 days, conduct a reasonable investigation
and provide the consumer with a written response.
FHA-Lender Update
22
December 2014
GOOD, BETTER, BEST
Start Now, Document Processes, Implement Procedures, Test Activity
Questions for your Audit Clients
•  Is your client aware of the CFPB rules?
•  Is your client taking steps to implement compliance?
BOTTOMLINE –
•  If they have a CFPB preparedness plan and are trying to
comply with all CFPB rules then they are likely to survive
CFPB risk.
•  If they are caviler about the CFPB risk and are not focused
on CFPB compliance then they may not be here next year.
FHA-Lender Update
23
December 2014
Mortgage Banking Solutions Can Help
MBS Implements Readiness and Compliance Monitoring for:
•  Third Party Management – TPM
•  AML/BSA
•  Fair Lending
•  Servicing
MBS Offers Services to Commercial Bank & Mortgage Banks:
•  Loan Level Mortgage Bookkeeping
•  Hedging Implementation
•  Technology ROI, Selection and Change Management
Andrew J. Schell, CPA/CFF, CMB
Managing Partner
Mortgage Banking Solutions
Host of “The Profit Doctor”
[email protected]
512-501-2812
Theresa Marie, CIO
Managing Director
Metric Banking Solutions
[email protected]
512-501-2804
AHACPA Presentation
CFPB Capital Impairment Risk
FHA-Lender Update
24
December 2014
ECTION
HUDAuditGuideChapter1
2
Purpose
z Financialstatementaudit
z ComplianceAudit
z PerformedinaccordancewithGAGAS
z Retainedauditor’sjudgmentinthe
applicationofprocedures
z Allcomplianceareasmustbeaddressed
z Auditorshouldperformproceduresto
ensuretheproceduresinguideare
current
FHA-Lender Update
1
December 2014
AuditScopeandApproach
3
FinancialStatementAudit
Sufficienttopermitanexpressionofan
opiniononthefinancialstatementsandthe
“inͲrelationͲto”opiniononthe
supplementalinformation
z FollowGAASandobtainasufficient
understandingofinternalcontrolto
determinethenature,timingandextentof
teststobeperformed.Ataminimum
followAUͲCSection315.
z GAGASaddsaninternalcontrolreporting
requirement
z
AuditScopeandApproach,
continued
4
ComplianceAudit
z OpiniononeachmajorprogramͲalways
forGinnie MaeandFHAlenders
z Internalcontrolovercompliance
Demonstrateauditor’sunderstandingand
assessmentofcontrolriskforICover
compliance
f Shouldperformtestsofcontrolsregardless
ofassessmentofcontrolrisk
f Resultsclearlystatedindocumentation
f
FHA-Lender Update
2
December 2014
5
AICPAINTERNAL CONTROL
REQUIREMENTS
OverallObjectives
(AUͲC200),continued
6
NewRequirements
z
z
z
z
FHA-Lender Update
ExplicitlyrequiresfollowingallAUͲCsections
AuditormustunderstandtheENTIREtextofthe
relevantAUͲCsections
Prohibitsanauditorfromrepresentingthatheor
shehascompliedwithGAASunlessALLrelevant
AUͲCsectionshavebeencompliedwith
Requirestheauditortodeterminetheneedfor
specificproceduresandtoevaluatethe
sufficiencyofevidenceobtainedbyreferenceto
theObjectivesineachAUͲCsection.
3
December 2014
OverallObjectives
(AUͲC200),continued
7
NewRequirements,cont.
AllowstheauditortodisregardanAUͲC
sectionONLYIFthesectionisirrelevantor
theconditionsunderlyingtherequirement
donotexist
z Permitsnotperformingapresumptively
mandatoryrequirementONLYWHENit
wouldbeineffectivetoimplementit.
z RequiresthatifanAUͲCsectioncannotbe
achieved,theauditorshouldevaluate
whetheritrequiresanopinionmodification
orwithdrawal.
z
UnderstandingtheEntity&
AssessingRisk(AUͲC315)
8
NewRequirements
z Specificallyconsiderwhethertheentity’s
controlenvironmentpromotesaculture
ofhonesty.
z Specificallyconsiderwhethertheentity’s
lackofariskassessmentprocessisa
materialweaknessorsignificant
deficiency
z Specificallyconsidertheinternalaudit
function,ifthereisone.
FHA-Lender Update
4
December 2014
UnderstandingtheEntity&
AssessingRisk(AUͲC315),continued
9
RiskAssessment
z Auditormustgainanunderstandingof
whethertheentityhasaprocessfor–
Identifyingbusinessrisksrelevanttothe
financialreportingobjectives
f Estimatingtherisk’ssignificance
f Assessingthelikelihoodoftherisks
occurring
f Decidingonactionstoaddresstherisks
f
Auditor’sApproachtoEntity’sRisk
AssessmentProcess(AUͲC315)
10
Iftheclienthasan
establishedprocess
IftheclientdoesNOThave
anestablishedprocess
Obtainanunderstanding
z Evaluatewhetheranyrisks
thatmanagementfailedto
identifyshouldhavebeen
identified
z Ifso,obtainan
understandingofwhythe
processfailedand
determineifitismaterial
weaknessorsignificant
deficiencyininternalcontrol
z
Discusswithmanagement
whetherrelevantriskshave
beenidentifiedandhow
theyhavebeenaddressed
z Evaluatethewhetherthe
absenceofadocumented
riskassessmentprocessis
appropriateinthe
circumstancesorrepresents
amaterialweaknessor
significantdeficiency
z
FHA-Lender Update
5
December 2014
HUDAuditGuide– Chapter7
11
LetsReview
HUDRequiredSelfͲReporting
12
MortgageeLetter13Ͳ41Ͳ Self
Reporting.pdf
FHA-Lender Update
6
December 2014
13
CFPBQUALITY CONTROL
REQUIREMENTS
WhataretheEntitiesKey
BusinessorReportingRisks?
14
AlmostallrisksinanAuditofHUD
lendersliesinthequalityoftheloans
insured
Representsnotonlycompliancerisk,
butactualrepurchase/indemnifcation
risk
AllHUDOIGreportsrelatedtolenders
pointoutweaknessesinquality
controlofsomesort
FHA-Lender Update
7
December 2014
FocusonQualityControlover
LoanProduction
15
Step1– Adoptanattitudeofqualityand
compliancefromtopdown
Step2– Beginwithadedicated
compliancemonitoringfunction(CMS)
Step3– EstablishafullycompliantQC
plan(requirementsarechangingandare
morecomplicated)
Step4– ImplementthePlan
Step5– Monitorcompliancewiththe
Plan
Step6– Makeadjustments
Step1– AdoptAttitude
16
Doesentityunderstandthebusiness
risks?
Havetheydevelopedand
implementedacomprehensiverisk
managementsystem(CMS)
z RequiredbytheCFPBexamination
manual
FHA-Lender Update
8
December 2014
ComplianceManagementSystem
17
(CMS)
AneffectiveCMShasfour control
components:
1.
2.
3.
4.
Boardandmanagementoversight
Complianceprogramincluding:
z PoliciesandProcedures
z Training
z MonitoringandCorrectiveAction
Responsetoconsumercomplaints
Complianceaudit
ComplianceManagementSystem
18
(CMS),continued
FHA-Lender Update
9
December 2014
BoardandManagement
Oversight
19
Boardandseniormanagementoversightand
involvement
ComplianceCultureand“ToneattheTop”
Adopteffectivepoliciesandprocedures
Communicateclearexpectationofcompliance
throughoutthecompanyandtothirdparty
serviceproviders
Appointqualifiedcomplianceofficerandstaff
Requireauditcoverageandremediationof
findings
Documentinboard/auditcommitteeminutes
ComplianceProgramͲ Policies
Procedures
20
DocumentedandconsistentwithboardͲapproved
policies
Addressconsumerfinanciallawsanddesignedto
preventviolationsandpreventharmto
consumers
Coverproductorservicelifecycles
Maintainedandkeptcurrent
Provideareferencetoemployeesintheirdayto
dayactivities
AddresstopicssuchasFairLending,UDAAP,
privacy,ECOA,etc.
FHA-Lender Update
10
December 2014
ComplianceProgram– Training
21
Board,management,andstaffshouldreceive
appropriatetraining
Trainingshouldbetailoredtorolesand
responsibilities
Trainingshouldreinforcecompliancewithspecific
policiesandprocedures
ComplianceOfficershouldreceiveappropriate
training
Trainingprogramshouldbecurrentandongoing
Trainingrecordsandcontentshouldbedocumented
ExammanualspecificallynotesUDAAPandfair
lendingtraining

ComplianceProgram– Monitoring
22
Riskbased,routine“monitoring”(testing)of
compliance
Doesnothavetobeindependentofthefunction
likeauditshouldbe
Canbedonebybusinessunitpersonnel
Shouldbedocumented
Exammanualspecificallynotes‘fairlending’self
evaluations
Canbebuiltintotheprocess,i.e.checklists,etc.
Issuesidentifiedshouldbeescalated,remediated
Proceduresandtrainingmayneedtobeadjusted
FHA-Lender Update
11
December 2014
ResponsetoConsumerComplaints

23
Evaluationofconsumercomplaintresponseprocess:
z Intakeandcategorizing
z Trackingandrecordkeeping
z Timelinessofresponseandresolution
z Escalation,managementreviewandadjustmentsto
businesspractices
Clearpolicies&procedures
TrainingofcomplaintͲhandlingpersonnel
CFPBuseofcomplaintinformation
Identifyweaknessesinthecompliancemanagement
systemandpotentialviolations
z Complaintsarealargefactorinpriorityof
examinations
z
IndependentComplianceAudit

Evaluationofindependentauditingandtesting

Periodic,scheduledindependentcompliance
assessments,internalandexternal

Mustbeindependentwithreportingtotheboard

Addressescompliancewithallapplicablefederal
consumerfinanciallaws

Copiesofauditreportstoappropriatecomplianceand
businessunitmanagersonatimelybasis

Boardandmanagementresponsetoauditresults,
includingcorrectiveactions
z
FHA-Lender Update
24
Trackcorrectiveactionsandescalatedelaysin
managementresponseorlackofcorrectiveaction
12
December 2014
IndependentComplianceAudit,
continued
25
TheCFPBwillexpecttoseethefollowing
documents,toevaluateacomplianceaudit
program:
Auditplansandschedulesforaspecified
period
Engagementlettersorcontractsforany
outsideauditorsforaspecifiedperiod
Auditreportsforaspecifiedperiod
Auditworkpapers
Auditpoliciesandprocedures
FollowͲupreports,includingactionstaken
withrespecttoauditfindings
26
FHAINCREASES QUALITY AND INTERNAL
CONTROL REQUIREMENTS
FHA-Lender Update
13
December 2014
HUDProposedRiskAssessment
27
2011GAOReportonFHARisk
Assessmentshowedneedfor
Improvement
CreatedRiskOffice&hiredconsultant
Recommendedcombinedstrategyof
riskassessmentandqualitycontrol
initiative
Humancapitalproblem
FHAHumanCapital
28
63%ofHOCstaffeligibletoretireby
2014
Nomanagementplan
FHA-Lender Update
14
December 2014
FHAMarketShare
29
FHAOrganization
30
FHA-Lender Update
15
December 2014
SingleFamily
31
ProgramDevelopment– P&Pfor
z Originations/underwriting
z Counseling
z Appraisals
AssetManagement
z Lendersservicing
z Lossmitigation
z REOs
SingleFamily,continued
32
LenderActivities&Program
Compliance
z OverseeLenders,including
recertifications
z QualityAssuranceDivision
z Mortagee ReviewBoard
FHA-Lender Update
16
December 2014
StepsTakenSoFar
33
Reducedlenderoversightby
eliminatingmortgagebrokers
IncreasedpostͲendorsementtechnical
reviews
Appraiserreviews
z Deskreviews
z Fieldreviews
Foreclosedpropertymanagement
Annuallenderreviews
StepsTakenSoFar,continued
34
RaisedMIPratesfrom.85%to1.1%
Increaseddownpayment
requirements
Increasedfocusbylendersoncredit
scores
RevisedTOTALalgorithm
Morefocusonlenders
Removedcorrespondents
Increasednetworth
FHA-Lender Update
17
December 2014
LossMitigationActions
35
Morethandoubledfrom2006
Focusedonhomeretention(94%)
z Specialforbearance
z Partialclaims
z Loanmodification
FHAComprehensiveRiskStrategy 36
Establishedriskoffice
Internalcontrolstandards
HUDHandbook1840.1requirements
z Identifyrisks
z Analyzeforeffects
z Stepstakentomanagerisk
HUDcompletedin2009
FHA-Lender Update
18
December 2014
RiskIdentificationforSingle
Family
37
38
FHA-Lender Update
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December 2014
39
40
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December 2014
41
42
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43
44
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December 2014
45
46
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December 2014
47
48
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50
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51
52
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53
54
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55
56
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December 2014
57
58
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December 2014
59
60
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December 2014
61
62
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December 2014
OTHER FHAACTIVITIES AFFECTING
LENDERS
MortgageeLetter2013Ͳ12
64
GuidanceforFinalRuleonLender
Insurance
IssuedrevisedLenderInsuranceGuide
Comparedefault/claimratesforstate
LIeligibilityrequires
z UnconditionalDirectEndorsement
z 2Ͳyeardefault&claimrate<=150%
FHA-Lender Update
32
December 2014
MortgageeLetter2013Ͳ12,
continued
65
Termination
z Failstomaintainclaimrate
z LosesUnconditionalDirectEndorsement
z FailstoadoptpreͲissuancereviews
z Failstotimelysubmitcasebinders
z Failstosubmitelectroniccasebinders
withcleardocumentsintheprescribed
order
Quarterlymonitoring
Failurerequiresindemnification
OtherFHAInitiatives,continued
66
ProposedSupplementalPerformance
Metric
z InadditiontoNeighborhoodWatch
compareratios
FHA-Lender Update
33
December 2014
NeighborhoodWatchRisk
Assessment
67
ExampleofNeighborhoodWatch
OtherFHAInitiatives
68
HAWK– HomeOwnersArmedwith
Knowledge
z CounselingPilot
z MIPreducedforparticipantsHUDͲ
approvedcounseling
.50percentageinUFMIP
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FHA-Lender Update
34
December 2014
ECTION
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000
ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER
November 13, 2013
Mortgagee Letter 2013-41
To
All FHA-Approved Lenders
Subject
Lender Self-Reporting Requirements
Purpose of
Mortgagee
Letter
This Mortgagee Letter clarifies the self-reporting requirements of all Single
Family FHA-approved lenders, including:






What must be reported to FHA;
Timeframe for lenders’ internal reporting to senior management;
Timeframe for lenders’ external reporting to FHA;
How findings should be reported to FHA;
FHA’s review process; and
The repercussions of failing to report to FHA.
All Single Family FHA-approved lenders must self-report in accordance with
the guidance set forth in this Mortgagee Letter.
Effective Date
All requirements contained in this Mortgagee Letter are effective
immediately.
Affected
Topics
The following sections of HUD Handbook 4060.1, REV-2, will be replaced
with guidance provided in this Mortgagee Letter:
Section 7-3
Paragraph (I)
Section 7-3
Paragraph (J)
Quality
Control
Plan
Requirements
Handbook 4060.1, REV-2
Basic Elements of Quality Control
Reporting and Corrective Action
Basic Elements of Quality Control
Notification to HUD
In accordance with HUD Handbook 4060.1, REV-2, Section 7-1, all FHA
lenders are required to adopt and implement a Quality Control Plan as a
prerequisite to FHA approval. HUD Handbook 4060.1, REV-2, Section 7-3
outlines the basic elements required of a FHA lender’s Quality Control Plan.
In accordance with Section 7-3, Paragraphs (I) and (J), all Quality Control
Plans must include procedures for conducting quality control reviews,
including procedures for reporting findings to the lender’s senior
management, taking corrective action, and notifying FHA.
Once admitted to the FHA Program, lenders are required to maintain their
Quality Control Plan, including periodic updates to ensure the plan is in
compliance with current FHA requirements.
What Must be
Reported to
FHA
1. Lenders must report to FHA all findings of fraud and material
misrepresentations. Lenders must also report any material findings
concerning the origination, underwriting, or servicing of the loan, that the
lender is unable to mitigate or otherwise resolve in accordance with this
Mortgagee Letter.
A finding is a final determination of defect by the lender. Suspected
instances of fraud, material misrepresentations, and other material findings
must be investigated by the lender’s quality control team who must determine
whether or not fraud or material misrepresentation actually occurred, or
whether material findings exist.
A finding is material if disclosure of the finding would have altered the
lender’s decision to approve the loan or to endorse or seek endorsement from
FHA for insurance of the mortgage loan.
Examples of material findings include, but are not limited to:







Failing to ensure that the borrower meets applicable eligibility
requirements in accordance with FHA requirements;
Failing to verify the creditworthiness, income, and/or employment of a
borrower in accordance with FHA requirements;
Failing to verify the assets used by the borrower for down payment
and/or closing costs, or to meet applicable reserve requirements, in
accordance with FHA requirements;
Failing to ensure that the amount of the loan insured is consistent with the
loan type, property value and other applicable FHA requirements;
Failure to ensure that the loan was current and met any applicable
payment history requirements at the time of insurance endorsement in
accordance with FHA requirements;
Failing to address property deficiencies identified in the appraisal
affecting the health and safety of the occupants or the structural integrity
of the property in accordance with FHA requirements; and
Failing to ensure that the appraisal of the property satisfies FHA appraisal
requirements.
This list is not exhaustive.
2
What Must be
Reported to
FHA
Lenders must report to FHA any findings that occurred after the lender
submits its request for mortgage insurance or endorses the loan through the
Lender Insurance process. Findings that occurred and were resolved prior to
funding do not have to be reported.
Findings that do not involve fraud or material misrepresentation and were
already mitigated or resolved by the lender do not have to be reported to
FHA. However, in accordance with HUD Handbook 4060.1, REV-2, Section
7-3(K), lenders must retain all quality control review results, including all
selection criteria, review documentation, findings, and actions taken to
mitigate or resolve findings, for a period of two years. These quality control
review records must be made available to FHA upon request.
A finding has been mitigated or resolved if the lender has adequately
addressed the deficiencies underlying the finding, and such deficiencies have
been remedied through updated and accurate documentation, calculations, or
other actions taken by the lender so that the loan presents an acceptable level
of risk to the lender and to FHA.
Findings can only be mitigated to the extent that the information used to
mitigate the finding was sufficient to support borrower qualification and
eligibility at the time the loan was endorsed. All FHA requirements must be
met at time the lender submits the loan for endorsement. A lender cannot
subsequently mitigate a previously existing finding based on changed
circumstances.
FHA must be involved in the potential mitigation of any findings involving
fraud or material misrepresentations. Fraud and misrepresentation cannot be
mitigated solely by action of the lender.
The lender should discuss all findings with the responsible party in order to
ensure corrective action and to prevent similar findings from occurring in the
future. The lender is responsible for ensuring it only does business with
responsible parties.
2. For all findings which must be reported, the lender must identify what
actions, if any, have been taken to attempt to mitigate or resolve each finding,
and report any planned or pending follow-up activities.
The Lender Reporting feature in the Neighborhood Watch Early Warning
System has been updated with new functionality in order to allow lenders
to comply with this guidance. Specific instructions on how to use the
new reporting features are available on the Neighborhood Watch website
at https://entp.hud.gov/sfnw/public/.
___________________________________________________________
3
Timeframe
for Internal
Reporting to
Senior
Management
Once a lender has conducted a quality control review, initial review findings
must be reported to the lender’s senior management within 30 days of
completion of the initial findings report.
As noted above, suspected instances of fraud, material misrepresentations,
and material findings concerning the origination, underwriting, or servicing of
the loan must be investigated by the lender’s quality control team and a
determination must be made whether or not fraud or material
misrepresentation actually occurred, or whether material findings exist.
Lender management must review and respond appropriately to each instance
of fraud, material misrepresentation, or other material finding. The lender’s
final report must identify the actions being taken, the timetable for
completion, and any planned follow-up activities.
Timeframe
for External
Reporting to
FHA
Any findings of fraud or material misrepresentation must be reported to FHA
immediately.
How Findings
Should be
Reported to
FHA
Lenders must report findings to FHA via the Neighborhood Watch Early
Warning System (“Neighborhood Watch”) using the Lender Reporting
feature. Paper reports will not be accepted. The required use of
Neighborhood Watch supersedes the current Section 7-3(J) of HUD
Handbook 4060.1, REV-2, which states that findings of fraud or other serious
violations must be referred to the Director of the Quality Assurance Division
in the HUD Homeownership Center (HOC) having jurisdiction.
The lender must report all other material findings under this Mortgagee Letter
to FHA no later than 30 days after the lender has completed its own internal
evaluation of the findings, or within 60 days of initial disclosure of the
findings, whichever occurs first.
FHA shares all findings of fraud and material misrepresentation with HUD’s
Office of Inspector General (OIG). However, if HUD employees or
contractors are suspected of involvement, the matter must be referred directly
to HUD’s OIG by contacting the HUD OIG website at
https://www.hudoig.gov/report-fraud, by sending a written referral to HUD
OIG Hotline (GFI) at 451 7th Street, SW, Room 8254, Washington, DC
20410, or by fax at (202) 708-4829. Do not report findings of fraud or
material misrepresentation suspected of involving HUD employees or
contractors via the Neighborhood Watch Early Warning System.
4
FHA’s Review
Process
FHA will review each self-report to determine if supporting documentation is
needed. FHA may request documentation from the contact person listed in
the self-report. The contact person listed in the self-report must have access
to the following documents and be prepared to submit them to FHA
immediately upon request:



The Endorsement Case Binder;
The Quality Control Report; and
Any additional documentation necessary for FHA to fully evaluate
the finding.
FHA will examine the self-report and any supporting documentation to
determine if fraud, material misrepresentation, or other material findings
exist. FHA may provide the lender an additional opportunity to mitigate or
resolve the findings.
If FHA finds the lender has not satisfactorily mitigated or resolved the
findings, FHA may demand indemnification for loans endorsed through
the Lender Insurance (LI) process or request indemnification for any nonLI-endorsed loans, or seek any other remedy permissible by law.
Repercussions
of Failing to
Report to
FHA
FHA monitors lender self-reporting on a monthly basis. Failure of an FHAapproved lender to comply with FHA requirements may result in FHA taking
administrative action against the lender.
Information
Collection
Requirements
Paperwork reduction information collection requirements contained in this
Mortgagee Letter are pending approval by the Office of Management and
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. §§
3501-3520) and have been assigned OMB Control Number 2502-0600. In
accordance with the Paperwork Reduction Act, HUD may not conduct or
sponsor, and a person is not required to respond to, a collection of information
unless the collection displays a currently valid OMB Control Number.
5
Questions
Any questions regarding this Mortgagee Letter should be directed to the FHA
Resource Center at 1-800-CALLFHA (1-800-225-5342). Persons with
hearing or speech impairments may reach this number by calling the Federal
Information Relay Service at (800) 877-8339. For additional information on
this Mortgagee Letter, please visit www.hud.gov/answers.
Signature
Carol J. Galante
Assistant Secretary for Housing - Federal Housing Commissioner
6
Office of Single Family
FHA’s Proposed Supplemental Performance Metric
Intro
FHA proposes the implementation of an additional metric to evaluate lenders, tentatively named the “Supplemental
Performance Metric”. It will only be used as an additional compensating factor after the Credit Watch Termination
Initiative is executed under current policy, and will help paint a clearer picture and provide a more well-rounded
analysis of a lender’s performance when FHA is considering further action. The inclusion of the Supplemental
Performance Metric in this analysis reflects FHA’s belief that a number of factors are relevant to and indicative of a
lender’s performance, and that a lender’s story cannot be summarized by only its Compare Ratio.
Background
Compare Ratio
FHA currently calculates a Lender Compare Ratio for all FHA-approved lenders, which compares the rate of early
defaults and claims for insured single family mortgage loans originated or underwritten by the mortgagee in an area
with the rate of early defaults and claims for other mortgagees originating or underwriting insured single family
mortgage loans in that same area.
The Compare Ratio is utilized to execute FHA’s Credit Watch Termination Initiative, in which lenders with
excessive default and claim rates compared to their peers may have their authority to originate and/or underwrite
FHA loans terminated. In considering whether or not a lender’s authority should be terminated, FHA evaluates all
lenders with a compare ratio above 150%, and may propose termination for those with compare ratios that meet or
exceed 200%, and whose default and claim rate exceeds the national average.
The Compare Ratio is also used to evaluate lender performance in determining eligibility for Lender Insurance (LI)
authority. Lenders seeking LI authority must possess and maintain a compare ratio of 150% or less. FHA evaluates
lender performance on a quarterly basis and may terminate a lender’s LI authority if their compare ratio exceeds
150% at the time of evaluation.
Supplemental Performance Metric
FHA is aware of the recent difficulty of sub-680 credit score borrowers’ ability to access credit, especially for those
that are below 640. Because the Compare Ratio is a comparison to one’s peers rather than to FHA’s risk tolerance,
lenders have expressed concern about lending to these underserved borrowers because of the impact of the compare
ratio and the Credit Watch Initiative on their business at lower ends of the spectrum if their peers do not do the
same, regardless of FHA’s stated credit access goals and willingness to insure loans to borrowers with lower credit
scores. Therefore, FHA proposes the implementation of an additional metric, which allows FHA to consider its
portfolio risk tolerance in addition to the Compare Ratio. This new metric will provide more nuanced insight into a
lender’s specific performance and encourage lenders to serve creditworthy underserved borrowers. The
methodology used to create this metric is outlined below.
Office of Single Family
Proposed Methodology
Distribution and SDQ Rates
<640
Target
Mix
25%
SDQ
3.0%
FHA Portfolio
Mix
9%
SDQ
2.6%
Lender 1
Mix
30%
SDQ
2.9%
640-680
>680
Weighted
SDQ
50%
1.5%
25%
0.4%
1.60%
38%
1.5%
53%
0.4%
1.01%
60%
1.6%
10%
0.6%
1.89%
Compare
Ratio
187%
Scores
Supplemental
Metric Ratio
118%
The Supplemental Performance Metric will compare lender performance to a targeted risk mix and default rate,
weighting defaults within three different credit score bands. This will create a lender’s weighted average default
rate that will be compared to an FHA target rate to derive a Supplemental Performance Metric Score. FHA will then
consider this score when considering further action under the Credit Watch Termination Initiative. The loan
populations used to develop the compare ratio are the same ones that will be drawn from when applying the
Supplemental metric. Currently, termination of a lender’s origination or underwriting authority under the Initiative
may be pursued if:
 The lender’s Compare Ratio exceeds 200%, and
 The lender’s default and claim rate exceeds the national average.
This initial two-pronged evaluation will not change. The lender’s Supplemental Performance Metric Score may only
be considered as an additional factor in the total evaluation after the initial evaluation has triggered possible
termination.
The target weighted seriously delinquent (SDQ) rate is initially proposed to be 1.60%, but may be revised on at least
an annual basis. If the lender’s Supplemental Metric Performance Score is less than 125% of the target rate, this may
be a consideration to not take further action under the Initiative, along with other factors, such as de minimus
volumes. Alternatively, if it is equal or greater than 125% of the target rate, that may be a consideration to move
forward under the Credit Watch Initiative.
In the public view in Neighborhood Watch, users will be able to see the Supplemental Performance Metric Score for
a lender as an additional column following the Compare Ratio, and would be able to access a definition of the metric
and the display of FHA’s targeted risk mix and default rate. In the lender view, in addition to the FHA’s target mix
and rate, lenders will be able to view their performance information at the national level.
Next Steps
FHA believes the Supplemental Performance Metric will improve its analysis under the Credit Watch Termination
Initiative, and will help us capture more information than the compare ratio provides on a standalone basis. We
encourage your feedback on this proposal. Please send all comments by Friday, June 13th, 2014 to
[email protected].
ECTION
Whatisrequiredtobereported
asafinding?

FHA-Lender Update
1
GAGASandGAASsetforththeminimum
requirementforreportingnoncompliance
HUDrequiresadditionalreporting(reporting
immaterialfindings)
1
December 2014
asafinding?

2
Chapter1oftheHUDAuditGuide:
“HUDrequiresthereportingofallcompliance
violationsandanidentificationoftotalquestioned
costforeachfindingasaresultofnoncompliance.
HUDrequiresthatallinstancesofnoncompliance
withanyHUDrequirementorregulation,material
weaknessininternalcontrol,allinstancesoffraudor
illegalacts,andcontractviolationsbereportedas
findingsintheauditreport.”
asafinding?

FHA-Lender Update
3
LanguageinChapter1indicatesthatallinstances
ofnoncompliancearerequiredtobereportedas
findings,but…
Chapter2andChapter3(aswellasothers)both
clearlystatethatonlymaterial noncompliance,
deficienciesininternalcontrol,equityskimming,
instancesoffraudorcontractviolationsare
requiredtobereportedasafinding
Duetolackofclarifyingguidance,auditorsareleft
todecidewhichguidancetofollow
2
December 2014
asafinding?

4
Noncompliance,deficiencies,orviolationsthat
werecorrectedbeforetheissuanceoftheaudit
reportmustbeincludedinthereportasresolved
findingsintheCorrectiveActionCompletedsection
(orotherwrittendocumentationifdeemednot
material)
HUDrequiresnonmaterialinstancesof
noncompliancetobereportedtomanagementin
writingaswellastoHUDaspartoftheREAC
submission
Fraud– EvaluatingPotential
FraudFinding
5
Fraud
Describethe
issue
Isthis
likely
Fraud?
No
Consider
increased
disclosureto
preventREAC
inquiry.
Yes
Describethe
issue
Report
inSFQC
FHA-Lender Update
3
December 2014
Abuse– EvaluatingPotential
FraudFinding
6
Abuse
Describethe
issue
Isthislikely
abusethatis
materialtoa
majorprogram?
Yes
Report
inSFQC
CommunicationtoHUD

7
Nonmaterialinstancesofnoncompliance
NonmaterialinstancesofnonͲcompliancearenot
requiredtobereportedasfindingsintheauditreport,
howevermustbereportedtoHUD
¡ Requiredtobecommunicatedtomanagementina
writtenletter,whichisalsorequiredtobesubmitted
withtheREACsubmission
¡ Thelettermustbereferredtointheauditreport
¡ Canbeaclientpreferencewhethertoreportitinthe
auditreportorreferencetoaletterwhereitis
reported
¡
FHA-Lender Update
4
December 2014
ComplianceFinding
8
No
Noncompliance
Finding
Material
(quant.orqual.)
tocompliance
reqmt oraudit
objective?
Describethe
issue
Yes
Report
inSFQC
No
AreQuestioned
Costs>
$10,000?
Yes
A
Describethe
issue
Report
inSFQC
B
A
Compliancefinding
9
A
Isthismaterial
tothemajor
program?
No
Documentreasonsfor
notqualifyingopinion
B
Isthisan
InternalControl
Deficiency?
No
Yes
No
GotoInternal
ControlDeficiency
FindingComplete
FHA-Lender Update
Yes
5
Qualify
opinionon
compliance
Isthis
materialto
thefinancial
statements?
Yes
Includefindingin
Yellowbookreport
onfinancial
statements
December 2014
Determining“nonmaterial”
10
Everysituationisdifferentandrequiresjudgment,
howeverbelowaresomeitemsyoushouldconsider:
¡
¡
¡
¡
¡
Mitigatingfactors,i.e.Internalcontrolsover
compliance
Isitqualitativelymaterialtothecompliance
requirement
Isitquantitativelymaterialtothecompliance
requirement
Numberofinstancesnoted
Historyofnoncompliancewiththepropertyand/or
ownerormanagementagent
Determining“nonmaterial”,continued
11
Materialityfortheprogram
¡ Potentialimpactoftheerrorovertheprogram
¡ Thenatureoftheerror(i.e.deceptivevs.
unintentional)
¡ Andofcourse,auditorjudgment
¡
Ifyouhaveadeficiencyovercompliance,alwaysmakesure
toconsiderifyoualsohaveadeficiencyininternalcontrols
overfinancialreporting
FHA-Lender Update
6
December 2014
FinancialandInternalControl
Findings
12
InternalControlfindings
13
InternalControlDeficiency
OverCompliance
InternalControlDeficiency
onFinancialStatements
B
Describetheissue
Isthisa
Significant
Deficiency?
Describetheissue
No
IfinML,
include
referencein
ReportonI/C
&Compl.
No
Yes
Isthisa
Material
Weakness?
Yes
No
Reportin
SFQCas
SigDef
No
Yes
Reportin
SFQCas
MW
FHA-Lender Update
Isthisa
Significant
Deficiency?
Isthisa
Material
Weakness?
Yes
Reportreference
inYellowbook
Report
Reportreference
incompliance
report
7
Reportin
SFQCas
MW
December 2014
Findingtemplate
14
Whenreportingafindingyoumustfollowthespecific
fieldsasrequiredbyHUD
StatementofconditionͲ Narrativeofwhat
happened
CriteriaͲ Whatisrequired
EffectͲ Howtheerrorimpactedthe
property/financials
Cause Ͳ Whytheerroroccurred
Recommendation Ͳ Auditorrecommendationto
remedytheerror
Findingtemplate,continued

FHA-Lender Update
15
Noncompliancecode Ͳ Mustselectfromdrop
downmenu
Auditor’ssummaryofAuditee’sCommentsͲ
Summaryofclient’sposition
ResponseIndicatorͲ Either“cleared”or“not
cleared”
Completiondate Ͳ Ifnotinthecurrentyear,use
thenextfiscalyearend
Response
Contactperson
8
December 2014
OtherConsiderations
16
IfNOfindingsnoted
17
Iftheauditresultedinnofindings,thescheduleof
findings,questionedcosts,andrecommendations
shouldstillbeincludedintheauditreportpackage
andshouldincludeonlythefollowingstatement:

FHA-Lender Update
“Ourauditdisclosednofindingsthatarerequired
tobereportedhereinundertheHUDConsolidated
AuditGuide”
9
December 2014
Questions
FHA-Lender Update
18
10
December 2014
Evaluations
Evaluations will be emailed to you next week along with your CPE certificates. If you prefer, you can fill out this evaluation and return it as you leave the conference. AHACPA FHA Lender Update Evaluation December 8th, 2014 Overall Conference Evaluation Strongly Disagree Disagree Neutral Agree Strongly Agree The stated learning objectives were met The stated prerequisite requirements were appropriate and sufficient. Program materials were relevant & contributed to the achievement of the learning objectives The time allotted to the learning activity was appropriate Facility Evaluation Poor Neutral Excellent The Cosmopolitan Conference Center Food & Beverage service during the conference Conference Center staff Monique White‐Chiselom – LEAP and FHA Program Changes Strongly Disagree Disagree Neutral Agree Strongly Agree The Instructor was effective The instructor had a good knowledge of the subject
The stated learning objectives were met The time allotted for session was appropriate Mike Olsen – Doing Business with FHA / Quality Control Strongly Disagree Disagree Neutral Agree Strongly Agree The Instructor was effective The instructor had a good knowledge of the subject
The stated learning objectives were met The time allotted for session was appropriate Andy Schell & Theresa Marie – CFPB –
Capital Impairment Risk Strongly Disagree Disagree Neutral Agree Strongly Agree The Instructor was effective The instructor had a good knowledge of the subject
The stated learning objectives were met The time allotted for session was appropriate Les Sparks – HUD Audit Guide and Other Procedures | Reporting Findings Strongly Disagree Disagree Neutral Agree Strongly Agree The Instructor was effective The instructor had a good knowledge of the subject
The stated learning objectives were met The time allotted for session was appropriate Evaluation Comments: __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________
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