FHA Announces Plans for Quality Control Changes in 2017
HUD’s December 2016 Issue No. 14 of Lender Insights announced plans to make changes to its technology and quality control process. The enhancements follow through on FHA’s announcement in 2015 concerning the implementation of the Quality Control Defect Taxonomy. Lender Insights is published by the FHA Office of Lender Activities and Program Compliance and may be accessed on the HUD portal here.
The December issue also recaps the defect rates for post endorsement technical reviews completed during the last quarter. FHA conducted 47,882 post endorsement technical reviews during October and November which indicated the material defect rate increased from 50% in the previous quarter to 53%.
Enhancements to the Quality Control Process
FHA’s Office of Lender Activities will be building on the deployment of electronic Findings Letters for post endorsement technical reviews, implementation of the Supplemental Performance Metric, and updates to Handbook 4000.1. The main focus in 2017 will be changes to FHA’s technology and processes in order to implement the Defect Taxonomy. The defect taxonomy metrics were first published in June 2015 and designed to help lenders more easily identify and categorize specific loan origination and underwriting problem areas that could trigger FHA enforcement actions.
In the coming months, lenders should be on the lookout for detailed information about Defect Taxonomy and other process improvements, such as:
- Unified loan review work flows across divisions in each of FHA’s Homeownership Centers
- Event-driven communications and reminders when loan review findings require a response
- Electronic upload functions for submission of mitigating documents for almost any kind of post-endorsement loan review, including those that are part of lender monitoring examinations
- Consolidated reports and dynamic data to help lenders identify problem areas and trends As FHA begins to implement these changes and transition from current processes, some lenders may experience a temporary decrease in loans selected for review.
Test Case Process Changes
In addition to overall loan review enhancements, FHA is making specific changes to the Test Case process for lenders seeking Unconditional Direct Endorsement (DE) authority. On December 14, 2016, FHA published Mortgagee Letter 2016-21, which shifts the time frame for the submission of test cases from pre-closing to post-closing. FHA-approved lenders that enter the Test Case phase on or after April 1, 2017 will be required to submit closed loans for pre-endorsement review by the Single Family Homeownership Centers; pre-closing Test cases will no longer be accepted. These changes will not impact lenders that have already started the Unconditional DE Test Case phase before April 1, 2017 and those lenders may continue to submit pre-closing Test Cases until the approval process is complete.
Please note a detailed article regarding the test case process changes in a forthcoming Residential Mortgage post.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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