HUD Issues Lender Self-Reporting Requirements
by: Anna DeSimone
- 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
- 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.
https://entp.hud.gov/sfnw/public/.
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.
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.
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.
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.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.
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 non-LI-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 FHA-approved lender to comply with FHA requirements may result in FHA taking administrative action against the lender.
About the Author
Anna DeSimone is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com
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.
Comments are closed.