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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 info@ahacpa.org 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” 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 Les@ahacpa.org Mike Olsen Mike@ahacpa.org Kathy Christensen Kathy@ahacpa.org Susan Harris Susan@ahacpa.org 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 info@ahcapa.org, 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 (kathy@ahacpa.org). For more information on lender submissions contact Susan (susan@ahacpa.org). 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 info@ahacpa.org. 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 kathy@ahacpa.org 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: Owning Entity Tax Identification Number (TIN): Project FHA Number: Project Address: City: State: Project Name: Zip Code: 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: Owning Entity Tax Identification Number (TIN): Project FHA Number: Project Address: City: State: Project Name: Zip Code: Year End: Owning Entity Name: Owning Entity Tax Identification Number (TIN): 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 kathy@ahacpa.org 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 Performing Loan Servicing 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 Origination / Processing Underwriting Closing Post-Closing & Endorsement Chattel Appraisal Land Appraisal Product Sheets Performing Loan Servicing 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 Origination / Processing Appraisal Underwriting Closing Post-Closing & Endorsement 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 FHA Single Family Housing Policy Handbook 2 TABLE OF CONTENTS 3 I. DOING BUSINESS WITH FHA........................................................................................... 1 4 A. FHA LENDERS AND MORTGAGEES .............................................................................. 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. 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 iii. Activities Authorized .................................................................................................... 3 c. Government Mortgagee ...................................................................................................... 3 i. Definition ...................................................................................................................... 3 ii. Standard ........................................................................................................................ 3 iii. Activities Authorized .................................................................................................... 3 d. Investing Mortgagee ........................................................................................................... 3 i. Definition ...................................................................................................................... 3 ii. Standard ........................................................................................................................ 3 iii. Activities Authorized .................................................................................................... 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 (B) Required Documentation ........................................................................................ 5 iii. Certification of Compliance.......................................................................................... 6 (A) Standard .................................................................................................................. 6 (B) Required Documentation ........................................................................................ 8 (C) Unable to Certify..................................................................................................... 8 (D) FHA Review ........................................................................................................... 8 iv. Application Fee............................................................................................................. 8 [June 30, 2014] i FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 (A) Standard .................................................................................................................. 8 (B) Required Documentation ........................................................................................ 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 (c) Required Documentation .......................................................................... 11 (5) Nonprofit......................................................................................................... 11 (a) Definition .................................................................................................. 11 (b) Standard .................................................................................................... 11 (c) Required Documentation .......................................................................... 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 (C) Required Documentation ...................................................................................... 13 iv. Ownership and Personnel ........................................................................................... 14 (A) Principal Owners................................................................................................... 14 (1) Definition ........................................................................................................ 14 (2) Standard .......................................................................................................... 14 (3) Required Documentation ................................................................................ 14 [June 30, 2014] ii FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 (B) Personnel Requirements........................................................................................ 14 (1) Corporate Officers .......................................................................................... 14 (a) Definition .................................................................................................. 14 (b) Standard .................................................................................................... 15 (c) Required Documentation .......................................................................... 15 (2) Officer in Charge ............................................................................................ 15 (a) Definition .................................................................................................. 15 (b) Standard .................................................................................................... 15 (c) Required Documentation .......................................................................... 16 (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 (c) Required Documentation .......................................................................... 17 v. Credit Worthiness ....................................................................................................... 17 (A) Definition .............................................................................................................. 17 (1) Institutional Credit Worthiness ....................................................................... 17 (2) Individual Credit Worthiness.......................................................................... 17 (B) Standard ................................................................................................................ 18 (C) Required Documentation ...................................................................................... 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 (2) Required Documentation ................................................................................ 19 (B) Personnel Licenses................................................................................................ 19 (1) Standard .......................................................................................................... 19 (2) Required Documentation ................................................................................ 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 (B) Required Documentation ...................................................................................... 21 [June 30, 2014] iii FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 (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 (B) Required Documentation ...................................................................................... 22 ix. Funding Program ........................................................................................................ 22 (A) Nonsupervised Mortgagees................................................................................... 22 (1) Standard .......................................................................................................... 22 (2) Required Documentation ................................................................................ 22 (B) Investing Mortgagees............................................................................................ 22 (1) Standard .......................................................................................................... 22 (2) Required Documentation ................................................................................ 22 x. Fidelity Bond .............................................................................................................. 23 (A) Standard ................................................................................................................ 23 (B) Required Documentation ...................................................................................... 23 xi. Errors and Omissions Insurance ................................................................................. 23 (A) Standard ................................................................................................................ 23 (B) Required Documentation ...................................................................................... 23 xii. Quality Control Plan ................................................................................................... 23 (A) Standard ................................................................................................................ 23 (B) Required Documentation ...................................................................................... 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 (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 (2) Required Documentation ................................................................................ 28 (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 (C) Required Documentation ...................................................................................... 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] v FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 (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 (2) Required Documentation ................................................................................ 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 (2) Required Documentation ................................................................................ 34 (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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 iii. Required Documentation ............................................................................................ 40 b. Contact Information .......................................................................................................... 41 i. Addresses .................................................................................................................... 41 (A) Standard ................................................................................................................ 41 (B) Required Documentation ...................................................................................... 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 ii. Required Documentation ............................................................................................ 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 1 iii. Activities Authorized 2 3 A nonsupervised mortgagee may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA-insured mortgages. 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 iii. Activities Authorized 11 12 A government mortgagee may originate, underwrite, close, endorse, service, purchase, hold, or sell FHA-insured mortgages. 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 iii. Activities Authorized 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 1 (B) Required Documentation 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 (B) Required Documentation 29 The application fee must be submitted in the online application. [June 30, 2014] 8 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 1 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (C) Required Documentation 30 31 FHA will verify compliance with the office facilities requirements through any onsite visits. [June 30, 2014] 13 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (c) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (C) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (2) Required Documentation 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 (2) Required Documentation 31 32 The mortgagee must certify that it meets this requirement as part of the online application. [June 30, 2014] 19 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 1 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (B) Required Documentation 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 (2) Required Documentation 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 (2) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (B) Required Documentation 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 (B) Required Documentation 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 (B) Required Documentation 28 The mortgagee must submit a copy of its QC Plan. [June 30, 2014] 23 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 1 (2) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (C) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (2) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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. (2) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 iii. Required Documentation 29 30 31 The mortgagee must: submit all information updates and business change notices and requests through LEAP; [June 30, 2014] 40 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 42 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 43 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 44 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 45 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 48 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 Required Documentation (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 Required Documentation 49 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 50 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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] 51 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 ii. Required Documentation 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA A. FHA Lenders and Mortgagees 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 FHA Single Family Housing Policy Handbook I. Doing Business with FHA 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 THIS SECTION PENDING – UNDER CONSTRUCTION 2. Brokers THIS SECTION PENDING – UNDER CONSTRUCTION 3. Consultants 203(k) THIS SECTION PENDING – UNDER CONSTRUCTION 4. Direct Endorsement Underwriters THIS SECTION PENDING – UNDER CONSTRUCTION 5. Housing Finance Agencies THIS SECTION PENDING – UNDER CONSTRUCTION 6. Instrumentalities of Government THIS SECTION PENDING – UNDER CONSTRUCTION 7. Title I Manufactured Housing Dealers THIS SECTION PENDING – UNDER CONSTRUCTION 8. Nonprofits THIS SECTION PENDING – UNDER CONSTRUCTION 9. Third-Party Originators THIS SECTION PENDING – UNDER CONSTRUCTION 20 [June 30, 2014] 57 FHA Single Family Housing Policy Handbook Glossary and Acronyms 1 FHA Single Family Housing Policy Handbook 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 FHA Single Family Housing Policy Handbook Glossary and 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 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 FHA Single Family Housing Policy Handbook Glossary and Acronyms 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 FHA Single Family Housing Policy Handbook Glossary and Acronyms 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 40 41 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 Gina.B.Screen@hud.gov 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance Table of Contens 1 FHA Single Family Housing Policy Handbook 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 (B) Required Documentation ........................................................................................ 4 iii. Fair Lending.................................................................................................................. 4 (A) Rejected Borrower Applications............................................................................. 5 (1) Standard ......................................................................................................... 5 (2) Required Documentation ............................................................................... 5 (B) Fair Housing Logo .................................................................................................. 5 (1) Standard ......................................................................................................... 5 (2) Required Documentation ............................................................................... 5 (C) Fair Housing or Discrimination Violations............................................................. 5 (1) Standard ......................................................................................................... 5 (2) Required Documentation ............................................................................... 6 iv. Escrow Funds................................................................................................................ 6 (A) Standard .................................................................................................................. 6 [June 30, 2014] i FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (B) Required Documentation ........................................................................................ 6 v. Mortgage Insurance Premiums ..................................................................................... 6 (A) Standard .................................................................................................................. 6 (B) Required Documentation ........................................................................................ 6 vi. Timely and Accurate Submission for Insurance........................................................... 6 (A) Standard .................................................................................................................. 6 (B) Required Documentation ........................................................................................ 6 vii. Advertising.................................................................................................................... 7 (A) Standard .................................................................................................................. 7 (B) Required Documentation ........................................................................................ 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 iii. Required Documentation ............................................................................................ 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 (b) Required Documentation .......................................................................... 14 (2) Discrepancies ............................................................................................... 14 (a) Standard .................................................................................................... 14 (b) Required Documentation .......................................................................... 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 ii. Required Documentation ............................................................................................ 16 e. Servicing Loan File Compliance Review ......................................................................... 16 i. Minimum Requirements ............................................................................................. 16 f. Ineligible Participants ....................................................................................................... 17 i. Mortgage Transaction ................................................................................................. 17 (A) Standard ................................................................................................................ 17 (B) Required Documentation ...................................................................................... 17 ii. Assumption of Mortgage ............................................................................................ 17 (A) Standard ................................................................................................................ 17 (B) Required Documentation ...................................................................................... 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (1) Informal Conference .................................................................................... 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 (1) Informal Conference .................................................................................... 30 (2) Determination .............................................................................................. 30 (3) Waiver of Appeal......................................................................................... 30 (E) Effect of Suspension or Termination .................................................................... 30 (F) Reinstatement........................................................................................................ 30 [June 30, 2014] v FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 iii. Effective Date ............................................................................................................. 39 iv. Duration ...................................................................................................................... 39 v. Processing and Appeals .............................................................................................. 39 c. Debarment......................................................................................................................... 40 i. Definition .................................................................................................................... 40 ii. Cause........................................................................................................................... 40 iii. Effective Date ............................................................................................................. 40 iv. Duration ...................................................................................................................... 40 v. Processing and Appeals .............................................................................................. 41 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (b) Required Documentation 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 (b) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (2) Required Documentation 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 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (2) Required Documentation 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 (2) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance A. Quality Control 1 2 possible, but no later than one year after a potential violation or instance of discrimination has occurred. 3 (2) Required Documentation 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 (B) Required Documentation 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 (B) Required Documentation 22 23 The mortgagee must retain the results of each review and any corrective actions taken as a result of review Findings. 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 (B) Required Documentation 29 30 The mortgagee must retain the results of each review and any corrective actions taken as a result of review Findings. [June 30, 2014] 6 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (B) Required Documentation 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 ii. Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 iii. Required Documentation 15 16 17 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. 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 iii. Required Documentation 26 27 The mortgagee must document the methodology used to establish the loan risk assessment system and conduct trend analysis. [June 30, 2014] 12 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (b) Required Documentation 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 (b) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance A. Quality Control 1 (2) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance A. Quality Control 1 (4) Required Documentation 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 ii. Required Documentation 11 12 The mortgagee must retain all QC review results, including all selection criteria, review 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (B) Required Documentation 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 (B) Required Documentation 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance B. Mortgagee Monitoring 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 Neighborhood Watch - 2 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 Neighborhood Watch - 3 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. Neighborhood Watch - 4 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.) Neighborhood Watch - 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 Neighborhood Watch - 6 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 Neighborhood Watch - 7 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 Neighborhood Watch - 8 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance B. Mortgagee Monitoring 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance B. Mortgagee Monitoring 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 THIS SECTION PENDING – UNDER CONSTRUCTION 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance B. Mortgagee Monitoring 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 THIS SECTION PENDING – UNDER CONSTRUCTION 16 4. Loan Level Monitoring 17 a. Title I Loan Level Reviews 18 THIS SECTION PENDING – UNDER CONSTRUCTION 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance B. Mortgagee Monitoring 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 THIS SECTION PENDING – UNDER CONSTRUCTION [June 30, 2014] 23 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (1) Informal Conference 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 (1) Informal Conference 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 v. Processing and Appeals 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance 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 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance D. Enforcement 1 2 However, if circumstances warrant, the debarring official may impose a longer period of debarment. 3 v. Processing and Appeals 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 THIS SECTION PENDING – UNDER CONSTRUCTION 33 ii. Consultants 34 THIS SECTION PENDING – UNDER CONSTRUCTION [June 30, 2014] 41 FHA Single Family Housing Policy Handbook VI. Quality Control, Oversight and Compliance D. Enforcement 1 iii. Real Estate Brokers 2 THIS SECTION PENDING – UNDER CONSTRUCTION 3 iv. Nonprofits 4 THIS SECTION PENDING – UNDER CONSTRUCTION 5 [June 30, 2014] 42 FHA Single Family Housing Policy Handbook Glossary and Acronyms 1 FHA Single Family Housing Policy Handbook 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 FHA Single Family Housing Policy Handbook Glossary and 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 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 FHA Single Family Housing Policy Handbook Glossary and 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 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 FHA Single Family Housing Policy Handbook Glossary and 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 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 FHA Single Family Housing Policy Handbook Glossary and Acronyms 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 Theresa@MBS-Team.com Andrew J. Schell, CPA/CFF, CMB Managing Partner Mortgage Banking Solutions Host of “The Profit Doctor” Andy@MBS-Team.com 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 Servicing Rules from CFPB 2013-12 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. Servicing Rules from CFPB 2013-12 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 Servicing Rules from CFPB 2013-12 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 Servicing Rules from CFPB 2013-12 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 Servicing Rules from CFPB 2013-12 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. Servicing Rules from CFPB 2013-12 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 Servicing Rules from CFPB 2013-12 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 Rules from CFPB 2013-12 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 Rules from CFPB 2013-12 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” Andy@MBS-Team.com 512-501-2812 Theresa Marie, CIO Managing Director Metric Banking Solutions Theresa@MBS-Team.com 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 19 December 2014 39 40 FHA-Lender Update 20 December 2014 41 42 FHA-Lender Update 21 December 2014 43 44 FHA-Lender Update 22 December 2014 45 46 FHA-Lender Update 23 December 2014 47 48 FHA-Lender Update 24 December 2014 49 50 FHA-Lender Update 25 December 2014 51 52 FHA-Lender Update 26 December 2014 53 54 FHA-Lender Update 27 December 2014 55 56 FHA-Lender Update 28 December 2014 57 58 FHA-Lender Update 29 December 2014 59 60 FHA-Lender Update 30 December 2014 61 62 FHA-Lender Update 31 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 f .10percentageinannualMIP f z OnlyfirstͲtimehomebuyers z FAQ 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 SFFeedback@hud.gov. ECTION Whatisrequiredtobereported asafinding? FHA-Lender Update 1 GAGASandGAASsetforththeminimum requirementforreportingnoncompliance HUDrequiresadditionalreporting(reporting immaterialfindings) 1 December 2014 Whatisrequiredtobereported asafinding? 2 Chapter1oftheHUDAuditGuide: “HUDrequiresthereportingofallcompliance violationsandanidentificationoftotalquestioned costforeachfindingasaresultofnoncompliance. HUDrequiresthatallinstancesofnoncompliance withanyHUDrequirementorregulation,material weaknessininternalcontrol,allinstancesoffraudor illegalacts,andcontractviolationsbereportedas findingsintheauditreport.” Whatisrequiredtobereported asafinding? FHA-Lender Update 3 LanguageinChapter1indicatesthatallinstances ofnoncompliancearerequiredtobereportedas findings,but… Chapter2andChapter3(aswellasothers)both clearlystatethatonlymaterial noncompliance, deficienciesininternalcontrol,equityskimming, instancesoffraudorcontractviolationsare requiredtobereportedasafinding Duetolackofclarifyingguidance,auditorsareleft todecidewhichguidancetofollow 2 December 2014 Whatisrequiredtobereported 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: __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________
