From FHA Commissioner

We found something interesting from HUD today and thought it might be helpful to you lenders. HUD posted a letter today from FHA Commissioner David H. Stevens with questions and answers for various topics, such as new FHA policies, reasoning behind changes to the FHA approval process, the new RESPA rule taking effect on January 1, 2010, etc. Read the whole letter here.

MCA Monthly Update - September 2009

Welcome to the MCA Monthly Update. To help you stay compliant and up-to-date, each newsletter we send contains underwriting tips, processing tips, and compliance updates. We hope that you find the content informative and useful. As always, your feedback is appreciated. If you have any questions, simply reply to this email or call us at 877-226-3216.

Additionally, for real time compliance news, you can now follow us on Twitter and Facebook.


UNDERWRITING & PROCESSING TIPS

Based on some common findings from quality control audits, we have compiled a list of three tips from the month of August.

1. We are seeing TIL Disclosures on FHA loan files with conventional parameters. Remember on the initial TIL disclosure, the FHA late fee is 4% (not 5%) and the loan is assumable with conditions.

2. The Servicing Disclosure dated January 16, 2009, is now mandatory--any older version is unacceptable. Make sure it is properly completed with appropriate boxes checked.

3. We continually have problems determining compliance with the advance disclosures for TIL and RESPA. Remember, if the application and all disclosures are not completed in a face-to-face interview with signatures, use a date stamp showing “documents mailed to applicant(s) on September 3, 2009.” The date stamp should be on both the original as mailed and the file copy. When the original is returned by the applicant, the processor should remove the file copies to eliminate duplicate copies in the file.

FHA UPDATE

• Electronic Annual Certification to Replace Title II Yearly Verification Report: Letter 09-25. “Effective September 1, 2009, all program participants seeking renewal as an FHA-approved mortgagee must complete the electronic Annual Certification as a component of the renewal process [which replaces the paper Yearly Verification Report].” (View the entire letter.)

• Eligibility of Projects for Mortgage Insurance where Construction has Started: Letter 09-26.. This letter “temporarily authorizes and establishes policy for Section 220, 221(d) and 231 mortgage insurance programs for multi-family proposals that were unable to complete construction due to a loss of funding..” (View the entire letter.)

To view all HUD Mortgagee Letters for the year, visit the official website http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm.

For information about our FHA, VA, or HECM reference manuals with regulations and policies updated quarterly, visit our website.


FANNIE MAE UPDATE

• Retirement of HomeStyle® Construction-to-Permanent: Announcement 09-28.. “Fannie Mae will be retiring the HomeStyle Construction-to-Permanent mortgage product… Effective immediately, lender applications for HomeStyle Construction-to-Permanent approval will no longer be accepted. Closed HomeStyle Construction-to-Permanent loans must be purchased by Fannie Mae from existing approved lenders by November 30, 2009.” (View the entire announcement.)

• Reminder: From Announcement 09-19, dated June 8, 2009: “Form 4506-T Lender Tips.”. On or after September 1, 2009, “Fannie Mae’s updated policy regarding use of IRS Form 4506-T to validate borrower income documentation (Announcement 09-19) requires the lender to:

- have all borrowers (regardless of income source) complete and sign Form 4506-T at both application and closing

- add the execution of Form 4506-T with the IRS (directly or through an authorized vendor) to their written quality control (QC) plan (refer to the Selling Guide, Subpart D1, Lender QC Process, for details about lender QC requirements)” (View the entire announcement.) If you need help complying with this rule, give us a call.

To view all Fannie Mae Announcements and Letters for the year, visit https://www.efanniemae.com/sf/guides/ssg/2009annlenltr.jsp?referrer=frpromo.


FREDDIE MAC UPDATE

• Single-Family Seller/Servicer Guide: Bulletin 2009-22.. This bulletin makes several changes to selling requirements, including guidance regarding area median income changes, amending appraisal requirements for super conforming mortgages, and updates for several forms and exhibits. (View the entire bulletin.)

• Off-cycle Update to Exclusionary List: Industry Letter dated August 21, 2009.. The Freddie Mac Exclusionary List has been updated and may now be accessed via the Freddie Mac Selling System, MIDANET, MultiSuite, and Loan Prospector.

“As a reminder…Seller/Servicers [are required] to represent and warrant that they have not employed and will not employ any person listed on the Freddie Mac Exclusionary List as a Principal in connection with any Mortgage sold to Freddie Mac or in connection with any function related to such a sale.” (View the entire industry letter.)

To view Freddie Mac news, visit http://www.freddiemac.com/singlefamily/.

MCA Monthly Update - July 2009

Welcome to the MCA Monthly Update. To help you stay compliant and up-to-date, each newsletter we send contains underwriting tips, processing tips, and compliance updates. We hope that you find the content informative and useful.

For next month’s newsletter, we would like to address the biggest issues you are facing in the mortgage industry. Please let us know about any industry issues that you find confusing, or if you just want some more information. We’ll try to answer all your questions in the next newsletter.

REMINDER: APPROACHING DEADLINE OF RED FLAGS RULE

As a reminder, the Federal Trade Commission’s Red Flags Rule will go into effect in less than a month, on August 1. The FTC will require that all financial institutions and creditors, including mortgage brokers and mortgage lenders, have in place a written identity theft prevention program, also known as a Red Flag Policy. (For more information, visit www.FTC.gov or contact us with your questions.)

UNDERWRITING & PROCESSING TIPS

Based on some common findings from quality control audits, we have compiled a list of three tips from the month of June.

1. Make sure that the application and initial disclosures have correct dates. If they are mailed, be sure to date stamp when they were sent in the mail, to stay in compliance with the three day rule.

2. For Prepaid Finance Charges (PFC’s), make sure that they are disclosed accurately on the initial TIL, and clearly marked on the initial Good Faith.

3. Last month we mentioned that everyone should have a closing package from the closing agent for their file. FHA requires lenders to get and maintain copies of at least the HUD-1’s, Note, Deed of Trust, and the final Truth in Lending.

FHA UPDATE

HUD frequently publishes updates, known as Mortgagee Letters, containing new policies and other information for lenders. Since our last newsletter, HUD has published three additional letters. Below is a brief summary of all three:

• Energy Efficient Mortgages – Increase in the Dollar Amount of Energy Efficient Improvements: Letter 09-18. “In addition to the base FHA maximum mortgage amount limit, which is calculated on the value of the home, the mortgage loan amount for an Energy Efficient Mortgage (EEM) can be increased by the cost of effective energy improvements…

The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
o the value of the property, or
o 115% of the median area price of a single family dwelling, or
o 150% of the conforming Freddie Mac limit.” (Click here to view the entire letter.)

• Condominium Approval Process – Single Family Housing: Letter 09-19. FHA “is implementing a new approval process for Condominium Projects to insure mortgages on individual units… FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations.

…[this letter] provide[s] guidelines and instructions on options available to lenders to receive mortgage insurance on condominium units which are located in a project.” (Click here to view the entire letter.)

• Processing Pre-Application Firm Invitation and Firm Commitment Extension Requests: Letter 09-20. This letter discusses FHA’s “policy to grant temporary authority to Multifamily Hub/Program Center Directors to grant one extension, for up to 90-days, of the pre-application firm invitation letter and one 120-day extension of an issued Firm Commitment. The authority granted under this Mortgagee Letter expires December 31, 2009.” (Click here to view the entire letter.)

To view all HUD Mortgagee Letters for the year, click here.

FHA Guidelines Require 10% Quality Control File Audits

As the number of FHA loans rapidly increases, HUD stresses the requirement to implement and maintain a comprehensive quality control plan that follows FHA guidelines.

FHA insured mortgage loans experienced phenomenal growth in 2008. After a large drop in its share of new mortgages in the early ‘90’s, tightening credit has caused an upsurge in FHA loans. In fact, FHA’s share of insured mortgages increased to 26% in 3rd quarter 2008, up from only 3% in 2007. As the volume of FHA loans increases, more lenders are becoming FHA approved. Once approved, they are met with the task of staying in compliance with FHA guidelines. In Mortgagee Letter 09-12 published for FHA approved lenders, HUD stresses the requirement to “implement and maintain a comprehensive quality control plan.” HUD further explains in Letter 09-01 that if a lender “fails to comply with HUD’s policies and procedures, HUD will take the appropriate action…which may include termination of mortgagee [FHA] approval.” (To view all HUD mortgagee letters, visit HUD's official website.)

According to FHA guidelines, before a lender can become FHA approved, they must submit a quality control plan. As stated in chapter 7 of the HUD 4060.1 handbook, a lender “must review [audit] 10% of the FHA loans it originates,” as part of its quality control plan. These mortgage audits can either be performed internally or by a third party provider. If done internally, the lender must establish and properly train a unit dedicated to quality control. FHA guidelines go on to explain that the staff must not be involved in loan production.

Third party providers can also perform these mortgage file audits, and even provide quality control plans that meet FHA guidelines. For example, Mortgage Compliance Advisors, LLC, can provide a quality control plan and perform the required quality control file audits for an FHA approved lender. When the file audits for a certain period are complete, the audit findings are compiled in a management report and sent to the lender. Third party providers do not report to HUD/FHA. Instead, it is the responsibility of management to review the findings and make any necessary changes to prevent similar findings in the future. When FHA conducts an audit, they want to see in writing what actions have been taken by the lender to stay in compliance with FHA guidelines.

For more information on quality control file audits or FHA guidelines, visit www.MortgageComplianceAdvisors.com or call 877-226-3217.

MCA Monthly Update - April 2009

Welcome to the MCA Monthly Update. To help you stay compliant and up-to-date, each newsletter we send in the future will contain underwriting tips, processing tips, a quality control update, and an FHA update. For this month, we thought it would be helpful to summarize a few of HUD’s official mortgagee letters for the year. We hope that you find the content informative and useful. As always, your feedback is appreciated.

FHA UPDATE

HUD frequently publishes updates, known as Mortgagee Letters, containing new policies and other information for lenders. For the year 2009, HUD has already posted 14 letters. Below is a very brief summary of five of them, along with our interpretation:

· Annual Renewal of FHA Approval: Letter 09-01. “In order to maintain its status as an FHA-approved mortgagee, a mortgagee is required, among other things, to timely file annual audited financial statements that meet the requirements of the Secretary, sign and submit a yearly verification report and pay an annual fee for its main and registered branch offices.

…If a mortgagee fail[s] to meet one or more of the…annual renewal requirements, the Department [sends] a Notice of Violation… The Mortgagee Review Board may, among other things, impose penalties and/or withdraw the mortgagee’s FHA-approval or permit the Department to enter into a settlement agreement… If a mortgagee’s FHA-approval is terminated, that mortgagee may not reapply for FHA approval until 12 months after the effective date of their termination.”

MCA Interpretation – FHA is going to be tougher on late renewals by brokers and lenders, and may not allow a late renewal at all.

· Loan Limit Increases for FHA: Letter 09-07. Under both HERA and ESA, and thus under ARRA as well, the FHA national floor limits remain set at the 65 percent amount (the “floor,”) by property size.

MCA Interpretation – FHA has changed the loan limit floor and ceiling. To check for the loan limit in each area, go to https://entp.hud.gov/idapp/html/hicostlook.cfm

· Limits on Cash-Out Refinances: Letter 09-08. “Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value.”

· Adoption of Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) and Appraisal Reporting Requirements for Properties located in Declining Markets: Letter 9-09. “In order to ensure greater transparency and accuracy of appraisals performed for FHA-insured financing, FHA will adopt the Market Conditions Addendum (Fannie Mae Form 1004MC/ Freddie Mac Form 71, released November 2008).”

MCA Interpretation – Appraisals performed after April 1, 2009 must include the market condition addendum. FHA lenders are responsible for poor or fraudulent appraisals.

· Mortgagee Monitoring: Letter 09-12. “While not an exhaustive list, it is imperative that you ensure your organization:

- implements and maintains a comprehensive quality control plan,

- reviews all loans with early payment defaults;

- does not engage in false or misrepresentative advertising;

- fully documents the stability and amount of borrower(s) income; and,

- does not charge excessive and unallowable fees to the borrower.”

To view the complete letters, visit www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm. The remaining letters address multiple topics, including free education and outreach flyers to distribute to FHA borrowers, Tier 1 rankings with increased loss mitigation incentives, guidance for the HECM for Purchase program, etc.

For more information on FHA compliance, visit www.MortgageComplianceAdvisors.com.

Mortgage Compliance Advisors Launches File Audit & FHA Approval & Quality Control Services

June 13, 2008 ( PowerHomeBiz ) - Salt Lake City, UT www.MortgageComplianceAdvisors.com -- Mortgage Compliance Advisors, LLC (MCA) -- FHA approval is made simple by following the step by step process that Mortgage Compliance Advisors offers. MCA will walk you through the costs, paperwork, and FHA requirements to determine feasibility. MCA also provides an outsourcing solution to brokers, lenders, and financial institutions that alleviates the burden and expense of regularly auditing, in-house, a 10% file sampling as required by federal and/or state agencies.

Also, for lenders who are not FHA approved and want to apply for approval, Mortgage Compliance Advisors will guide and help with the entire process including:
Determining feasibility of approval -- Supply needed forms Help with preparation of documentation required by FHA for approval Provide resources for bonding/audits/sponsors – Help with assembling of approval package Follow up with FHA if difficulties arise Mortgage Compliance Advisors’ file audit process is efficient and effective. First, MCA randomly chooses, from a list provided by the lender, files to be reviewed. FHA requires file audits on 10% of a company’s closed files. Depending on volume, these audits are to be completed either on a monthly or quarterly basis. Some states require pre and post-closing file audits as well.
Once Mortgage Compliance Advisors has received the files to be reviewed, the assigned auditor uses a standardized checklist MCA has developed to review all documentation contained in a file and re-verifies documentation as needed. The auditor will also compare documentation to insure accuracy, as well as review the appraisal. A new credit report will be pulled on every file and appraisal field reviews will be completed as agency guidelines require. Once the file audits have been completed, MCA will provide a management report of significant findings and summaries.
In addition to full file audits (post-closing, pre-closing, and defaults) and FHA approval services, MCA provides loan file fraud detection services, training and CE courses, quality control plans, operational reviews, and consulting services.

About Mortgage Compliance Advisors, LLC (MCA):
MCA was founded on the premise of providing mortgage brokers, retail lenders, wholesale lenders, and banking institutions of all sizes with a sound alternative for meeting their mortgage compliance needs. MCA’s principals, Bob Warnock and Craig Christensen, have a combined sixty years of experience in the mortgage industry. Thirteen years of Bob Warnock’s thirty-five year career in the banking and mortgage industry were spent at the Salt Lake City HUD/FHA office, first as an underwriting specialist, then branch chief over underwriting and insuring, and finally as Field Office Chief with responsibility to oversee lender approval, underwriting, insuring and the assignment program. Much of Craig Christensen’s 25 year career has been in management positions with national retail and wholesale lenders.

Contact Info:
Brandt Page-Director of Sales & Marketing
5505 South 900 East, Suite 110 Salt Lake City, UT 84117 Phone: 801-649-6038 - Fax: 801-264-0301 bpage@mortgagecomplianceadvisors.com
http://mortgagecomplianceadvisors.com

Frequently Asked Questions

The FAQs below apply directly to FHA approved mortgagees and non exempt residential mortgage entities in certain states; however, their application may be prudent for non FHA approved mortgage origination entities as well.

1. Do I have to have a Quality Control Plan?
2. Do any states currently require a Quality Control Plan?
3. What are the goals of Quality Control?
4. Does the Quality Control function need to be independent of the origination function?
5. Do persons performing Quality Control reviews need to be qualified?
6. When should Quality Control reviews be performed?
7. How and how many loans are chosen for review?
8. What needs to happen during the Quality Control loan review?
9. Can my accountant provide Quality Control reviews?

1. Do I have to have a Quality Control Plan?

   All FHA approved mortgagees, including loan correspondents, must have in place and implement a Quality Control Plan for the origination of insured mortgages as a condition of receiving and maintaining FHA approval. A copy of the plan must be submitted when applying for mortgagee approval. Quality Control must be a prescribed and routine function of each mortgagee�s operations whether preformed by a mortgagee�s staff or an outside source.

   
   

2. Do any states currently require a Quality Control Plan?

   The Utah Division of Real Estate currently requires that principal lending managers establish and maintain a Quality Control Plan that includes at a minimum procedures for performing pre-closing and post-closing auditing of at least 10 % of all loan files and taking corrective action for problems identified through the audit process. Quality Control Plans which comply with HUD/FHA or Freddie Mac requirements shall be deemed to be in compliance with this rule.

   
   

3. What are the goals of Quality Control?

   The following are the overriding goals of Quality Control. Mortgagees must design programs that meet these basic goals:

   • Assure compliance with FHA's and the mortgagee's own origination or servicing requirements throughout its operations;
   • Protect the mortgagee and FHA from unacceptable risk;
   • Guard against errors, omissions and fraud; and
   • Assure swift and appropriate corrective action.

   
   

4. Does the Quality Control function need to be independent of the origination function?

   The Quality Control function must be independent of the origination function. This independence may be accomplished in a variety of ways. Depending on a mortgagee's operations, loan volume, staff size or other factors, a mortgagee may prefer one method over another. Quality Control functions may be performed using:

   1. In-House Staff Mortgagees may establish a unit that is dedicated solely to Quality Control. Staff performing Quality Control reviews must not be involved in the day-to-day processes that they are reviewing.

   2. Outside Firms Mortgagees may engage outside sources to perform the Quality Control function. The FHA approved sponsors of loan correspondents are acceptable as such outside sources. A mortgagee contracting out any part of its Quality Control function is responsible for ensuring that the outside source is meeting HUD's requirements. Any agreement with the outside source must be in writing, state the roles and responsibilities of each party, and be available for review by HUD staff.

   
   

5. Do persons performing Quality Control reviews need to be qualified?

   Mortgagees must properly train staff involved in Quality Control and provide them access to current guidelines relating to the operations that they review. A mortgagee contracting out any part of its Quality Control function is responsible for ensuring that the outside source is meeting HUD's requirements.

   
   

6. When should Quality Control reviews be performed?

   Mortgagees must ensure that quality control reviews are performed on a regular and timely basis. Depending on a mortgagee's production volume, origination reviews may be performed weekly, monthly, or quarterly. The review of a specific mortgage should be completed within 90 days of closing.

   For mortgagees closing more than 15 loans monthly, quality control reviews must be conducted at least monthly and must address one month's activity. Mortgagees closing 15 or fewer loans monthly may perform quality control reviews on a quarterly basis.

   
   

7. How and how many loans are chosen for review?

   The Quality Control Program must provide for the review of a representative sample of a mortgagee's loans. This review must evaluate the accuracy and adequacy of the information and documentation used in reaching decisions in either the origination or servicing processes.

   Because it is not feasible to review all loans originated during a period, the Program must require that an appropriately sized sample is selected and evaluated during each review. A mortgagee who originates and/or underwrites 3,500 or fewer FHA loans per year must review 10% of the FHA loans it originates. A mortgagee who originates and/or underwrites more than 3,500 FHA loans per year may review 10 % of its loans or a statistical random sampling that provides a 95 % confidence level with 2 % precision. Each review must document how the sample size and selections were determined.

   
   

8. What needs to happen during the Quality Control loan review?

   The Quality Control Program must provide for the review and confirmation of information on all loans selected for review.

   1. Credit Report. A new credit report must be obtained for each borrower whose loan is included in a Quality Control review, unless the loan was a streamline refinance or was processed using a FHA approved automated underwriting system exempted from this requirement.
   2. Credit Document Reverification. Documents contained in the loan file should be checked for sufficiency and subjected to written reverification.
   3. Appraisals. A desk review of the property appraisal must be performed on all loans chosen for a Quality Control review except streamline refinances and HUD Real Estate Owned (REO) sales. In certain circumstances, a field review may be required.
   4. Occupancy Reverification. In cases where the occupancy of the subject property is suspect, mortgagees must attempt to determine whether the mortgagor is occupying the property.
   5. Underwriting Decisions. Each Direct Endorsement loan selected for a quality control review must be reviewed for compliance with HUD underwriting requirements, sufficiency of documentation and the soundness of underwriting judgments.

   6. Condition Clearance and Closing Each loan selected for a quality control review must be reviewed to determine whether:

      • Conditions which were required to be satisfied prior to closing were in fact met prior to closing;
      • The seller was the owner of record, or was exempt from the owner of record requirement in accordance with HUD regulations;
      • The loan was closed and funds disbursed in accordance with the mortgagee's underwriting and subsequent closing instructions; and
      • The closing and legal documents are accurate and complete.

   
   

9. Can my accountant provide Quality Control reviews?

   There is often confusion with mortgagees in regard to the annual financial/FHA rule audit performed by an accountant and the at least quarterly Quality Control file audits performed by properly trained staff separate of production or by a qualified outside firm. The annual financial /FHA rule audit and the at least quarterly Quality Control file audits are two separate and distinct functions that must be conducted by mortgagees.

   Concerning the Quality Control file audits, mortgagees are required to properly train staff that are solely dedicated to Quality Control and provide them access to current guidelines relating to the operations that they may review.

   If mortgagees engage outside sources to perform any part of its Quality Control function, the mortgagee is responsible for insuring that the outside source is meeting HUDs requirements. Quality Control reviews must be done at least quarterly and must review the credit and collateral package in the loan file including compliance with HUD underwriting guidelines, assuring prior to closing conditions were met, closing documents were accurate and complete and the loan funded per underwriting and closing instructions. Any agreement with the outside source must be in writing, state the roles and responsibilities of each party, and be available for review by HUD staff.

   If outside sources, including accountants, are properly trained, have access to current HUD guidelines, are sufficiently familiar with HUDs requirements on all aspects of the loan process from application to funding, provide reviews at least quarterly and provide clear findings as to source and cause of deficiencies in writing to the mortgagee and to HUD as requested, the mortgagee can be relatively confident the outside source is qualified to conduct Quality Control reviews.

For more information, visit www.MortgageComplianceAdvisors.com.

FHA, FHA Approval Services, FHA file audit, File Audits, HUD, Mortgage Compliance, Mortgage Compliance Training and Education, Mortgage File Audit, Mortgage QC plan, Mortgage Quality Control

Welcome to

Mortgage Compliance Advisors, LLC (MCA) was founded on the premise of providing mortgage brokers, retail lenders, wholesale lenders, and banking institutions of all sizes with a sound alternative for meeting their mortgage compliance needs. Our combined sixty years of knowledge, experience, and processes take the guesswork out of evolving compliance issues and tasks. The compliance services we offer give our clients more time and resources to originate new mortgage transactions as well as manage existing transactions through to closing; all while knowing that compliance is not being compromised. Ultimately, we view our client relationships not as short term business relationships, but as long term strategic partnerships focused on maximizing productivity and sustainability.

MCA provides comprehensive mortgage compliance solutions, including:

--FHA and Conventional Quality Control File Audits
• Post-Closing
• Pre-Closing
• Defaults
• Fraud Detection
-- FHA Approval Services
-- Quality Control Plan Implementation
-- Operational Reviews
-- Training and Education Courses
-- Advisory and Consulting Services

5505 South 900 East, Suite 110
Salt Lake CIty, UT 84117
phone 801-649-6038 fax 801-264-0301
info@mortgagecomplianceadvisors.com -- www.mortgagecomplianceadvisors.com