HUD Press Release: FHA Announces Policy Changes to Address Risk and Strengthen Finances

Hud posted a press release this morning, announcing more policy changes. These changes are aimed at strengthening FHA's capital reserves while working to reduce risk. The announced FHA policy changes include:

1. Increased mortgage insurance premium (MIP)
2. Updated FICO scores and down payments
3. Reduced allowable seller concessions from 6% to 3%
4. Increased enforcement on FHA lenders

Read all the details in HUD's press release.

With all the recent regulation changes, it can be frustrating trying to keep up. We are happy to answer your questions. Visit www.MortgageComplianceAdvisors.com or call 877-226-3152.

MCA Monthly Update - January 2010

Find underwriting & processing tips and compliance updates in our January newsletter, including useful links and resources for the new RESPA Rule.

Get the latest regulation news from our new website

Check out our newly redesigned website to find upcoming regulation deadlines, the latest compliance news, and other helpful resources.

Our new website is designed to be a helpful central location where you can find an abundance of frequently updated information for regulations from FHA, Fannie Mae, Freddie Mac, VA, the FTC, etc. Each deadline or resource is linked to the official regulation or form, so that you can read the exact wording.

Regulations continue to change, but Mortgage Compliance Advisors will help you comply.

MCA Monthly Update - December 2009

Read our December newsletter, with tips for underwriting and processing, as well as compliance updates for FHA, Fannie Mae, and Freddie Mac.

Quality Control Guidelines Summarized for Fannie Mae, Freddie Mac, and FHA

Many investors and agencies, such as Fannie Mae, Freddie Mac, and FHA, require its lenders to have an active quality control plan in place. We wanted to help make the regulations more understandable for you, so we published an article summarizing basic quality control guidelines for Fannie Mae, Freddie Mac, and FHA. We hope you find the information useful — and we are always happy to answer your questions.

Read the full article summarizing QC guidelines for Fannie Mae, Freddi Mac, and FHA.

The Effects of HUD's Announcement from September 18, 2009

On September 18, 2009, HUD published a press release announcing numerous changes that are either proposed or already implemented, which affect FHA lenders and FHA loans. The most sweeping proposed change is that HUD/FHA will approve only Sponsor (investor, full eagle) lenders. FHA will then have the Sponsors approve the FHA brokers with whom they are willing to do business. Within one year, HUD intends to require an increase in the Sponsor’s net worth of $1,000,000 (increased from the present $250,000).

While the final rules are not yet in effect, it appears they will be implemented after a “notice and comment period.” Although these changes raise many questions which will require upcoming information from HUD/FHA, the following reflects our views on how this will affect lenders and brokers.

It is clear from the language of the press release that HUD is trying to make it easier for brokers to do FHA business, while at the same time putting more responsibility and accountability on both the broker and the Sponsor to make justified loans. HUD stated in the press release that “these lenders must have skin in the game,” which seems a clear indication that brokers and Sponsors will be held more accountable for loans produced than in the past.

Given the apparent intent of this new rule, it seems that the Sponsor will now be responsible to see that brokers are in compliance with the Quality Control expected by FHA, and presumably desired by the Sponsor. These Quality Control programs help ensure loans that comply with all regulations and laws, as well as minimize losses from bad loans. It is likely that even though the net worth requirements for brokers will be reduced or eliminated, Sponsors will continue to require Quality Control Plans and Quality Control audits in order to do business with them.

As HUD/FHA comes out with further announcements, we will keep you updated through our newsletter and social networks. Visit HUD's website to read the entire press release from September 18, 2009.


Keeping up with changing regulations can be a daunting task. Mortgage Compliance Advisors offers lending manuals for FHA, VA, and HECM that are easy to use and updated quarterly. For more information, visit www.MortgageComplianceAdvisors.com or call 877-226-3152.

Summary of FHA's guidelines for quality control plans

If you're just starting out with FHA or you'd like to know FHA's guidelines for quality control plans, check out our article summarizing FHA's requirements for QC plans.

New Lending Manuals a Good Reference for FHA, VA, and HECM

We're excited to announce the launch of lending manuals for FHA, VA, and HECM. We all know that new regulations just keep coming out for the mortgage industry, and it can get overwhelming trying to keep up with them all. Luckily, we have some very experienced and helpful people here at MCA, who have written easy to understand, complete guides for FHA, VA, and HECM. These manuals are updated quarterly, so you don't have to worry about falling far behind in the regulations. We also included links to the actual regulations, in case you want to see HUD's exact wording. And of course if you have any additional mortgage questions, you are always welcome to call in and ask. Trying to keep up with all the regulations and paperwork can be stressful, but we hope these lending manuals will save you some time and hassle.

We actually published a press release about this announcement. Just click this link to read the full article. Or, if you'd like to request more information about the manuals, just give us a call at 877-226-3252 or visit our web page for the FHA Lending Guide.

FHA Guidelines: How to Become FHA Approved

An easy to understand summary of FHA approval requirements for lenders.

FHA has grown rapidly in the past few years, fueled largely by tightening credit. In fact, over 20% of new home purchases are currently through FHA. As the volume of FHA loans increases, more lenders across the country are becoming FHA approved. However, the FHA approval process and paperwork can appear overwhelming, especially to smaller companies. To help lenders understand the guidelines, below is a brief summary of FHA’s approval requirements. (For a detailed list of all requirements, visit www.hud.gov.)

Organization Requirements

In order to reduce risk, FHA limits its approval to experienced, well-established organizations; the officer in charge of an organization’s FHA operation must have at least three years of mortgage experience. Furthermore, to be considered for FHA approval, an organization cannot be a sole proprietorship. Corporations, partnerships, LLC’s, chartered financial institutions, and government agencies are acceptable. Along the same lines, FHA approved organizations must have at least two full time employees and a commercial office location (not a home office).

Paperwork

Each prospective FHA lender must fill out the HUD 11701 application. FHA also requires certain letters and other documents, depending on the desired type of FHA approval (non-supervised loan correspondent, investing lender, etc.). For example, brokers wanting to become FHA approved must submit a sponsor/funding letter, whereas lenders need a funding program. For a list of all required documents by FHA approval type, see FHA Lender Approval Requirements.

Finances

Excluding “Government Mortgagee,” the application fee for all FHA approval types is $1,000. Additionally, lenders must submit audited financial statements with the application. The lender’s financial statements need to show at least $63,000 net worth with 20% liquid assets.

Quality Control Plan

Finally, FHA approval requires organizations to submit a quality control plan, in order to mitigate fraud and errors. Organizations can create a quality control plan themselves, or purchase one from a third party. As part of the quality control plan, lenders must audit 10% of the FHA loans they originate. These audits need to be performed regularly—within 90 days of the end of the month in which the loan closed.

Quality control audits may be performed in-house, if the lender properly trains and establishes a unit solely for quality control. The staff must not be involved in loan production. Alternatively, lenders may have a third party, such as Mortgage Compliance Advisors, LLC, perform the quality control function, as long as it meets HUD’s requirements.

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

About Mortgage Compliance Advisors (MCA):

MCA has grown to help clients across the country through the FHA approval process, and continues to help them stay compliant with regulations after approval. MCA's principals have a combined sixty years of experience in the mortgage industry, including thirteen years at the Salt Lake City HUD/FHA office. As a former FHA branch chief, MCA’s principal Bob Warnock can advise clients through every step of the FHA approval process.

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.

Dropping Interest Rates Boost FHA Mortgages and Need for Quality Control

With mortgage rates at their lowest levels in over 20 years, brokers, retail lenders, wholesale lenders, banks, and credit unions are seeing increased volume in their residential mortgage pipelines. With this increase comes a need for sound quality control practices.

Salt Lake City, UT - February 11, 2009 – Recently, the Associated Press reported that mortgage rates reached 4.96 percent in mid-January. This is the lowest recorded level since Freddie Mac began its rate survey in 1971. With interest rates so low, the volume of residential mortgage loans has steadily increased, particularly in the FHA arena. So that a certain level of quality is maintained, one of HUD’s requirements is that institutions originating FHA loans perform an audit on 10% of the loan files that they have either closed or cancelled. These audits can either be done on a quarterly or monthly basis, depending on volume. In some circumstances, other agencies and investors are adapting this same requirement. According to Craig Christensen, President and COO of Mortgage Compliance Advisors, LLC, “more and more investors are requiring brokers, correspondents, and others to have a quality control plan in place that provides for [quality control] audits, before approval or renewal of contracts.”

Third party firms, such as Mortgage Compliance Advisors, LLC, can perform this 10% quality control file audit function, along with other compliance and quality control functions, for brokers, lenders, banks, and credit unions. These services help organizations remain compliant with FHA, investor, and other agency guidelines and maintain high loan quality. Furthermore, since quality control file audits are required by HUD/FHA, HUD mortgagees will be prepared for the eventuality of an FHA onsite audit, by keeping management reports (a summary of the files audits for a certain period) on file.

Management reports (sometimes referred to as quality control findings reports) are filled with detailed information that will significantly improve quality control. For example, when auditors at Mortgage Compliance Advisors, LLC, perform a file audit, they use a comprehensive audit checklist to check each page for accuracy and then record their findings. After the post-closing or cancelled file audit is complete, management reviews the audit’s findings and summarizes them into a management report that is accurate and easy to understand. Approximately 30 days after the files selected for audit have been received, Mortgage Compliance Advisors sends the report to the client to review. After reviewing the report, management can take any necessary action to ensure continued loan file quality and compliance with HUD/FHA or other conventional guidelines.

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 senior management positions with national retail and wholesale lenders.

For additional information on FHA file audits or questions about FHA approval, visit www.MortgageComplianceAdvisors.com.

Contact:
Sarah Adams – Director of Marketing
Mortgage Compliance Advisors, LLC
5505 South 900 East, Suite 110
Salt Lake City, UT 84117 Phone: 877-226-3217 Fax: 801-264-0301 sarah@mortgagecomplianceadvisors.com

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