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Based on FHA’s most recent Lender Insight newsletter (Insights), FHA lenders are not doing so well in managing their initial gross defects.
According to the FHA’s post-endorsement technical reviews, over the past 2 years, the initial unacceptable defect rate is averaging just south of 50%. That means that about half of the loans delivered for FHA insurance have substantial defects.
The good news is that the net defect rate is running at a monthly average of just about 6%, which is well below the initial gross rate. This indicates that lenders are curing somewhere around 44% of the defects.
The question is: “Why does this keep happening month after month?” FHA is concerned. They will begin to carefully analyze how lenders are addressing the causes of these initial defects. And, try to determine why they cannot provide FHA with the required information or documentation with their initial file submissions.
For your info, the referenced Lender Insights highlights the top 5 gross defects FHA is experiencing. These may be a good starting point for your reviews
It is evident by the final net defect rate that most lenders can cure the problems. They need to develop and implement action plans to review files to identify these problem areas and the missing information prior to the FHA submissions. This way they can make the cures before delivering an incomplete file and risking the wrath of FHA.
Pre and post-closing audits with defect reporting and related plans for corrective action are essential. As I’ve said before (and will keep on saying), you are required to perform these audits, why not get the biggest benefit for the cost and effort?
Quality counts. FHA will not continue to tolerate this poor performance. Don’t wait for them to take action. Get ahead of the curve and set your action plans in motion. It’s well worth the effort.
LoanLogics is standing by to assist.
