FHA’s Post-Endorsement Technical Review Results – Third Quarter of FY 2015

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HUD/FHA released the results of its Post-Endorsement Technical Reviews (PETRs) that were processed in the third quarter of FY 2015 (April 1, 2015, through June 30, 2015), in its most recent Lender Insight Report issued in December 2015.  The results of their PETR Ratings on these cases (as of October 31, 2015) were as follows:

Lenders should take note that a total of 2,859 cases (or 45%) of the total number of cases reviewed had initial ratings of Unacceptable during this time-frame of April through June 2015 and that all but 317 of these cases subsequently had their ratings Mitigated.

The reason for this is that the Mitigated cases primarily involved documentation errors (either missing docs or incomplete docs) which are easily resolved by the lender providing HUD/FHA with the missing and/or incomplete document.

This was the primary topic of my December 2015 LendingLogics Newsletter and continues to be a big issue for the industry.

The GSE’s, as well as the Federal Housing Agencies, have all expressed their concerns about the huge drain on resources in processing pre and post-closing reviews on files that are not complete.

Fannie Mae’s staffers have an active campaign underway to reduce these documentation errors by sharing case-specific reports with the largest violators.  They reportedly have seen a 40% reduction in such cases since their campaign started.

In FHA’s Lender Insight publication, it is stated in bold that “FHA is committed to reducing the initially unacceptable rate and will focus its attention on lenders with a pattern of unacceptable findings that are easily mitigated”. 

So – a Word-to-the-Wise for FHA lenders – just because you successfully mitigated many of your initial Unacceptable PETR cases – does not mean that FHA is not concerned about a pattern of such defects.  Chances are greater that your Firm will likely be targeted for an on-site monitoring visit in the near future if you have large numbers or percentages of Mitigated cases.

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There were a total of 6,415 PETRs processed in the third quarter (4,383 were on performing loans and 2,032 were on Early Payment Defaults) while there was a total of 348,457 forward & reverse mortgages insured in that same quarter. This all according to the statistics provided by HUD in its Lender Insight publication as well as its Third Quarter Fiscal Year 2015 Production Report.

These results indicate that HUD/FHA processed post-closing reviews on less than 2% of the loans that it insured in the Third Quarter.  Although, the third quarter saw a substantial increase in loan production over the previous quarter, this PETR review level is rather low and should be of concern to Senior HUD staff.

It could be argued that FHA is utilizing a better targeting methodology in selecting cases for post-closing reviews.

A 2% review level is too low, in my opinion, due to the higher risk aspect that FHA loans pose because of their low down payment requirements and other more liberal underwriting criteria.

Perhaps HUD/FHA will increase its PETR review percentages going forward?

Stay tuned!

About the Author

Gerry Glavey

Gerard (Gerry) Glavey is Senior Vice President / Chief Credit Officer for LoanLogics. Gerry has decades of experience working in residential mortgage credit and compliance and brings insights that few in the industry can match. In his role, he develops new services and provides support for all post close quality control and quality assurance, pre-close quality control, due diligence services, and document processing services. He spent 37 years with the US Department of Housing and Urban Development, where most recently he was the Director, Processing and Underwriting Division for the Home Ownership Center (HOC) in Philadelphia. In this capacity, Mr. Glavey was responsible for the administration of all HUD/FHA Single Family Loan Origination activities, including underwriting, appraisal and endorsement for the 16 state jurisdiction of this HOC.