Pre-Closing (or Pre-Funding) Reviews Will Now Be Required on FHA Loans
In HUD’s draft “Origination Through Post-Closing/Endorsement Handbook” it is stated that a mortgagee’s required Quality Control (QC) sample must comply with the following balance of pre and post-closing reviews:
- Pre-Closing Reviews – 10% or less of the QC sample size
- Post-Closing Reviews – 90% or more of the QC Sample size
Also – if a lender closes nine or fewer FHA loans during the prior one-month period – at least one loan must be selected for a pre-closing review.
This change in policy becomes effective on September 14, 2015. Previously, in HUD’s 4060.1 Handbook it was suggested to lenders that they “may want to sample cases prior to closing to evaluate the quality of processing and underwriting”. However, no standards for such reviews were set forth. In HUD’s new Single Family Housing Policy Handbook, the minimum requirements of a pre-closing review are outlined. They include the following:
- Appraisal
- Mortgage application, eligibility & underwriting documents
- Disclosures & legal compliance
- Mortgage origination documents
- Handling of mortgage documents
- Credit reports
- Outstanding debt obligations
- Verification of employment & deposit (this requirement is being reconsidered)
- Self-employed Borrowers
- Borrower’s source of funds
- Underwriting accuracy & completeness
- Property Flipping Restrictions
- Prohibited restrictive covenants
- Qualified Mortgage (QM)
- Good Faith Estimate (GFE)
- Discrepancies in the loan file
- Condition clearance
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Lenders should begin planning now regarding they intend to meet these new FHA requirements. Can they process these QC pre-closing reviews with in-house staff (separate from Production staff) or should they seek the services of a third party QC vendor? (Please Note: LoanLogics has extensive experience in processing pre-closing reviews and has superior technology and knowledgeable staff to process such reviews in a timely manner for any sized lender).
Mark your calendars now – lenders only have approx. 3 months remaining to make these decisions!