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HUD/FHA’s draft “Origination Through Post-Closing/Endorsement Handbook”, states that loan transactions must be selected for post-closing reviews on a monthly basis with the selection comprising loans closed in the prior month.
The loans that are selected for review must be processed within 60 days from the end of the prior one-month period. This is quite a reduction in processing time from the current 90 day requirement.
Handbook (4000.1) is currently targeted to become effective for FHA loan transactions that obtain their case number on or after September 14, 2015. If you want written confirmation of this change – refer to page #502 of this draft Handbook which is available on the FHA.gov website (type in 4000.1 in the Search Box). Because this is rather a substantive change, lenders and QC vendors should begin planning now in order to meet this new standard.
Loading ...This reduction in post-closing QC review times will also apply to reviews of Early Payment Default (EPD) cases. HUD defines an EPD as a loan transaction that becomes 60 days past due within the first six payments.
The 4000.1 Handbook (page #502), states that loans that are identified each month as an EPD must be reviewed within 60 days from the end of the month in which the loan was selected. Previously, HUD did not specify a timeframe in which EPDs had to be reviewed but it was assumed that an acceptable timeframe would be consistent with the 90 day rule established for other cases selected for QC post-closing reviews.
I’m sure that intent of these changes is to ensure that problems detected via a post-closing review are identified sooner. Therefore, corrective actions can be taken to minimize risk on loan transactions currently in the pipeline.
Although this objective is praiseworthy, it will create logistical problems for lenders and third-party vendors in meeting these greatly reduced timeframes. Sometimes, the quality of reviews suffers when staff are hard pressed to meet shortened deadlines. That will pose a challenge for all QC/Compliance Division Managers.
Perhaps HUD will modify this draft rule before the September 14, 2015 effective date? I would propose a reduction to 75 days which I believe is more reasonable.
Stay tuned!
Keep reading our Blogs and Newsletters for updates. Also, FHA is conducting a free Webinar on the upcoming Handbook changes on August 20th. For more information – go to the http://www.fha.gov website and type in 4000.1 Handbook in the Search Box.
I would like to know how companies are addressing the requirements for pre-funding re-verifications. I would also like to see how others are interpreting HUD’s stated requirement that 10% of loans must be reviewed pre-funding and 90% post-closing?
I am a current member of the MBA’s Residential Loan Committee and we have been advised (verbally) by Senior HUD staff that they intend to delete the requirement to process re-verifications on pre-closing cases (due to many industry complaints received to date). Since these policies do not become effective until 9/14/15 – we will have to wait to see if this requirement will be officially deleted.
Regarding pre-closing (or pre-funding) reviews – such reviews cannot account for more than 10% of a lender’s total monthly QC requirement. As a result, I would expect most lenders to process pre-closing reviews on 10% of their cases each month. LoanLogics is a third party QC Firm and we are taking steps to process more pre-closing reviews as HUD has not mandated that such reviews be processed in the past.
Thank you, Gerry. I would appreciate any updates you hear on this going forward. I’m having a heck of a time finding any chatter on-line about this subject.