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Normally, my colleague Gerry Glavey covers areas of credit and government underwriting, being an expert in these areas. However, in this case, I’m weighing in on a some important upcoming FHA changes.
Don’t look now but with all the attention being given to the upcoming TRID changes, just over the horizon, in plain sight, some very important things are happening over at FHA. Are you preparing to act?
FHA/HUD is publishing a new handbook (4000.1) to cover all areas of FHA loan origination through post-closing, including quality control (New HUD Handbook). This new handbook takes effect for loans with FHA Case Number assignments as of 6/15/2015. Pretty darn soon, I say!
There are a whole host of changes to the FHA loan process contained in this handbook. Here, I will address two which I think are extremely important to note. I strongly recommend you follow Gerry Glavey’s blogs and Newsletters for more comprehensive updates and analysis of the upcoming changes.
First, as of now, HUD says it will not issue a listing of the specific changes to their existing guidelines covering FHA loan administration now outlined in other handbooks. Their intent and expectation is that lenders must review the entire new handbook to become more familiar with all FHA/HUD requirements and identify the ones that are changed. The link I provided above will get to the current edition of the new handbook.
If you are an FHA lender, or thinking of becoming one, I strongly suggest you, or someone in your organization, take the time to read and review the new handbook. BTW, not to confuse anyone, the current version of the new handbook does provide notification of changes to prior versions of the same handbook.
Second, FHA will now require pre-closing audits on a certain percentage of projected FHA loans closing each month, along with the current requirements for their standard post-closing QC audits. Yes, this is new.
The FHA is jumping into the required pre-closing audit pool, along with Fannie and Freddie. The intention is to help lenders manufacture a better quality loan, reduce defects and increase the potential for better loan performance, with fewer defaults. All this will benefit the consumer, the lender and FHA. Lenders need to act now to be prepared to meet this new requirement.
FHA Lenders will need to perform a pre-closing audit on 10% of the projected FHA loans to be closed each month. This 10% audited pre-closing will count toward the total post-closing requirements. If you plan to close 200 loans, then you would normally perform a post-closing audit on 10% or 20 loans. Under the new requirement the lender would need than to do a pre-closing audit on at least 2 loans (10% of the 10% required post-closing selection). I think. Better stay tuned for some additional clarification on this.
The important part is that an FHA lender must have in place the process and people needed to perform pre-closing audits effective with case number assignments of 6/15/15. These must be separate and independent from the loan origination process.
Not only is CFPB throwing changes our way, FHA is getting in on the act with some big changes of their own. And these are coming much sooner. You have your homework. Prepare to perform the new required pre-closing audits of FHA loans and read the new handbook. It’s only about 560 pages. This shouldn’t take long; some light bedtime reading.
Looks as though FHA may have also found for you the next great American Novel ( and the plot thickens).
