HUD/FHA QC Changes-Are You Prepared?

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The policy & procedural changes being implemented by HUD/FHA are scheduled to be effective as of June 15, 2015 – which is now only 2 months from now.

The good news – upon implementation of the new HUD Handbook in June 2015, the requirement for mortgagees to conduct annual on-site reviews of their Branch Offices (including nontraditional Branch and direct lending offices) will be eliminated.  This policy change will save lenders both time and resources as there were many items that comprised these Branch Office reviews – not to mention travel time and costs associated with conducting these on-site visits.

With respect to processing time frames for pre-closing and post-closing QC reviews, mortgagees will be required to select cases for post-closing reviews from the pool of loan transactions that closed in the prior one-month period and to complete the reviews within 60 days from the end of the month in which the loan was selected.  Cases selected for pre-closing reviews must be reviewed AFTER the loan is approved by a DE underwriter and PRIOR to closing.

Most FHA lenders will be required to perform QC reviews on 10% of the FHA loans that they originate/underwrite or service each month.  Pre-closing reviews will now be mandated by FHA,  but no more than 10% of the total monthly QC sample can be comprised of Pre-Closing reviews.  (Note: previously FHA only recommended that such reviews be processed)

As a result, lenders will have to process at least one Pre-Closing review case each month but not more than 10% of the total QC sample in order to meet this new requirement.  It should also be noted that a new credit report does not have to be obtained by a lender when processing a pre-closing review.

Stay tuned for future developments.  Many of my future blog posts and upcoming LendingLogics Newsletters will address the numerous FHA policy & procedural changes that are being implemented by HUD in June 2015.

It is highly recommended that everyone currently involved with FHA financing (lenders, brokers, appraisers, etc.) should access the www.hud.gov website – then search for “Hudclips” and look for Housing Handbook 4000.1.  The new updates and sections have just been added to this document and are accessible for all to read.

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.