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HUD/FHA released the results of their Post-Endorsement Technical Reviews reflecting the status of these reviews as of March 1, 2016.
A total of 6,148 PETRs were processed in the 4th Quarter of Fiscal Year 2015 (July 1, 2015, thru Sept. 30, 2015) with the following results:
- Conforming – 1,126 cases (or 18%)
- Deficient – 2,151 cases (or 35%)
- Unacceptable – 336 cases (or 6%)
- Mitigated – 2,535 cases (41%)
In analyzing these statistics, it is important to note that 47% (2,871 cases out of the total of 6,148 PETRs processed) received initial ratings of Unacceptable. Of these cases, 2,535 of them (or 88%) were subsequently mitigated. This is a huge drain on resources for both FHA as well as the mortgage lenders involved.
In each case rated Unacceptable, FHA typically has a second internal level of review before a “Deficiency Letter” is transmitted to the lender. Upon receipt of the Deficiency Letter, the lender must then prepare a substantive response addressing each underwriting deficiency that is outlined in the letter.
The large majority of such cases involve missing key documents (e.g. properly executed gift fund letter, copy of Flood Certificate, source of funds documentation, etc.). If a thorough review of the loan file be performed by the lender before transmitting the file to FHA, these deficiencies could have been greatly reduced or eliminated altogether.
What is troubling to me is that these statistics have not improved despite FHA pointing out these concerns every quarter. It is significant to note that FHA’s Lender Insurance (LI) program accounts for approx. 77% of FHA’s current loan production.
Under this program, FHA must identify and request a case file from a lender when its targets a case for a PETR. Therefore, FHA lenders already know in advance what cases will be reviewed by FHA on a post-closing basis.
Before the Lender Insurance program was implemented, lenders were required to submit all closed loan files to the appropriate HUD office for insurance endorsement. As a result, lenders did not know which cases would be selected by HUD staff for a PETR.
Now, approved LI lenders have the opportunity to conduct a thorough review of the case binder before it is sent to HUD for review. So, shame on the lender if there are missing key documents which will subsequently generate a Deficiency Letter.
Some lenders may not be concerned since they have the opportunity for providing any missing docs on a rebuttal – so as they say in California “No Worries”. However, HUD continues to state in BOLD in their “Lender Insight” publication “FHA is committed to reducing the initial unacceptable rate and is focusing its attention on those lenders with a pattern of unacceptable findings that are easily mitigated”.
Sounds rather serious to me – unless you welcome the opportunity to have HUD Auditors perform an on-site review of your Firm’s operations.
Loading ...Other statistics that may be of interest to lenders relative to HUD’s FY 2015 4th Quarter PETR cases is that Early Payment Defaults * comprised a total of 1,969 cases (or 32% of the total sample) and that less than 2% of the forward mortgages insured by HUD in the 4th Quarter of FY 2015 were targeted for a PETR and approximately 4% of the HECM (or Reverse Mortgage) loans were reviewed on a post-closing basis. Perhaps HUD/FHA will increase its PETR review percentages going forward?
Stay tuned!
*(EPDs are loans that went into default status (60 or more days delinquent) within 6 months)
