As a friendly reminder, for all loans with the FHA case number assigned as of August 1, 2016, a lender must execute the new, improved HUD 92900-A when approving the loan (92900-A).
This is the document containing the certifications made by the borrower and lender in connection with obtaining and granting an FHA-insured mortgage. This is the culprit that has caused so many major banks to shy away from FHA lending.
As a result, it inadvertently opened to door for more independent mortgage lenders to originate a much higher percentage of the FHA loans. This, however, is not without some risk.
The key lender certification is the one that acknowledges for the most part that the lender did everything to approve the loan in accordance with FHA requirements and there are no misrepresentations. The certification reads on page 4 as:
(h) The Mortgagee has exercised due diligence in processing this mortgage and in reviewing the file documents listed at HUD Handbook 4000.1, II.A.7.b. and the documents contain no defect that should have changed the processing or documentation and the mortgage should not have been approved in accordance with FHA requirements.
This is a straightforward certification that the loan was originated, approved, closed and endorsed for FHA insurance in accordance with all the rules.
So, why are banks so hesitant to make these FHA loans requiring this certification? Maybe because they have been burned in the past by general False Claims Act actions brought by DOJ for technical errors made in approving a loan.
Lenders making FHA loans, and this certification, must take care to follow all the FHA rules, requirements and guidelines to the letter. All the more reason to conduct complete, diligent pre and post-closing audits, as also required by FHA.
Such audits will highlight potential pitfalls and defects in the loan manufacturing process so adjustments can be made to correct deficiencies before they create an actionable event.
Better that you identify problems and initiate corrective actions before being forced to do under a DOJ, or FHA, settlement agreement.
Let a word to the wise be sufficient. Ensure that your FHA loans live up to the certifications you are required to make.