Top 4 Mortgagee Review Board Findings for FHA Lenders
FHA’s Office of Lender Activities and Program Compliance is celebrating the one year anniversary for publishing the “Lender Insight Newsletter”. The Collingwood Group (“Collingwood”) thought this was a good time to summarize some of the key Mortgagee Review Board (“MRB”) findings from the five quarterly newsletters.
As you are likely very aware, the MRB has authority to sanction FHA approved lenders with enforcement actions ranging from a letter of reprimand to withdrawal of a lender’s FHA approval and many actions in between. As an example, for the period February 2011 through March 2014, the MRB issued Civil Money Penalties (CMP) totaling $11,105,000. Starting in 2014, the MRB can issue a CMP in the amount of $8,500 per violation. No small matter.
One deficiency commonly noted is the failure to implement and maintain a Quality Control (QC) Plan (QCP). The requirements for the QCP and how it is to be implemented are in the Lender Approval Handbook 4060.1 REV-2 Chapter 7. It is important to note that these requirements apply to servicers and loan originators alike.
Source: Issac Bowen
While FHA’s published information on the MRB actions related to deficient QC Plans and/or operations is not specific as to what the exact violations are, in Collingwood’s experience working with clients, as well as knowledge gained as FHA employees in the Quality Assurance Division, the following key issues has been developed:
1) Failure of the lender to review all early payment defaulted (EPD) loans on a monthly basis. Note section 7-6.D. of the Lender Approval Handbook which requires the review of all loans that become 60 days delinquent within the first six payments. A deficiency related to this is the failure to meet FHA’s sampling requirements; i.e. sampling too few loans. This can often be the cause of a QC department pulling, for example, 10% of all production or 10% of all government loans. FHA requires a 10% sampling of FHA loans (or a statistical sampling if a large originator or servicer).wood’s experience working with clients, as well as knowledge gained as FHA employees in the Quality Assurance Division, the following key issues has been developed:
2) Failure of the lender or servicer to self-report material findings. This requirement is found in the Lender Approval Handbook in Sections 7-3.I and J but the most recent information is in Mortgagee Letter 2013-41. In Collingwood’s experience, many lenders have not correctly calibrated their QC findings to meet FHA’s requirements for what is considered material and therefore must be self-reported. Risk ratings are often based upon investor requirements and not FHA requirements leading to under or over reporting, both of which can have a detrimental impact on a lender/servicer.
3) The QC Plan does not contain all of the elements required by FHA. It is not sufficient to cover what is perceived as “key” components to QC reviews. Whether a lender or servicer, the QC Plan must address every element required in the Lender Approval Handbook.
4) Failure to maintain and implement a QC Plan. As FHA requirements change, so must your company’s QC Plan be updated. A common mistake Collingwood has observed is the failure of management to document steps taken to correct deficiencies – or to take any corrective action at all. Tied to this issue is the failure to expand the sample of loans reviewed when a pattern of non-compliance is found.
Collingwood’s team of FHA experts is available to discuss these and other FHA related matters. Additionally, Collingwood and its partner Motivity Solutions has developed an on-line tool, NW Insight, to assist originating lenders in tracking their Compare Ratios and remain compliant with QC requirements such as providing an EPD report at the touch of a button and targeting QC samples as required by FHA (i.e. branch performance, DTI, underwriter, loan officer, number of units etc.)
 Civil Money Penalty payments based upon Federal Register Notices and FHA’s Lender Insight Newsletter.