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Thursday, October 1, 2015

New HUD Handbook: Pre-closing Quality Control

Is it true that the new FHA Guidelines require Pre-Closing Quality Control reviews?

Yes.  The U.S. Department of Housing and Urban Development issued a new handbook, FHA Single Family Housing Policy Handbook 4000.1, which is effective as of September 14, 2015 (“Handbook”). Under the Handbook, mortgagees must select FHA-insured mortgages for pre-closing quality control reviews on a monthly basis.  

Mortgages selected must be reviewed after the mortgage is approved by an FHA Directed Endorsement Underwriter and prior to closing. [4000.1 - V.A.3.a.i.(A)]   

As with post-closing reviews, loans selected for pre-closing reviews must consist of both random and discretionary samplings. [4000.1 - V.A.3.a.iv] 

However, unlike post-closing reviews, pre-closing reviews do not require mortgagees to obtain a new credit report or re-verify income, employment, assets and housing expense information. Rather, for pre-closing reviews mortgagees must evaluate all documents supporting employment, income, assets and housing expense information to ensure original documents comply with FHA’s policy requirements and to resolve any discrepancies in the documentation prior to closing. [4000.1 - V.A.3.c]

Mortgagees must also conduct a review of the property appraisal for all FHA-insured mortgages chosen for pre-closing quality control reviews.

At a minimum, the following areas must be reviewed:
  1. appraisal data,
  2. validity of the comparables,
  3. value conclusion (as required by FHA guidance),
  4. any changes made by the underwriter, and
  5. the overall quality of the appraisal. Field reviews are not required for pre-closing reviews. [4000.1 - V.A.3.c]  

Michael Barone
Director/Legal & Regulator Compliance
Lenders Compliance Group