Written By: Stacey Sprain
As mentioned briefly within prior articles, Fannie Mae has been implementing various components of the Loan Quality Initiative since April. One of the most recently implemented components added a requirement for interested parties to be run against HUD’s Limited Denial of Participation (LDP) and Excluded Parties Listing Service (EPLS) list. These checks have been included in standard FHA requirements for many years but only recently has Fannie incorporated the requirements into their guidelines. For people who are newer to the industry or perhaps not seasoned on government lending, these requirements may be unfamiliar so let’s take a closer look at these most recently added LQI requirements.
What is LDP?
LDP stands for Limited Denial of Participation. A Limited Denial of Participation (LDP) is an action taken by a HUD Field Office or the Deputy Assistant Secretary for Single Family (DASSF) or Multifamily (DASMF) Housing which excludes a party from further participation in a HUD program area.
Do Other Federal Agencies Report to the LDP List?
No. A limited denial of participation is a HUD-specific action and applies only to HUD activities.
How Does a Person or Business End up on the LDP List?
LDPs are issued to parties (individuals and companies) who fail to comply with HUD program standards. An authorized HUD official may issue a limited denial of participation against a person based upon adequate evidence of any of the following causes:
• Approval of an applicant for insurance would constitute an unsatisfactory risk;
• Irregularities in a person's past performance in a HUD program;
• Failure of a person to maintain the prerequisites of eligibility to participate in a HUD program;
• Failure to honor contractual obligations or to proceed in accordance with contract specifications or HUD regulations;
• Failure to satisfy, upon completion, the requirements of an assistance agreement or contract;
• Deficiencies in ongoing construction projects;
• Falsely certifying in connection with any HUD program, whether or not the certification was made directly to HUD;
• Violation of any law, regulation, or procedure relating to the application for financial assistance, insurance, or guarantee, or to the performance of obligations incurred pursuant to a grant of financial assistance or pursuant to a conditional or final commitment to insure or guarantee;
• Making or procuring to be made any false statement for the purpose of influencing in any way an action of the Department;
• Imposition of a limited denial of participation by any other HUD office.
There are Individuals and Businesses Listed within the LDP List. Can HUD impute the conduct of one person to another in a limited denial of participation?
For purposes of determining a limited denial of participation, HUD may impute conduct as follows:
(a) Conduct imputed from an individual to an organization. HUD may impute the fraudulent, criminal, or other improper conduct of any officer, director, shareholder, partner, employee, or other individual associated with an organization, to that organization when the improper conduct occurred in connection with the individual's performance of duties for or on behalf of that organization, or with the organization's knowledge, approval, or acquiescence. The organization's acceptance of the benefits derived from the conduct is evidence of knowledge, approval, or acquiescence.
(b) Conduct imputed from an organization to an individual or between individuals. HUD may impute the fraudulent, criminal, or other improper conduct of any organization to an individual, or from one individual to another individual, if the individual to whom the improper conduct is imputed either participated in, had knowledge of, or reason to know of the improper conduct.
(c) Conduct imputed from one organization to another organization. HUD may impute the fraudulent, criminal, or other improper conduct of one organization to another organization when the improper conduct occurred in connection with a partnership, joint venture, joint application, association, or similar arrangement, or when the organization to whom the improper conduct is imputed has the power to direct, manage, control, or influence the activities of the organization responsible for the improper conduct. Acceptance of the benefits derived from the conduct is evidence of knowledge, approval, or acquiescence.
How Long does the LDP Reporting Last?
A limited denial of participation may remain effective up to 12 months.
How does a Person get Himself/Herself Removed from the LDP List Once He/She has been Reported?
In most cases, the causes of an LDP action could be remedied by the party. Within 30 days after receiving a notice of limited denial of participation, he/she may request a conference with the official who issued such notice. The conference shall be held within 15 days after the Department's receipt of the request for a conference, unless he/she waives the time limit. The official or designee who imposed the sanction shall preside. At the conference, the LDP party may appear with a representative and may present all relevant information and materials to the official or designee. Within 20 days after the conference, or within 20 days after any agreed upon extension of time for submission of additional materials, the official or designee shall, in writing, advise of the decision to terminate, modify, or affirm the limited denial of participation. If all or a portion of the remaining period of exclusion is affirmed, the notice of affirmation shall advise of the opportunity to contest the notice and request a hearing before a Departmental Hearing Officer. Then the party has 30 days after receipt of the notice of affirmation to request this hearing. If the official or designee does not issue a decision within the 20-day period, the sanction may be contested before a Departmental Hearing Officer. To request a hearing before the Departmental Hearing Officer, the party must submit his/her request to the Debarment Docket Clerk, Department of Housing and Urban Development, 451 Seventh Street, SW, B–133 Portals 200, Washington DC 20410–0500.
Where Can I Access the LDP List?
Refer to HUD’s LDP website at http://www.hud.gov/offices/enforce/ecmemo.cfm for more information on LDP. To check your interested parties to the real estate transaction against the current LDP list, go tohttp://www.hud.gov/offices/enforce/ecldp.cfm. You can call (202) 708-3041 if you have any questions about LDP.
What is EPLS?
EPLS stands for Excluded Parties Listing Service. The Excluded Parties List System (EPLS) includes information regarding entities debarred, suspended, proposed for debarment, excluded or disqualified under the non-procurement common rule, or otherwise declared ineligible from receiving Federal contracts, certain subcontracts, and certain Federal assistance and benefits.
The following are some occupations that could be sanctioned:
• Loan Officers
• Builders and Developers
• Real Estate Brokers or Agents
• Management Agents
• Appraisers and Inspectors
Debarment is imposed for criminal and/or serious HUD program violations, which could include:
• Use of False Documents to Originate FHA-Insured Mortgages
• Diversion of Project Assets
• Embezzlement, Theft, Forgery
• False Statements, False Claims
Where Can I Access the EPLS List?
For general information on suspensions and other exclusionary actions taken by the Federal Government and to find a listing of individuals and entities suspended by HUD, see: http://www.epls.gov/. A Public Users Manual can be accessed athttps://www.epls.gov/EPLS%20Public%20Users%20Manual.doc. If you have any questions about the EPLS site, direct them to email@example.com.
Why did Fannie Mae Suddenly Decided to Start Requiring Use of the LDP and EPLS lists?
Fannie Mae was told from many lender partners that the adoption of excluded party lists in the mortgage origination process – both proprietary lists and public lists – would be a useful tool in combating mortgage fraud. They decided to align their policies with common industry practice by requiring lenders to adopt the use of two public federal government excluded party lists – one maintained by HUD and a broader one managed by the General Services Administration. These federal lists cover a broad array of risk categories, including fraud, gross negligence, and lack of business integrity. Individuals have been placed on these lists for both mortgage-specific and non-mortgage-specific activities.
What is Fannie Mae Expecting in Regards to Use of These Lists?
Fannie Mae expects that each lender will develop its own policies and procedures for ensuring that parties to the mortgage transaction are not on either of the excluded party lists. It is recommended that the lender establish a procedure for its hiring process that will ensure potential employees are not on the excluded party lists. The lender should also establish a procedure to ensure that the employees of any third-party service provider have been checked against the excluded party lists. The lender should periodically confirm that the status of employees and third-party service providers with respect to the excluded party lists has not changed.
If a party has been placed on HUD’s Limited Denial of Participation List or GSA’s Excluded Parties List, and the exclusion is limited to a defined geography or a specific federal agency, will Fannie Mae consider the party “excluded”?
Regardless of the scope of the disqualification or exclusion, loans will be ineligible for delivery to Fannie Mae if any party to the transaction is included on either list.
For example, a party to the transaction who is excluded from participating in HUD multifamily programs or excluded from participating within a narrowly defined HUD geography would be considered by Fannie Mae as an excluded party and the loan would be ineligible for delivery to us. The exclusion would apply to all Fannie Mae products/transactions secured by properties in all geographies.
Any party listed on the GSA excluded party list, regardless of exclusion type, agency, or “CT” (cause and treatment) code would be considered an excluded party, and the loan would be ineligible for delivery to Fannie Mae.
For your reference, please refer to the following Fannie Mae Bulletins and Announcements re: Loan Quality Initiative:
• LQI Summary with Key Dates and Resources
• LQI FAQs
• Announcement SEL-2010-01
About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: firstname.lastname@example.org.