Written By: Bonnie Wilt-Hild
HUD has recently announced new lender requirements where quality control is concerned. These requirements have been set forth in ML2011-02 and outlines for lenders what new provisions need to be added to their current QC plan. In addition to implementing guidelines regarding early payment default audits and QC review for sponsored third party originators, FHA also discussed reporting requirements for reject cases as well as fraud cases.
Most lenders are aware that should they reject a case that does not meet HUD criteria for loan approval, that case must be entered into FHA connection as a mortgage credit reject. Additionally, should another lender try to overturn the decision they must substantiate the reason the declining DE’s decision is being overturned. I think it is common practice in the industry to input only those cases that do not meet HUD’s criteria for loan approval and exclude those cases that do not meet investor requirements from reporting in FHA connection. However, reporting instances of mortgage fraud via Neighborhood Watch is a provision of the new QC requirements that some lenders may not be entirely familiar with.
Prior to 2006, instances of fraud where reported to HUD by sending a copy of the file along with a laundry list of one’s findings, should your findings indicate fraud or other material deficiencies. In 2006, HUD began using Neighborhood Watch as the method by which a lender would report those instances. Under Neighborhood Watch there is a button titled Single Lender and that is where lender reporting of fraud takes place. The information provided includes the cases number which of course would pull the borrowers personal information as well as the loan officer and finally the nature of the material deficiency or fraud.
Adding this requirement as part of a lenders quality control procedures is a great way for HUD to not only track fraud cases but also the borrowers that might try to perpetrate them. Think back to the introduction of the HOPE for Homeownership program. HUD’s guidelines clearly stated that borrowers who might have been indicated in any case of fraud over the most recent 10 years would be ineligible for participation in the program. How would they know that, you ask, Neighborhood Watch. For those of you underwriters that are currently using the button for reporting, good for you, for those of you that are not, be aware that it is a HUD requirement and you start doing so immediately. As for those of you who need to update your QC plan so as to be in line with the new requirements, the information again can be found in ML 2011-02. Have a great week!
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: firstname.lastname@example.org.