All post closing quality control companies have seen the Non-Supervised Loan Correspondent (FHA Broker) perform virtually zero post closing quality control audit as required by the HUD Handbook 4060.1 since the publication of the HUD Mortgagee Letter 2010-20, June 11, 2010. The reason the FHA Broker not having their post closing FHA audits performed is because the broker community was hoping the Annual Financial Audit included the file review or the post closing QC audit was the same or the broker thought the lender/sponsor was going to do it for them. The brokers are hoping for something that just ain’t going to happen. Remember HVCC going away? It is about like that. You have to live with it.
Mr. David Stevens, Assisant Secretary for Housing/Federal Housing Commission (FHA), release a letter July 20, 2010 addressing this issue. Plainly put… Mr. Broker… you will continue to perform post closing quality control review or audits in order to meet the intent of FHA or you will not originate FHA loans. Yes, it will be pushed down to you and your sponsor will hold you accountable for the quality of that loan.
I have spoken to several of the executives at the nation’s largest banks asking them if they are going to require the broker to continue post closing audits of their FHA loans. They all unanimously say yes. They ask who says otherwise. I tell them the brokers are telling us that you said it and they no longer have to perform post closing QC on their FHA files. The rumor that FHA Brokers no longer have to perform post closing QC on FHA loan is just a rumor.
FHA Brokers will be shocked when sponsors start asking for proof of their post closing quality control audits because many were behind in their post closing QC when the mortgagee letter was published and then they stopped performing completely when the letter was published. Therefore, the FHA Broker is excessively out of compliance with FHA when it comes to the post closing quality control as directed by the HUD Handbook 4060.1. I predict that the sponsors will be much harder to deal with in regards to post closing audits than what FHA ever was. Also, many of the banks I spoke with will require a net worth as part of their approval process.
You can read the entire letter or the paragraph that brings it home is the following:
“FHA’s loan level review processes have been enhanced to more effectively manage risks and minimize losses arising from poorly underwritten or fraudulent loans. Processes have been modified and aligned across all Single Family offices to achieve a collaborative and comprehensive approach to evaluating loans throughout the loan lifecycle. For Post-Endorsement Technical Reviews, case selection criteria have been revised and review procedures enhanced and standardized. For lender and servicer reviews, the targeting tools and methodology have been strengthened to better target lenders and loans that pose the greatest risks to FHA.
And, as FHA continues to increase our quality control efforts, we are paying close attention to areas where some may try to take unique advantage of the flexibility of FHA without the appropriate focus on quality.”