In compliance with Section 202(c) (5) of the National Housing Act, the U.S. Department of Housing & Urban Development (HUD) publishes notices in the Federal Register making known the cause and description of administrative actions taken by HUD’s Mortgagee Review Board against FHA-approved lenders. The purpose of this article is not to single out specific companies (which I’m not mentioning by name), but to highlight the reasons why HUD has penalized these companies so we can learn from their unfortunate experience.
This public notice from FHA coincides nicely with this issue’s theme of training since otherwise good companies are often fined heavily due to a lack of internal training systems; systems which needed to be in place to assure strict staff compliance of FHA guidelines.
Now we’ll explore some of the penalties recently imposed on six FHA lenders. These penalties include: Civil Money Penalties; Withdrawals of FHA Approval; Suspensions; Probations; Reprimands; and Administrative Payments. The cases below are excerpted from the Federal Register Vol. 78, No. 70 dated April 11, 2013. Each case shows the action taken by FHA and the cause of the action.
Case # 1
Action: On April 27, 2012, the Board entered into a Settlement Agreement with a company that required a Civil Money Penalty in the amount of $75,000, without admitting fault or liability.
Cause: The Board took this action based of the following violations of FHA requirements alleged by HUD: The company failed to notify the Department that it was the subject of multiple state regulatory actions and sanctions, and submitted false certifications to HUD in connection with Academy’s annual renewal of eligibility documentation for its fiscal years ending in 2009, 2010 and 2011.
Case # 2
Action: On March 22, 2012, the Board issued a Notice of Administrative Action which immediately and permanently withdrew the FHA approval of the company.
Cause: The Board took this action based on the following violations of FHA requirements alleged by HUD: The company failed to perform quality control functions in compliance with FHA requirements, failed to meet the requirements for participation in the FHA mortgage insurance program, failed to ensure that the correct mortgagee identification number was used when originating FHA-insured mortgage loans, failed to adequately document the source of and/or adequacy of funds used for closing, failed to correctly calculate and document the mortgagor’s income, failed to verify the stability of the mortgagor’s income, failed to ensure the mortgagor was eligible for an FHA insured mortgage loan, failed to ensure the property met HUD’s eligibility requirements, failed to comply with TOTAL Scorecard requirements, failed to comply with HUD’s property flipping requirements, failed to provide construction documents required for property eligibility and/or high ratio financing resulting in over-insured mortgages, failed to ensure that the maximum mortgage amount was correctly calculated resulting in over-insured mortgages, failed to ensure that data submitted to HUD systems was accurate, and charged mortgagors unallowable fees.
That’s an awful lot of oversight, don’t you think?
Case # 3
Action: On Sept. 14, 2012, the Board entered into a Settlement Agreement with a company and required it to pay a civil money penalty in the amount of $1.2 million and to complete mortgage record changes to facilitate the payment of certain FHA insurance claims, without admitting fault or liability.
Cause: The Board took this action based on the following violations of FHA requirements alleged by HUD: The company submitted or caused to be submitted false information to HUD in relation to 63 mortgagee record changes, failed to reconcile its portfolio data, and allowed HUD records to incorrectly identify the company as the holder of 97 FHA-insured mortgage loans. In addition, they submitted false information to HUD on 133 claims for FHA insurance benefits and, in 90 instances, claimed benefits for ineligible holders of record.
Case # 4
Action: On June 14, 2012, the Board entered into a Settlement Agreement with a Company and required it to pay a civil money penalty in the amount of $12,000, without admitting fault or liability.
Cause: The Board took this action based on the following violation of FHA requirements alleged by HUD: The company failed to adopt and maintain a quality control plan and management reports, failed to implement a quality control plan, allowed non-employees and non W-2 employees to originate FHA loans, and failed to require the loan interviewer to sign page four of the initial Uniform Residential Loan Application (Fannie Mae Form 1003), and page one of the initial Form HUD 92900–A.
Case # 5
Action: On Nov. 21, 2012, the Board entered into a Settlement Agreement with a company and required it to pay a civil money penalty in the amount of $37,000, and pay $92,677 to indemnify HUD for its losses with respect to one FHA loan, to indemnify HUD for any loss (past, present or future) on five FHA loans for a period of five years from the date of the agreement, and to retain and fully pay for a third-party servicing monitor for a period of one year, without admitting fault or liability.
Cause: The Board took this action based on the following violations of FHA requirements alleged by HUD: The company failed to engage in loss mitigation, failed to service FHA loans in accordance with HUD requirements, and failed to offer property disposition options to the mortgagors.
Case # 6
Action: On July 16, 2012, the Board entered into a Settlement Agreement with a Company and required it to pay a civil money penalty in the amount of $91,500, and to pay $917,528 to indemnify HUD for its losses with respect to five defaulted FHA loans, and to indemnify HUD for any loss (past, present or future) on three FHA loans for a period of five years from the date of the agreement, without admitting fault or liability.
Cause: The Board took this action based on the following violations of FHA requirements alleged by HUD: The company approved loans without properly analyzing the borrower’s credit, approved loans without properly documenting or verifying effective income, approved loans with inadequate verification of the borrowers cash investment in the property, approved loans with inadequate analysis of the borrower’s ability to repay the mortgage obligation, approved a loan with an incomplete Mortgage Credit Analysis Worksheet (MCAW), and failed to implement an acceptable quality control plan.
As you can see from the actions taken by FHA against these companies, FHA means business when it comes to complying with FHA policies and procedures. From your company marketing to your MLOs taking application, to your processors, closers and insurers, all need to be continuously trained and updated on FHA requirements. It’s hard to believe that companies in today’s regulatory environment still don’t take compliance seriously. Given the high number of FHA loans currently being originated, and the revenue that can be generated, how can a company compete without FHA approval? Let this serve as a lesson to all company decision makers to analyze the strength of your business systems when it comes to FHA compliance, and to the staff’s level of knowledge needed to meet the compliance requirements.
Go FHA!
Jeff Mifsud is founder of Michigan-based Mortgage Seminars LLC, a former FHA underwriter with 15-plus years of experience originating FHA loans, an FHA expert for LoanToolbox.com and creator of The FHA Originator, a monthly FHA newsletter. Jeff may be reached by phone at (248) 403-8181 or visit www.MortgageSeminars.com.
