V.A.3.c. Origination and Underwriting Loan File Compliance Review (09/14/15)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Minimum Requirements
ii. Document Review and Re-verification

i. Minimum Requirements

At a minimum, Mortgagees must include the following areas in their QC review to ensure they meet the requirements outlined in the Origination Through Post-Closing/Endorsement section of this SF Handbook:

ii. Document Review and Re-verification

Effective September 14, 2015

A Mortgagee’s QC Plan for origination and underwriting must provide for the review and re-verification of the following information on all FHA-insured Mortgages selected for pre-closing and post-closing review, unless otherwise specified below.

(A) Credit Report

(1) StandardFor all post-closing reviews, the Mortgagee must obtain a new credit report in the same form as the original credit report used to approve the Mortgage, including a Residential Mortgage Credit Report (RMCR), a Tri-Merged Credit Report (TRMCR), or, when appropriate, a business credit report for each Borrower whose FHA-insured Mortgage is selected for review. The new credit report must comply with the credit report standards described in the Credit Report(s) section of this SF Handbook. The Mortgagee must compare the new credit report obtained with the original credit report used to approve the Mortgage, and determine whether any discrepancies exist between the reports that may adversely affect the Borrower’s eligibility to qualify for an FHA-insured Mortgage.If discrepancies exist between the credit reports that may adversely affect the Borrower’s eligibility to qualify for an FHA-insured Mortgage, then the Mortgagee must obtain a second, full RMCR.

(2) ExceptionsA new credit report does not have to be obtained for pre-closing reviews, or for non-credit qualifying Streamline Refinances.

(3) Required DocumentationThe Mortgagee must retain a copy of the new credit report(s).

(B) Income, Employment, Asset, and Housing Expense Information

(1) Re-verification

(a) StandardFor all post-closing reviews, the Mortgagee must analyze the validity and sufficiency of all documents contained in the loan file. The Mortgagee must re-verify, in writing or electronically if available, the following:

• employment;
• income;
• assets;
• gift funds;
• source of funds; and
• Mortgage Payments or rental payments.

If a written or electronic re-verification request is not returned to the Mortgagee, the Mortgagee must attempt a telephone re-verification. Re-verification is not required for pre-closing reviews.

(b) Required DocumentationThe Mortgagee must retain evidence of the written, electronic, or telephone verification, and document the due diligence.

(2) Discrepancies

(a) StandardThe Mortgagee must evaluate all discrepancies to ensure that the original documents (except blanket verification releases) were completed before being signed, were as represented, were not handled by Interested Parties, and that all corrections were proper and initialed. All conflicting information in the original documentation must be resolved with the underwriter. Discrepancies in documentation discovered during pre-closing reviews must be resolved prior to closing.

(b) Required DocumentationThe Mortgagee must document any discrepancies and retain copies of information used to resolve such discrepancies.

(C) Appraisals

(1) Standard

(a) Property Appraisal ReviewsThe Mortgagee must conduct a review of the property appraisal for all FHA-insured Mortgages chosen for a QC review.At a minimum, Mortgagees must include the following areas in their QC review of the property appraisal:

• the appraisal data;
• the validity of the comparables;
• the value conclusion (as required by FHA guidance);
• any changes made by the underwriter; and
• the overall quality of the appraisal.

(b) Field ReviewsThe Mortgagee must perform targeted field reviews on 10 percent of the FHA-insured Mortgages selected for the monthly post-closing QC sample, as well as on all EPDs. The Mortgagee must select Mortgages for field reviews based on the factors used for discretionary targeting, as well as the following characteristics:

• property complaints received from Borrowers;
• discrepancies found during QC reviews;
• large adjustments or variances to value;
• comparable sales more than six months old;
• excessive distances from comparables to the subject Property;
• repetitive sales activity for the subject Property;
• investor-sold Properties;
• identity-of-interest conflicts between Borrower and seller;
• seller identity differs from owner of record;
• HUD Real Estate Owned (REO) sales financed with an FHA-insured Mortgage;
• vacant Properties; and
• soft markets.

Field reviews must be performed by licensed Appraisers listed on FHA’s Roster of Appraisers.

(2) ExceptionsProperty appraisal and field reviews do not have to be performed for Streamline Refinances, or for HUD REO sales chosen for QC review where the Mortgagee was not required to order a new appraisal for a property financed with an FHA-insured Mortgage.Field reviews do not have to be performed for pre-closing reviews.

(3) Required DocumentationThe Mortgagee must retain all QC review results, including all selection criteria, review documentation, Findings, and actions taken to mitigate Findings.