Earlier this year the Federal Housing Administration elaborated on their expectations for mortgage servicers in terms of quality assurance. Presented in April, the corresponding webinar represents a bit of a groundbreaking effort at explaining the nuances of what the FHA looks for and how they recommend servicers defend against defects, fraud and misrepresentation. Highlighting accurate reporting as a top means of prevention, along with early default intervention, the FHA understands that mortgage servicers have been inundated by change; however, now is the time to evaluate, remediate, and reset.
Evaluate – FHA Servicing Reviews & Findings
The content for the webinar was derived based on quality assurance reviews conducted by the FHA in 2022. The total number of servicing reviews amounted to 847 loans. The selection criteria was representative of only five differing reasons including servicer self-reporting, servicer monitoring, Office of Inspector General audits, FHA regional location QC, and FHA manual selection. The defect findings are reflected below but do not encompass servicer self-reporting or internal QC errors:
Loss Mitigation – 58.8% of Findings
o Loss Mitigation Status Codes – inaccurate delinquency workout status codes; inaccurate loss mitigation eligibility codes when foreclosure was initiated.
o Loss Mitigation Waterfall Options – incomplete review of loss mitigation requests and qualification; improper calculation of outstanding debt and/or amount needed to bring loan current.
o Financial Evaluation Documentation – documents don’t support program eligibility; improver evaluation of COVID-19 eligibility requirements.
Default Servicing – 32.5% of Findings
o Delinquency or Default Status – default reasons not accurately reported; occupancy determination based on inaccurate data; COVID-19 reporting errors.
General Servicing – 6.5% of Findings
o Records Retention – missing or incomplete servicing records preclude default determination; original documents and records not maintained during servicing transfer.
Foreclosure Process – 2.2% of Findings
o Detail not provided.
Remediate – Servicing Remedies
Now that you know where to look, or where the FHA will look when completing loan level reviews, how should you remedy your findings? The FHA states that mortgage servicing goals should be to mitigate risk and restore borrowers to the financial position that would have existing if a servicing violation had not occurred. There are three different areas to address as you work to remedy a defect:
1. Documentation – provide mitigating documentation that supports both compliance and corrective action.
2. Financial Remediation – refund fees or costs charged in error; reimburse erroneous charges through principal reduction; make account adjustments to the borrower’s loan, escrow, or suspense account; remit improperly paid claims or incentives.
3. Indemnification – complete indemnification to hold FHA harmless from any actual loss; reimburse FHA for any partial claim miscalculations.
Reset – Servicing QA & Compliance
As you work to ensure FHA compliance and adherence to FHA QC and QA standards, do you have the right third-party partner? QC Verify has extensive, proven experience assisting the mortgage industry in meeting their quality control and audit needs, coupling innovation with experience. We customize our relationship with you to target the areas where you need risk relief and help build confidence as well as compliance with FHA Q
The FHA recommends “telling the story” of what transpired when an error or inaccuracy occurs, documenting not only what transpired but what corrective action will take place. They also discuss the importance of loan sampling, which is a key area of focus for QC Verify, where we use robust auditing and loan sampling to help strengthen your business. As you hone your QA and compliance parameters to meet FHA servicing QC requirements that follow, let us help ease this effort through meaningful and sophisticated partnership. Let’s tackle this together…
· Review Section V of the FHA Single Family Housing Policy Handbook, 4000.1, entitled Quality Control, Oversight, and Compliance.
· Regularly maintain and update your QC Program to ensure compliance with FHA requirements. (Handbook 4000.1 V.A.1.c)
· Consistently train your loan administration and QC personnel (Handbook 4000.1 V.A.2.b.i.).
· Enhance your approach to FHA loan sampling and reviews, expanding on the benefits of loan level review results (Handbook 4000.1 V.A.3 and V.A.3.a.i.(D)).
· Document your sampling parameters and reason, review scope (Handbook 4000.1 V.A.3.e.).
· COVID-19 servicing has not gone away, see Mortgagee Letter ML 2023-03 for more information.
An entire section of the FHA’s QA presentation was also devoted to Self-Reporting. For more information on how you can learn more about this area, FHA QA, and reinforce your servicing business, reach out to QC Verify. You can also continue to follow our blog series as we next explore the impact that the Consumer Finance Protection Bureau has on mortgage servicing.
Don’t wait! Visit us at QCVerify.com to experience the difference that an innovative and experienced QC provider can make.
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