1.How FHA Selects Lenders for Monitoring Reviews

FHA clarified that its lender monitoring reviews go beyond just loan volume. The agency also evaluates a lender’s business mix (wholesale vs. retail), early payment defaults (EPD), late mortgage insurance premium (MIP) payments, late endorsement data, and past performance. Additionally, previous LRS and mortgagee review findings, as well as lender monitoring results, play a role in determining which lenders are selected for review.

2.Quality Control (QC) Plan Expectations

FHA emphasized that an effective quality control plan must include regular training for loan originators and underwriters. The agency also reinforced the importance of monitoring lender affiliates, which FHA defines as contractors, agents, vendors, subservicers, and third-party originators (TPOs) who participate in FHA programs on behalf of an FHA-approved mortgagee.

Lenders must ensure that their affiliates comply with FHA requirements by verifying their eligibility through the System for Award Management (SAM), Limited Denial of Participation (LDP) List, and the NMLS database (when applicable). Additionally, FHA mandates that affiliates undergo semiannual compliance reviews and that lenders document these reviews in their QC Plan. FHA also confirmed that quality control vendors are considered affiliates, meaning they must meet the same compliance standards.

3.Loan Quality and Performance Metrics

FHA provided updated loan quality statistics based on a random sample of 13,000 loans from January 2023 to May 2024. The net material defect rate was 4.8%, a figure that remained steady despite the inclusion of streamline refinances, which have been less frequent over the past two years.

4.Quality Control Report Requirements

FHA reiterated the importance of properly structured quality control reports that include key data elements such as the loan case number, the QC reviewer’s name (ensuring independence), the selection reason, and the timeline of the review. FHA also requires a trend analysis, where lenders must compare findings from the current QC sample to prior months to identify recurring issues.

5.Mortgagee Review Board (MRB) Enforcement Actions

FHA reminded lenders that serious operational findings discovered during monitoring reviews are referred to the Mortgagee Review Board (MRB) for adjudication and cannot be resolved through administrative actions, such as correcting the error, paying down the mortgage, or indemnification.

Enforcement actions from the MRB are typically published in the Federal Register in March or April for the prior year. The 2024 findings are expected to be released in the coming weeks, which will provide further insight into common compliance violations and enforcement trends.

6.Underwriting Questions & FHA Guidance

When lenders raised underwriting questions during the webinar, FHA declined to provide direct answers and instead directed lenders to contact the FHA Resource Center at answers@HUD.gov for guidance. FHA strongly recommended submitting questions in writing and citing the specific HUD Handbook section related to the inquiry to avoid receiving a response that simply refers back to the handbook. Additionally, FHA cautioned against relying on verbal guidance from Homeownership Center (HOC) staff, as verbal answers are not authoritative and will not hold up in the event of a compliance dispute.

7.Bottom Line

FHA’s latest webinar reinforced ongoing lender obligations related to quality control, affiliate monitoring, and operational compliance. The agency’s focus on review selection criteria and QC enforcement highlights the importance of strong internal controls and well-documented quality control programs.

With serious operational findings leading to MRB enforcement actions, lenders must ensure they have comprehensive monitoring procedures in place. Additionally, when seeking underwriting guidance, it is best to submit inquiries in writing to the FHA Resource Center to ensure clarity and compliance protection.