Response to HUD/FHA's Request for Comment on Quality Control Procedures - TAKE ACTION

FR–5723–N–01 Federal Housing Administration (FHA): Single Family Quality Assurance- Solicitation of Information on Quality Lending Practices

HUD has requested feedback from the industry on revisions it needs to make to its quality assurance process.  It is important to weigh in on this.  WE DO NOT WANT ANOTHER 4060.1 (REV 2)!  What we need is clarity on what FHA is finding that is causing problems so we can incorporate those issues into our current quality control plan.  WE DON'T WANT TO HAVE 2 or 3 DIFFERENT PLANS.  We want to have one plan that we can use to insure that our loans meet ALL guidelines.

PLEASE RESPOND TODAY that we need clarity, not a new bureaucracy.  Submit your response by copying and pasting the last paragraph of my response below.  If you don't act now, we will all pay the consequences.

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July 17, 2013

As a participant in, and subsequently a consultant to, the mortgage lending industry I applaud FHA/HUD for taking this proactive approach to risk management through production quality control.  

OBSERVATION

The industry has made substantial strides in updating mortgage quality assurance standards.  Both FNMA and FHLMC issued detailed guidance communicating with real transparency their expectations for the level of review and the things that will cause a loan to be defective.  Their updates came at a time when the ability and appetite of the industry to absorb putbacks had evaporated.  Lenders no longer simply capitulated to indemnification demands but challenged them because of the opacity of the GSEs requirements. 

In our business we review the 4060.1 REV-2 to help prepare a lender for mortgagee approval.  The quality control measures prompted in the 4060.1 REV-2, when adhered to the letter, expose the lender to substantial risk of omission.  The guidelines show FHA's laser focus on a few narrow areas, and then silence on everything else.  Lenders who follow these quality guidelines to the letter will have defects: the requirements are too open-ended to provide real direction. 

For this reason, we insist lenders install a comprehensive "production quality control process" which includes peer quality control review of the application, processing, underwriting and closing for EVERY loan, in addition to hiring/management.  These functions are "re-reviewed" in the post-closing sampling.  This proactive checklist system can evolve if we discover additional findings.

RECOMMENDATION

PLEASE DO NOT create another 4060.1 REV-2 type manual.  FHA should disseminate a list of defects it has found on loans (like a FAQ) that lenders must use to screen their files pre-underwriting and pre-endorsement.  FHA should work to align its process requirements WITH industry best practices instead of a "special" track.  Change fatigue will impair adherence to "new" requirements."

A Comprehensive QC Checklist will go much further in improving loan quality

than another manual.

Our quality control plans include extensive editable checklists that allow your personnel to address potential loan quality issues BEFORE they become buybacks or declined loans.  Let's have a discussion of best practices to insure we are catching everything.

I have attached a sample of a comprehensive QC checklist for production.  (It is an older version, because the current version is one we sell - I don't want to cannibalize our product)  Please feel free to comment or talk to us directly about implementing a complete quality process.