Please be calm - the changes are mostly cosmetic
As we reported earlier, there should be no real surprises in the 9/14/2015 4000.1 release. The only area that seemed to cause some alarm related to the pre-closing audit rigor. If you are a Quality Control Plan customer of ours, you know that we have ALWAYS recommended this as a standard process.
Then you have to parse the guidance to understand the percentages, To reiterate:
10% of all production gets audited
10% of all AUDITS must be pre-closing/in-process audited
If you originate 100 loans, you must audit 10 (in addition to ensuring that you capture all sources in an audit cycle). Of that 10, 1 may be a pre-closing/in-process random audit. It seems like chicken and egg, but you have to look back at your total audit percentages to make the determination that you have conducted enough pre-closing/in-process audits.
Here is a sample policy that addresses 4000.1 Requirements for your QC Plan.
1-19-1 QC HUD 4000.1 Requirements
The requirements listed in Quality Control Plan requirements
are referenced below as to how we comply in our procedures.
In general, the 9/14/2016 Update to the HUD/FHA Single
Family Handbook re-organized standards into a new format referred to as the
4000.1 Revision. Although HUD’s requirements for quality control did not change
substantively, the new policy manual opens QC reviews to a broader definition,
by referring the examiner back to the Underwriting or Delivery requirements.
Single elements no longer get addressed as minutiae, rather the entire guide is
incorporated by reference.
 |
| A reiteration of HUD/FHA QC Review Area. This shows with some clarity that the scope and scale of "In-Process/Pre-Closing Review" is the same as the Post-Closing Review. |
1-19-2 Referrals for Elements Specified in HUD 4000.1
We have located specific elements queried by examiners in
the QC Plan for ease of reference.
4000.1 Section
|
Requirement
|
Location in QC
Plan
|
A.3.a iv(A)
|
Sampling Methodology
|
1-22 QC DEL – Loan Selection Methodology and
1-23 QC DEL - Loan Sampling/Selection Procedure
|
A.3.a i(A)
|
Pre-closing reviews
|
1-20-1 In-Process Quality Control Audit
1-40 QC DEL – In Process Loan Level Quality Control
Review Process
|
A.3.a i(C)
|
Early Payment Default (EPD) reviews
|
1-22-2 Early Payment Default
|
1-19-21 Terminology – Pre-Funding, Pre-Closing and In-Process Reviews
Please note that terminology may vary with all of the
variation between industry standards regarding the Pre-Closing, Pre-Funding and
In-Process reviews.
The terminology is so close as to cause confusion among
lenders and reviewers.
·
Pre-Funding reviews refer to the review of Loan
Quality Initiative and similar fraud detection elements conducted on EVERY loan
before it closes.
·
Pre-Closing/In-Process reviews refer to the
concealed selection of individual loans in process to identify potential fraud
within the production process.
·
10% of ALL audited loans should be sampled. Example:
If you fund 100 loans, 10 total loans should be audited and 1 should be
pre-closing audited.
·
Loans PRE-CLOSING AUDITED do NOT have to be
re-audited post-closing and count toward the 10% of ALL LOANS audited.
·
The ONLY DIFFERENCE between the pre-closing and
post-closing audit is that the reviewer does NOT HAVE TO WAIT for
re-verifications to come in. We still request third party verifications, but we
do not have to wait to close the loan.
·
Post-Closing Audit is the full scope audit
conducted by lenders and delegated correspondents.
Unlike Pre-Closing/In-Process
Audits, Post-Closing Audits MUST WAIT for Third Party Verifications before
completing review.
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