HUD requires the auditing system and procedures component of the lender's quality control program for loan servicing auditing to meet certain general requirements:

 

Servicing areas to review. Servicing activities vary on individual loans and over the course of the year. Therefore, sampling for servicing reviews is focused on specific aspects of servicing rather than against the entire portfolio. Servicers must review all aspects of their servicing operations as they relate to FHA-insured mortgages in the following areas:

  • servicing delinquent accounts,
  • loss mitigation efforts,
  • reporting under the single family default monitoring system,
  • foreclosure processing,
  • MIP billings,
  • deficiency judgments,
  • claims and claims without conveyance of title
  • new loans,
  • servicing transfers,
  • acquisitions,
  • customer service
  • fees and charges
  • escrow administration,
  • ARM adjustments and disclosures,
  • HECM disbursement reporting
  • Section 235 recertifications,
  • assumption processing,
  • handling of prepayments,
  • paid-in-full mortgages and
  • maintenance of records.

Timeliness and frequency. Quality Control of servicing must be an ongoing function. Due to the importance of these aspects of servicing, lenders must perform monthly reviews of delinquent loan servicing, claims, and foreclosures. The other items listed in the previous paragraph must be reviewed at least quarterly and should address activity that occurred within the prior three months.

 

Sample size. For each area being reviewed, lenders must review 10 percent of the FHA loans affected by that aspect of servicing during the period or, if the number of such FHA loans was more than 7,000, mortgagees may review at least an appropriately sized statistical random sampling to provide a 95 percent confidence level with two percent precision. Each review must document how the sample size and selections were determined.

 

Early payment defaults. In addition to the loans selected for routine quality control reviews, lenders must review all loans going into default within the first six payments. For this purpose, early payment defaults are loans that become 60 days past due.