HUD requires quality control programs for both origination and servicing to include certain basic elements:


Written QC plan. Every lender's quality control program must be in writing and in effect for the entire period of the FHA approval.


Independence. The quality control function must be kept independent of the origination and servicing functions, either by establishing a unit that is dedicated solely to quality control or by using an outside source to perform the quality control function.


Qualified QC staff and up-to-date guidelines. The lender must train the staff involved in quality control and provide them with current guidelines relating to the operations that they review.


Timely reviews. Quality control reviews must be performed on a regular and timely basis. Depending on the lender's production volume, origination reviews may be performed weekly, monthly, or quarterly. Reviews should be completed within 90 days of closing. Delinquent servicing and loss mitigation activities should be reviewed monthly.


System of loan file review. The QC program must provide for the review of a representative sample of the lender's loans. The review must evaluate the accuracy and adequacy of the information and documentation the lender used in reaching origination or servicing decisions.


Scope and sampling. QC reviews must evaluate the lender's origination and servicing to determine the cause of any deficiencies. The lender must expand the scope of the review when fraud or patterns of deficiencies are uncovered.

Reviews must include branch offices or sites, correspondents, authorized agents, loan officers or originators, processors, underwriters, appraisers, closing personnel, all FHA loan programs, servicing personnel, loss mitigation procedures, escrow analysis and assumptions.


Site review. Reviews must include the lender's offices engaged in origination or servicing of FHA-insured loans—including traditional and nontraditional branch offices—to determine compliance with HUD requirements.


Affiliate review. The lender must ensure that its contractors, agents and loan correspondents are acceptable to FHA and operate in compliance with FHA requirements.


Reporting and corrective action. Review findings must be reported to the lender's senior management within one month of completion of the initial report and management must take prompt action to deal with any material findings. The final report or an addendum must identify actions being taken, the timetable for their completion and any planned follow-up activities.


Notification to HUD. Findings of fraud or other serious violations must be referred in writing to the director of the quality assurance division in the HUD homeownership center having jurisdiction.


File retention. The lender must retain QC review reports and follow-up, including review findings and actions taken, for two years from the date of the mortgage insurance endorsement.