HUD requires the audit system
to review mortgage loan files to evaluate
the loan origination and underwriting functions. The
review must determine, at
a minimum, whether the following requirements have
The information in the preliminary
loan application, final application and all credit documents
is consistent or reconciled.
The valuation used reasonable comparables,
reasonable adjustments and required appropriate repairs
needed to meet FHA safety and soundness requirements.
Loan documents requiring signatures were signed by the
borrower or an employee of the lender only after completion
and all corrections were initialed by the borrower or
the lender's employee.
verifications. No verification
of employment, verification of deposit or credit reports
was handled by an interested third party
or the borrower.
The loan file contains any required financial statement,
tax returns and the appropriate type of credit report
if the borrower is self-employed.
credit reports. If more
than one credit report was ordered, all credit
reports were submitted with the loan package to FHA
or the direct endorsement Underwriter.
judgment shown on the credit report were shown on
the Form HUD-92900 (Mortgage Credit Analysis Worksheet)
and acceptably explained in accompanying documentation.
of funds. The loan file
documents the source of the borrower's
funds for the required investment,
the acceptability of that source
and that any obligation to repay the funds is included
on Form HUD-92900.
of discrepancies. Any
conflicting information or discrepancies in the application
file were resolved and documented in writing
ratios. If the debt ratios
exceed FHA limits there are sufficient
and documented compensating factors.
The underwriting conclusions and mortgagee
documentation are accurate and complete.
Any underwriting conditions were cleared prior to closing.
settlement statement. The
HUD-1 was accurately prepared
and properly certified. It shows that the borrower only
paid FHA allowable fees and charges. The borrower made
the required minimum investment and the mortgage was
loan file contains all required loan processing,
underwriting and legal documents.
submission for endorsement.
the loan was submitted for insurance more than 60
days after closing it included a payment history
showing the loan was current when it submitted
for mortgage insurance.
flipping. The seller
did not acquire the property at the time of or soon
before closing, indicating a possible property flip.
No indication that the borrower transferred
property at the time of closing or soon after closing,
the possible use of a strawbuyer in
retention. All items
ineligible employees. No employee involved in
underwriting. For lenders using an automated
underwriting system the QC program must include loans
underwritten in this manner. Among other requirements,
it must verify that correct information has been provided
to the automated underwriting system, including data
identifying the borrower, property, mortgage, income,
assets and source of funds. It must verify that applications
receiving a "refer" are reviewed by an underwriter before
a final decision is made on the application. If a manual
downgrade or override is applied, it must verify that
no pattern of illegal discrimination against the loan
applicant is revealed and that the downgrade or override
refinances. The QC sample should included
mortgages made under FHA's streamline refinancing
requirements but they should
comprise a very small proportion of the sample unless
streamline refinances are a significant proportion
of the lender's production. The reviews may be
limited to the functions performed when originating
such loans and confirmation that the loan was eligible
for streamline processing.