HUD requires the audit system to review mortgage loan files at least quarterly to evaluate the routine loan servicing functions. The review must determine, at a minimum, whether the following requirements have been met:


Servicing records. Loan servicing records are promptly established after loan closing and contain all necessary documentation.


Servicing transfer notice to borrower. Borrowers are promptly notified when the lender acquires servicing from another servicer and servicing records are established immediately on transfer.


Purchased loans. Purchased loan files contain all necessary documents, including the FHA mortgage insurance certificate.


Mortgage insurance premiums (MIP). All MIP are paid on time and in the correct amounts. The QC audit must review the mortgage insurance certificate to determine whether a monthly or risk-based premium is due. This review must include a sampling of recently purchased loans.


Servicing transfer notice to HUD. The mortgage record change was reported to HUD on loans sold to another servicer.


Requests and complaints. Requests from borrowers concerning their individual mortgage accounts are responded to promptly and complaints are handled promptly and effectively.


Escrow accounts. escrow account functions are being performed properly:

  • funds are maintained in an account separate from the servicer's general operating account,
  • borrowers are billed the proper amounts,
  • disbursements are made promptly as the items for which the escrow was established become due and payable,
  • bills are requested and obtained when not automatically received,
  • excessive balances are promptly refunded to the borrower or applied to the unpaid principal balance if the borrower requests,
  • escrow shortages are promptly reported to the borrower and the borrower is informed of all options to remedy the shortage.

Fees and charges. Fees and charges on the borrower do not exceed the amount FHA and the provisions of the mortgage and note allow.


ARM adjustments. ARM adjustments are calculated correctly and implemented timely, after the required notice to the borrower.


Section 235 loans. Section 235 recertifications are performed annually. Assistance payments are accurately computed and billed using the proper formula.


Assumptions. Qqualifying assumptions were properly underwritten and a mortgage record change is promptly reported to HUD when the mortgage is assumed.


Prepayments. Interest charges in prepayments are accurate. The note and security instrument are promptly satisfied, the termination of FHA insurance is properly reported to HUD on paid-in-full mortgages and escrow balances are promptly refunded. Security instruments are promptly released.


Record retention. Documents required to be retained as originals and the remaining paper documents or acceptable imaged or microfilmed versions are retained for the minimum required period.


Section 203(k) loans. Servicing of 203(k) loans has been performed in accordance with HUD guidelines.