FHA Announces Loan Review System Implementation and Process Changes

On January 11, 2017, FHA published Mortgagee Letter 2017-03, announcing its intention to implement its new Loan Review System, which will provide an electronic platform for FHA loan level file reviews and other quality control functions for single family mortgages. The implementation date will be confirmed in a future Mortgagee Letter.

The Loan Review System builds on recent efforts by FHA to align the documentation of loan review results across various divisions. It incorporates the Single Family Housing Loan Quality Assessment Methodology (Defect Taxonomy) previously announced by FHA on June 18, 2015.

The new Loan Review System will be used to process the review of Test Cases submitted to FHA by lenders applying for unconditional Direct Endorsement (DE) approval and:
• Post-endorsement loan reviews,
• Mortgagee monitoring reviews, and
• Reviews conducted by FHA’s Processing and Underwriting and Quality Control Divisions.

After it is implemented, the Loan Review System will replace the following:
• Underwriter Review and eFindings functions in FHA Connection, and
• Emails and other manual processes used by FHA’s Quality Assurance Divisions.

Lenders will also use the Loan Review System to report fraud, misrepresentation, and other material findings to FHA, replacing the current Lender Reporting feature in FHA’s Neighborhood Watch Early Warning System. The Loan Review System will include authorized requests and reminders for lenders to respond to findings and submit required documentation. In addition, various reports and data that can be downloaded will provide lenders with summary statistics and loan level review results.

Mortgagee Letter 2017-03 is available at HUD.gov at: https://portal.hud.gov/hudportal/documents/huddoc?id=17-03ml.pdf.

The June 18, 2015, Defect Taxonomy is available at: https://portal.hud.gov/hudportal/documents/huddoc?id=SFH_LQA_Methodology.pdf.