FHA Proposes Loan and Annual Certification and Defect Taxonomy Revisions

FHA has recently proposed substantial revisions to its loan-level certifications in the Addendum to Uniform Residential Loan Application (Form 92900-A), its annual lender certifications, and its defect taxonomy.  Comments on the proposed changes are due by June 8, 2019.

In FHA’s words, the proposed changes to the certifications are meant to “provide more precision and needed clarity to compliance documents.”  The proposed changes to Form 92900-A simplify the certifications that mortgagees must make on that document.  For example, instead of making the mortgagee certify to the best of its knowledge to a variety of enumerated statements in the Mortgagee’s Certification portion, the proposed revised document has the mortgagee generally certify to compliance with Section II.A.7 of FHA Single-Family Handbook 4000.1.

The proposed revisions to the annual certifications likewise streamline the existing certifications.  For example, several current annual certification statements (such as statement 3, in which the mortgagee certifies that to the best of its knowledge, it was not subject to things such as suspension, debarment, or “Unresolved Findings”) would be replaced with a general proposed certification statement that the mortgagee, to the best of its knowledge, has been in compliance with the continuing eligibility requirements described at 24 C.F.R. § 202.5 (except where the mortgagee already reported an issue of non-compliance to HUD and received explicit clearance from HUD to continue the certification process).  Several other certification statements would be deleted in their entirety.

With respect to the defect taxonomy, FHA intends to “clarify the various loan defect categories and how the agency weighs the severity of each defect.”  One significant proposed change to the defect taxonomy is the inclusion of new defect areas for servicing loan reviews; such as general servicing, default servicing, and loss mitigation.  In another substantive proposed change, the proposed revisions provide suggested remedies for each tier of defect, with the proposed solution for the most-severe tier (i.e., evidence of fraudulent or materially misrepresented information about which the lender knew or should have known) generally being life-of-loan indemnification.