During the last few weeks AHACPA has received various questions and comments from members related to FHA findings. As a result, we wish to provide additional guidance on the following matters.
Upfront MIP Payments
Multiple lenders have been receiving notices of penalties for the late payment of up-front MIP (UFMIP). The penalties are the result of missing the 10-day window for the payment of the UFMIP. The timing in the FHA Single Family Housing Policy Handbook (4000.1) is as follows:
Either the sponsoring Mortgagee, principal or authorized agent must:
- complete the Mortgage Insurance Premium (MIP) Transmittal via FHAC or by batch;
- pay the Upfront MIP (UFMIP) to FHA in a lump sum within 10 Days after mortgage closing or the Disbursement Date, whichever is later;
- send the MIP to FHA, and receive payment status through FHAC or email communications;
- submit evidence of assignment of the case for endorsement in the name of the originating Mortgagee; and
- transfer the case number to another Mortgagee prior to closing, complete the Lender Transfer screen in FHAC, and complete the assignment of the Mortgage after endorsement to a new holding or servicing Mortgagee via FHAC.
The confusion for many lenders appears to be the difference between business days or calendar days. HUD is enforcing the 10-day definition as calendar days, not business days. Although the Handbook reference above does not indicate a preference between these two days, the governing regulations do stipulate calendar days. This interpretation is based on the actual regulation.
24 CFR §203.280 – One-time or Up-front MIP
For mortgages for which a one-time or up-front MIP is to be charged in accordance with §§ 203.259a, 203.284, or 203.285, the mortgagee shall, as a condition to the endorsement of the mortgage for insurance, pay to the Commissioner for the account of the mortgagor, in a manner prescribed by the Commissioner, a premium representing the total obligation for the insuring of the mortgage by the Commissioner or the up-front portion of the total obligation, as applicable, within 10 calendar days after the date of loan closing or within 10 calendar days after the date of disbursement of the mortgage proceeds, whichever is later.
Lenders and their auditors should be aware that late fees and interest at 4% are being assessed for these late remittances.
Notice of Material Events
Also, we have received no fewer than 3 inquiries regarding missed filings of Notices of Material Event (NOM). The majority of these calls are dealing with the requirement to notify HUD of the existence of a quarterly loss in excess of 20% of net worth. In each instance the lender /auditor discovered the missing NOM after the client had answered the lender certification questions. This raises the question of how these should be handled.
First, we remind everyone that the net worth requirements are to be met at all times during the year. However, FHA included specific requirements related to reporting when there is a significant loss. In particular, HUD indicates the following:
Handbook 4000.1, I.A.7.h. – Operating Loss
h. Operating Loss
If a Mortgagee experiences an operating loss of 20 percent or greater of its adjusted net worth, the Mortgagee must submit a Notice of Material Event to FHA within 30 business days of the loss. The 20 percent threshold applies to losses in any quarter during the fiscal year or losses that exceed 20 percent on the financial statements submitted at recertification.
FHA has been examining the submitted the financial statements. IF a net loss of that magnitude exists, HUD is noting the following:
- A 20% net loss exists
- A Notice of Material Event was not reported
- Since 1 and 2 exist, the client answered the certification questions incorrectly. Specifically, the client did not answer question 7 correctly.
Most of these lenders referred to the Mortgagee Review Board are being assessed penalties near $10,000. All of this can be avoided by ensuring the client is aware of these requirements, has the internal control to ensure that these violations do not exist, and questions compliance with the requirements BEFORE answering the certification questions. Further AHACPA wishes to remind users of the following requirements related to Notices of Material Violations. Here is FHA’s guidance from the LEAP Manual:
5.6 Notice of Material Event
FHA-approved Institutions are required to notify FHA of business changes subsequent to approval. LEAP allows the Institution to electronically submit a Notice of Material Event for any one of the following:
- Business Form Change
- Cease Operations
- Change in Partnership
- Fidelity Bond or E&O Insurance
- Lending License(s) Surrender
- Liquid Assets Deficiency
- Net Worth Deficiency
- Operating Loss
- Principal Activity Change
- Principal Owners
- Supervision Change
- Unresolved Findings/Sanctions
Such notices must be submitted through LEAP. The Lender chooses the Institution menu and then selects “Notice of Material Event”. It is then completed as outlined in the software. Once submitted the Lender should then monitor LEAP and follow the subsequent instructions from FHA. Failure to follow these guidelines is resulting in many additional findings from FHA.