FHA’s Loan-Level Certification
MBA supports the Federal Housing Administration's (FHA's) development of clear standards and expectations for lenders to provide the transparency and consistency lenders need to do business with FHA and provide affordable mortgage credit to low-to-moderate and first-time homebuyers.
- In May 2015, the Department of Housing and Urban Development (HUD) opened a 60-day comment period for proposed revisions to the loan-level mortgagee certifications on the Uniform Residential Loan Application's (URLA's) FHA Addendum.
- In September 2015, HUD announced further revisions to the loan-level certification, opening an additional 30-day comment period.
- In March 2016, HUD released its final loan-level certification.
- In September 2016, FHA released an FAQ to provide additional guidance on the standards for certification regarding defects on Page Four, Section (h) of the final loan-level certification.
- The final loan-level certification reflects key MBA recommendations to safeguard lenders from liability for minor mistakes that would expose them to undue False Claims Act risk.
- The revised form only requires a mortgagee's employee to attest to the fact that they have validated the information provided to them by certifying the information in the application is "to the best of the lender/mortgagee's knowledge...complete and accurately represents the information obtained by the lender/mortgagee as of the date ... provided." By comparison, the stricter standard in the old certification required all of the information in the application to be "true" and did not explicitly limit exposure for post-verification changes in the information.
- Most notably, the revised form also establishes an insurability standard, requiring that lenders now certify there is "no defect that should have changed the processing or documentation" such that "the mortgage should not have been approved in accordance with FHA requirements."
- Therefore, lenders will only be liable for mistakes that would have altered the decision to approve the loan.
- By determining loan defects through terms of insurability, FHA's intent is to provide greater certainty and clarity regarding the types of errors that can expose lenders to False Claims Act risk.
- The new standard will be controlling for HUD in its reviews and in any referrals to the Department of Justice (DOJ).
- However, the DOJ continues to rely on its own standards for False Claims Act enforcement.
- Following the publication of the final loan-level certification, the DOJ posted a notice on its website affirming its intention to pursue claims under the False Claim Act. This implies that litigation risk will continue to increase the cost of FHA lending.
- Other changes include:
- The elimination of lender liability for third party actions, except on Page Three under the loan-level underwriting certification.
- The removal of the Mortgagee certification provision regarding fraud and knowledge of criminal and civil offenses. A revised and expanded version of this certification was moved to the proposed revisions to FHA's lender-level certification due to its institutional level scope.
- The revision of all language to be consistent with the policies of the Single Family Handbook, and to remove references to Handbooks no longer in use by Single Family Housing.
- The new loan-level certification became effective August 1, 2016. Lenders will now sign the form when they annually re-certify at the close of the Fiscal Year.
MBA's Position / Next Steps:
- MBA strongly supports the elimination of the pre-endorsement requirement in Section (h) on Page Four of the final loan-level certification that would hold lenders accountable for minor defects, even those that are curable and do not impact the loan's insurability or severity of loss to FHA.
- Since Section (h) is still included in the final loan-level certification, MBA urges HUD to issue a technical correction on Page Four of the loan-level certification in Section (h) to read:
- The Mortgagee has exercised due diligence in processing this mortgage in reviewing the file documents listed at HUD Handbook 4000.1, II.A.7.b. and the documents contain no defect that should have changed the processing or documentation such that the mortgage should not have been approved in accordance with FHA requirements.
- MBA firmly supports HUD's intent to only hold lenders liable for mistakes that would have altered the decision to approve the loan and appreciates FHA's publication of an FAQ to provide further clarity regarding the standard for certification in Section (h). However, MBA continues to believe that an official clarification of HUD's original intent is vital to the future use and interpretation of this legal certification.
- MBA also supports the additional revisions to the loan-level certification but maintains that Page Three of the form should reflect the same knowledge qualifiers that are reflected on Page One and Four of the certification form that require certification "to the best of" a signer's knowledge. This clarification will provide consistency so that lenders can sign this important document with confidence.
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