A $150,000 wake-up call.

Author:Coonts, John J.
Position:Financial consequences of HUD requirement violations for mortgage banks

The adverse financial results that can occur in a mortgage banking operation as a result of violations of HUD's requirements can have a major impact on the company's bottom line. In a time of maximizing profits, many CEOs don't focus on the quality of their products, looking instead to the volume of production as an indicator that all is well. Unfortunately, such an approach can have serious financial consequences down the road as HUD strengthens its enforcement efforts.

HUD's 2020 Management Reform Plan, now in its second year, made the enforcement of HUD requirements a top departmental priority. An enforcement center was established to ensure compliance with HUD's requirements and to take action against those companies, individuals and other program participants that violate these requirements. One area of responsibility assigned to the enforcement center is that of providing staff support to HUD's Mortgagee Review Board (MRB).

In addition to creating the enforcement center, HUD increased the number of its mortgagee monitors from 25 to more than 125 and placed them in the four homeownership centers (HOCs) under newly created quality control divisions. These monitors are HUD employees who actually visit the lender's place of business and conduct an in-depth review of the lender's origination and servicing of FHA-insured mortgages.

Also, in addition to substantially increasing the number of monitors, the monitoring review goal for FY99 was increased to 900 reviews, up from the less than 200 reviews that were performed the previous year. As part of the FY99 goal, 120 of the reviews will focus on the servicing practices of mortgagees, with special emphasis on the efforts of the servicer to provide loss mitigation to borrowers in default.

Most of HUD's monitoring reviews result in somewhat routine findings that can be resolved by correspondence and/or meetings between the company and the quality assurance division in the HOC. Historically, however, between 10 and 15 percent of the reviews result in MRB actions. The MRB is a board within HUD consisting of most of the department's assistant secretaries; it is chaired by the assistant secretary for housing-federal housing commissioner. This year, it is reasonable to expect that the chief operating officers of 60 to 90 FHA-approved lenders will get a letter from the FHA commissioner advising them of major problems that surfaced in the review of their activities. If you receive such a letter, it...

To continue reading