QUALITY CONTROL PLAN CHECKLIST - AHACPA

AHACPA Quality Control Checklist

12/31/2021

Handbook Reference Yes/No Requirement

Section V.A.2.a.i. Section V.A.2.a.ii.

Section V.A.2.b.i.(A) Section V.A.2.b.i.(B)

Section V.A.2.b.ii. Section V.A.2.b.iii.

Employees performing QC functions are independent of loan administration processes. Mortgagee may contract with outside vendors to perform QC functions if:

Mortgagee assumes full responsibility for contractor's performance. Valid contrctual agreement exists specifiying responsibilites of each party. Mortgagee acknowledges existence of such contract does not satisfy Mortgagee's obligation to have a written, compliant QC Plan. Mortgagee must ensure that contractor's staff do not participate in any loan administration of the mortgagee.

Mortgagee must ensure that plan provides for: Training all staff. Maintain a list of all training prvided to staff. Provide access to staff all current FHA guidance. Confirm that staff have access to written of online guidance issued by FHA.

Mortgagee must verify (SEMIANNUALLY) that employees or affiliates: Employees, officers, partners, directors, mangers, supervisors, loan processors, underwriters, originatorsand all other employees or affiliates are not the Excluded Parties List using the SYSTEM for Award Management (SAM)

All relevant employees and affiliates are eligible using the Limited Denial of Participation list. All relevant emplyees re licensed with NMLS Mortgagee must maintain documentation of this review. Affiliate Quality Control Reviews: Mortgagee must document QC reviews of its affiliates in the same manner as their own. At a minimum this must include a semiannual review of its reverification of employee eligiblity requirements.

Mortgagee must document the method of this review, including findigns and corrective acitons. Fair Housing and Fair Lending Mortgagee must verify that opera ons comply with Fair Housing and Fair Lending laws.

Review a ranndom statistical sample of rejected applications within 90 days from the end of the month in which the decision was made. Including: The reasons for rejection. Concurrence of senior staff or officer or committee. Requirements of ECOA were met and documented. No civil rights violations were committed. Take immediate corrective action to ensure compliance. Mortgagee must maintain document and maintain the documentation of such reviews. Verify the Fair Housing poster is in place. Include documentation of its location. All documents distributed to the public contain the Fair Housng logo.

Section V.A.2.b.iv.

Escrow Funds: The Mortgagee must verify that escrow funds received from Borrowers were used only for the purpose for which they were received, and are in compliance with all Consumer Financial Protection Bureau (CFPB) escrow requirements.

The Mortgagee must retain the results of each review and any corrective actions taken as a result of review Findings.

Section V.A.2.b.v.

Mortgage Insurance Premiums:

The Mortgagee must verify that FHA Mortgage Insurance Premiums (MIP) were remitted to FHA within the required time period or, if not, that the remittance included Late Charges and interest penalties. Mortgagees must address any pattern of late submissions and promptly take corrective measures.

Section V.A.2.b.vi. Section V.A.2.b.vii.

Section V.A.2.c.i. & ii Section V.A.2.d Section V.A.2.d.i.

Section V.A.2.d.ii.

The Mortgagee must retain the results of each review and any corrective actions taken as a result of review Findings.

Timely and Accurate Submission for Insurance The Mortgagee must verify that Mortgages are being submitted to FHA for insurance within the required time frames (see Case Binder Submission ? Direct Endorsement Non-Lender Insurance). The Mortgagee must retain the results of each review and any corrective actions taken as a result of review Findings.

Advertising: The Mortgagee must review all advertisements generated by the Mortgagee or on its behalf to verify compliance with HUD/FHA advertising requirements (see Advertising).

The Mortgagee must take prompt corrective action upon discovering any violation of advertising requirements described in this SF Handbook. The Mortgagee must retain copies of any Advertising Device the Mortgagee produces, or that is produced on the Mortgagee's behalf, that is related to FHA programs. The Mortgagee must retain samples of the advertising reviewed, the results of each review, and any corrective actions taken as a result of review Findings.

Identifying Patterns: The Mortgagee must review its loan performance data to identify any patterns of non-compliance.

The Mortgagee must document the methodology used to review patterns of non-compliance, the results of each review, and any corrective actions taken as a result of review Findings. The procedures used to review patterns of non- compliance must be included in the Mortgagee's QC Plan. May use Neighborhood Watch

Fraud and Misrepresentations:

Definitions: FINDING - A Finding is a final determination of defect by the Mortgagee. MATERIAL FINDING - In the context of mortgage origination and underwriting, a Finding is Material if disclosure of the Finding would have altered the Mortgagee's decision to approve the Mortgage or to endorse or seek endorsement from FHA for insurance of the Mortgage. In the context of mortgage servicing, a Finding is Material if it has an adverse impact on the property and/or FHA. MITIGATED FINDING - In the context of mortgage origination and underwriting, a Finding has been Mitigated if the Mortgagee has adequately addressed the deficiencies underlying the Finding, and such deficiencies have been remedied so that the Mortgagee's decision to approve the Mortgage or to endorse or seek endorsement from FHA for insurance of the Mortgage is acceptable to FHA. In the context of mortgage servicing, a Finding has been Mitigated if the Mortgagee has adequately addressed the deficiencies underlying the Finding, and such deficiencies have been remedied through mortgage servicing actions taken by the Mortgagee so there is no longer an adverse impact on the Property and/or FHA.

Standard:

The Mortgagee must monitor all FHA-insured Mortgages it originates, underwrites, services, or purchases, including those Mortgages originated by sponsored Third-Party Originators (TPO), for potential fraud, material misrepresentations, or other Material Findings. Suspected instances of fraud, material misrepresentations, and other Material Findings must be investigated and documented by the Mortgagee's QC team, who must determine whether or not fraud or material misrepresentation actually occurred, or whether Material Findings exist.

Section V.A.2.d.iii. Section V.A.2.d.iv.

Section V.A.3. Section V.A.3.a.i

Internal Reporting to Senior Management: The Mortgagee's written QC Plan must contain a process for QC staff to report Findings identified through the QC process to senior management that complies with the following requirements.

Time Frame for Reporting Initial review Findings must be reported to the Mortgagee's senior management within 30 Days of completion of the initial Findings report. The Mortgagee's final report must be issued within 60 Days from the date the initial review Findings were reported to senior management.

Corrective Action Plan Mortgagee senior management must review and respond to each instance of fraud, material misrepresentation, or other Material Finding. The Mortgagee's final report must identify the corrective and curative actions being taken, the timetable for completion, and any planned follow-up activities. Follow Up The Mortgagee must discuss all Findings with the responsible party(ies) in order to ensure corrective action and to prevent similar Findings from occurring in the future.

External Reporting to FHA Fraud and Material Misrepresentation The Mortgagee must report to FHA all Findings of fraud and material misrepresentation. Material Findings The Mortgagee must report to FHA any Material Findings concerning the origination, underwriting, or servicing of a Mortgage that the Mortgagee is unable to mitigate.

Mitigated Findings Findings that do not involve fraud or material misrepresentation and were already Mitigated by the Mortgagee do not have to be reported to FHA. Time Frame for Reporting The Mortgagee must report any Findings of fraud or material misrepresentation to FHA immediately. The Mortgagee must report all other Material Findings that the Mortgagee is unable to mitigate to FHA no later than 90 Days after the completion of the initial Findings report. Corrective Action Plan For all Findings that must be reported, the Mortgagee must identify what actions have been taken to attempt to mitigate each Finding, and report any planned or pending follow-up activities.

Method of Reporting The Mortgagee must use the Self-Report feature in the Loan Review System to report Findings to FHA. FHA may request supporting documentation, including the endorsement case binder, the QC report, and any other documentation necessary for FHA to fully evaluate the Finding.

Suspected HUD Involvement If the Mortgagee suspects HUD employees or contractors were involved in fraud or material misrepresentation, the Mortgagee must refer the matter directly to HUD's Office of Inspector General (OIG) through the HUD OIG website, by sending a written referral to the HUD OIG Hotline at 451 7th Street, SW, Room 8254, Washington, DC 20410, or by fax at (202) 708-4829. Required Documentation The Mortgagee must retain all QC review results, including all selection criteria, review documentation, Findings, and actions taken to mitigate Findings.

Loan Level Quality Control Program Requirements

Loan File Selection - Time Frame for Selection and Review: Pre-Closing Reviews Mortgagees must select Mortgages for pre-closing reviews during each month. Mortgages selected for pre-closing review must be reviewed after the Mortgage is approved by an FHA Direct Endorsement (DE) underwriter, and prior to closing.

Section V.A.3.a.ii Section V.A.3.a.iii

Section V.A.3.a.iv.

Post-Closing Reviews Mortgagees must select Mortgages for post-closing reviews on a monthly basis. The selection must be comprised of loans closed in the prior one-month period. Mortgages selected must be reviewed within 60 Days from the end of the prior one-month period. Early Payment Default Reviews Mortgagees must select Early Payment Defaults (EPD) for review on a monthly basis. EPDs selected must be reviewed within 60 Days from the end of the month in which the loan was selected.

Servicing Reviews Mortgagees must select Mortgages for servicing reviews on a monthly basis. Mortgages selected for servicing reviews must be reviewed within 60 Days from the end of the month in which the loan was selected.

Scope:

The Mortgagee's QC Plan must provide for the thorough evaluation of all Loan Administration functions for which the Mortgagee is responsible. The Mortgagee must expand the scope of the QC review as appropriate when fraud or patterns of deficiencies are uncovered.

Sample Size Standard: The Mortgagee's QC Plan must provide for a combination of both pre-closing and post-closing reviews. The Mortgagee's QC Plan must provide for review of an appropriately sized, statistically valid sample that complies with the following. The Mortgagee must calculate its FHA QC sample size separately for FHA- insured Mortgages it originates/underwrites versus services.

3,500 or Fewer FHA-Insured Mortgages per Year Mortgagees that originate/underwrite or service 3,500 or fewer FHA-insured Mortgages per year must review a minimum of 10 percent of the FHA-insured Mortgages the Mortgagee originates/underwrites or services. More Than 3,500 FHA-Insured Mortgages per Year Mortgagees that originate/underwrite or service more than 3,500 FHA Mortgages per year must review either 10 percent of the FHA-insured Mortgages the Mortgagee originates/underwrites or services, or a stratified random sample that is of sufficient size to ensure a 95 percent confidence level with a confidence interval not to exceed 2 percent on an annual basis, based on the defect rates for FHA-insured Mortgages recently reviewed by the Mortgagee.

For origination and underwriting reviews, the stratification should be based on mortgage product type and the source of origination. For servicing reviews, the stratification should be based on servicing functions in the following categories: general servicing; default management and loss mitigation; escrow administration; foreclosure administration; and claims. Percent of Pre- and Post-Closing Reviews The Mortgagee's required FHA QC sample size must comply with the following balance of pre- and post-closing reviews:

Type of Review

% of FHA QC Sample Size

Pre-Closing Review -

10% or less

Post-Colsing Review -

90% or more

Exception Mortgagees that close nine or fewer loans during the prior one-month period must select a minimum of one loan each month for pre-closing review.

Sample Composition Standard: The Mortgagee's QC Plan must contain provisions to select FHA-insured Mortgages for review via random, EPDs, and discretionary sample selection methods that meet the following conditions. Only random and discretionary samples may be included in the sample size standard.

Section V.A.3.b. Section V.A.3.b.i. Section V.A.3.b.ii. Section V.A.3.b.iii.

Section V.A.3.b.iv. Section V.A.3.c. Section V.A.3.c.i.

Random The Mortgagee must select FHA-insured Mortgages through the use of statistical sampling such that each of the Mortgagee's FHA-insured Mortgages has an equal chance of being selected. The random sample must be drawn from all of the Mortgagee's FHA-insured Mortgages, regardless of origination source or program type.

Early Payment Defaults Definition Early Payment Defaults (EPD) are all Mortgages that become 60 Days delinquent within the first six payments. Standard The Mortgagee must review all EPDs underwritten by the Mortgagee, regardless of which Mortgagee services the Mortgage. Mortgagees may use Neighborhood Watch to assist with identifying EPDs. Discretionary The Mortgagee must focus discretionary samples on programs, participants, or sources that represent a high level of risk, which may include disproportionate loan volume, default rates, new relationships, or concentration in soft market areas. Required Documentation The Mortgagee must document how the sample size and selections were determined.

Loan Sample Risk Assessment

Definition

A Loan Sample Risk Assessment is a method of evaluating loans selected for QC on the basis of the severity of the violations found during QC reviews.

Standard Mortgagees must establish a Loan Sample Risk Assessment methodology. At a minimum, the methodology must include the categories of risk described below. The Mortgagee must compare one month's QC sample to previous QC samples in order to conduct trend analysis.

Risk Categories Low Risk No issues or minor variances were identified with the origination, underwriting, or servicing of the Mortgage.

Moderate Risk The records contained unresolved questions or missing documentation. Issues were identified pertaining to processing, documentation, or decisions made during Loan Administration, but none were material. Failure to resolve these issues created a moderate risk to the Mortgagee and to FHA. Material Risk The issues identified during the review contained Material Findings which represent an unacceptable level of risk.

Required Documentation The Mortgagee must document the methodology used to establish the loan sample risk assessment system and conduct trend analysis.

Origination and Underwriting Loan File Compliance Review

Minimum Requirements

Post-

Pre-Closing closing

Review

Review

At a minimum, Mortgagees must include the following areas in their QC review to ensure they meet the requirements outlined in the Origination Through Post- Closing/Endorsement section of this SF Handbook:

Appraisal

Mortgage Application, eligibility, and underwriting documents Disclosures and legal compliance Mortgage origination documents Handling of mortgage documents Borrower occupancy Credit reports Outstanding debt obligations Verifications of employment and deposit Self-employed Borrowers Borrower's source of funds Underwriting accuracy and completeness, including compensating factors Property flipping restrictions Prohibited restricted covenants Qualified Mortgage (QM) Loan estimate Discrepancies in the loan file Condition clearance Closing procedures and dcouments Closing disclosure or other similar legal document Pre-endorsement review Timely submission for insurance

Section V.A.3.c.ii.

Document and Re-verification A Mortgagee's QC Plan for origination and underwriting must provide for the review and re-verification of the following information on all FHA-insured Mortgages selected for pre-closing and post-closing review, unless otherwise specified below.

Credit Report

Standard For all post-closing reviews, the Mortgagee must obtain a new credit report in the same form as the original credit report used to approve the Mortgage, including a Residential Mortgage Credit Report (RMCR), a Tri-Merged Credit Report (TRMCR), or, when appropriate, a business credit report for each Borrower whose FHA-insured Mortgage is selected for review. If discrepancies exist between the credit reports that may adversely affect the Borrower's eligibility to qualify for an FHA-insured Mortgage, then the Mortgagee must obtain a second, full RMCR. Exceptions A new credit report does not have to be obtained for pre-closing reviews, or for non-credit qualifying Streamline Refinances. Required Documentation The Mortgagee must retain a copy of the new credit report(s).

Income, Employment, Asset, and Housing Expense Information

Re-verification

Standard For all post-closing reviews, the Mortgagee must analyze the validity and sufficiency of all documents contained in the loan file. The Mortgagee must re- verify, in writing or electronically if available, the following: ? employment; ? income; ? assets; ? gift funds; ? source of funds; and ? Mortgage Payments or rental payments. If a written or electronic re-verification request is not returned to the Mortgagee, the Mortgagee must attempt a telephone re-verification. Re- verification is not required for pre-closing reviews. Required Documentation The Mortgagee must retain evidence of the written, electronic, or telephone verification, and document the due diligence.

Discrepancies

Standard The Mortgagee must evaluate all discrepancies to ensure that the original documents (except blanket verification releases) were completed before being signed, were as represented, were not handled by Interested Parties, and that all corrections were proper and initialed. All conflicting information in the original documentation must be resolved with the underwriter.

Exception for Mortgagees and TPOs The Mortgagee and TPO are permitted to handle re-verifications, provided the Mortgagee or TPO is not the seller, real estate agent, builder, or developer. Required Documentation The Mortgagee must document any discrepancies and retain copies of information used to resolve such discrepancies.

Appraisals

Standard Property Appraisal Reviews The Mortgagee must conduct a review of the property appraisal for all FHA- insured Mortgages chosen for a QC review. At a minimum, Mortgagees must include the following areas in their QC review of the property appraisal: ? the appraisal data; ? the validity of the comparables; ? the value conclusion (as required by FHA guidance); ? any changes made by the underwriter; and ? the overall quality of the appraisal.

Field Reviews The Mortgagee must perform field reviews on 100 percent of EPDs underwritten by the Mortgagee. The Mortgagee must perform targeted field reviews on 10 percent of the FHA- insured Mortgages selected for the monthly post-closing QC sample. The Mortgagee must select Mortgages for targeted field reviews based on the factors used for discretionary targeting, as well as the following characteristics: ? property complaints received from Borrowers; ? discrepancies found during QC reviews; ? large adjustments or variances to value; ? comparable sales more than six months old; ? excessive distances from comparables to the subject Property; ? repetitive sales activity for the subject Property; ? investor-sold Properties; ? identity-of-interest conflicts between Borrower and seller; ? seller identity differs from owner of record; ? HUD Real Estate Owned (REO) sales financed with an FHA-insured Mortgage; ? vacant Properties; and ? soft markets. Field reviews must be performed by Appraisers listed on FHA's Roster of Appraisers. Exceptions Property appraisal and field reviews do not have to be performed for Streamline Refinances, or for HUD REO sales chosen for QC review where the Mortgagee was not required to order a new appraisal for a property financed with an FHA-insured Mortgage. Field reviews do not have to be performed for pre-closing reviews.

Required Documentation The Mortgagee must retain all QC review results, including all selection criteria, review documentation, Findings, and actions taken to mitigate Findings.

Quality Control Reviews of Specialized Mortgage Programs (10/15/2019) Standard QC reviews of specialized mortgage programs (e.g., 203(k), Home Equity Conversion Mortgages (HECM), Energy Efficient Mortgages (EEM), Condominiums, Condominium Project Approvals, etc.) must monitor compliance with FHA requirements specific to those programs.

Required Documentation The Mortgagee must retain all QC review results, including all selection criteria, review documentation, Findings, and actions taken to mitigate Findings.

Servicing Loan File Compliance Review (09/14/2015)

Minimum Requirements Mortgagees must review all aspects of their servicing operations, including a review of subserviced Mortgages and activities as they relate to FHA-insured Mortgages, to guarantee that all FHA servicing and loss mitigation requirements are being met. At a minimum, Mortgagees must include the following elements in their QC review to ensure they meet the requirements outlined in the Servicing and Loss Mitigation and Claims and Disposition sections of this SF Handbook: ? servicing records ? document retention and legibility ? nondiscrimination policies ? Borrower requests, complaints, and escalated cases ? fees ? transfer of servicing notification and records ? documentation of purchased or acquired Mortgages ? mortgage record changes ? escrow account functions ? force-placed insurance ? prepayments ? MIP ? early default intervention ? loss mitigation ? collection activities ? reporting to credit repositories ? home retention option priority order (waterfall) ? home disposition options ? claims for insurance benefits ? Claims Without Conveyance of Title (CWCOT) ? foreclosure proceedings ? property preservation and conveyance ? deficiency judgments ? Single Family Default Monitoring System (SFDMS) reporting ? Adjustable Rate Mortgages (ARM) ? assumptions ? Presidentially-Declared Major Disaster Areas (PDMDA) ? Hawaiian Home Land Mortgages (Section 247 Mortgages) ? Section 184 Indian housing loans ? Section 222 Mortgages ? Good Neighbor Next Door ? Servicemembers Civil Relief Act (SCRA) ? Section 235 Mortgages ? Section 203(k) Mortgages ? servicing of HECM

Ineligible Participants

Origination and Underwriting Reviews

Standard The Mortgagee must verify that none of the participants in the mortgage transactions reviewed were debarred, suspended, under an LDP for the FHA program and jurisdiction, or otherwise ineligible to participate in an FHA transaction. This includes participants in an assumption transaction.

Participants in a mortgage transaction may include, but are not limited to, the: ? seller (excluding the seller of a Principal Residence) ? listing and selling real estate agent ? loan originator ? loan processor ? underwriter ? Appraiser ? 203(k) Consultant ? Closing Agent ? title company

The Mortgagee must verify participant eligibility using the SAM () Excluded Parties List, the LDP list, and NMLS, as applicable. Required Documentation The Mortgagee must maintain documentation that supports each participant's eligibility.

Quality Control Reviews of Specialized Mortgage Programs

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