HECM Lenders Should Prepare for New Loan Review System

by | Jan 31, 2017 | News Room, Reverse Mortgages

New loan review on single-family homes

The Department of Housing and Urban Development (HUD) announced Jan. 11 a new Loan Review System (LRS) that will consolidate mortgagees’ reporting efforts. Last week, HUD confirmed Home Equity Conversion Mortgages (HECMs) are among the FHA products covered by the new LRS.

The new LRS applies to a number of loan reviews under the Federal Housing Administration (FHA), including Title II Single Family Loan Reviews, Title II Single Family Mortgagee Monitoring Reviews and mortgagee self-reporting of fraud, misrepresentation and other findings.

In a webinar, Justin Burch of HUD’s Quality Assurance Division, said HECMs will be reviewed through the LRS in the same way forward mortgages are reviewed. All HECM lenders will be expected to access and use LRS once HUD implements it.

The LRS provides quality control to ensure lenders’ compliance with FHA guidelines for Title II Single Family loans. The new LRS also will merge the loan review processes between the Quality Assurance Division and the Processing and Underwriting Division, which will provide for alignment of loan review documentation across these divisions. In addition, it incorporates the Single Family Housing Loan Quality Assessment Methodology (Defect Taxonomy), which has been available at hud.gov since June 2015.

HUD will use the new LRS to review test cases for mortgagees applying for unconditional Direct Endorsement approval. With the new LRS, HUD will no longer make distinctions between types of loan reviews. Most of the current post-endorsement reviews will be merged into the new LRS system. HUD also indicates the new LRS eventually will replace the Underwriter Review Functions and eFindings Functions in FHA Connection.

HUD says standard loan origination and endorsement processes will not be affected by the new LRS.

In its Mortgagee Letter dated Jan. 11, HUD stated it would announce an implementation date for the new LRS no earlier than March 1 because the new LRS is currently in development.

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