[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41075-41077]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16483]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5723-N-01]


Federal Housing Administration (FHA): Single Family Quality 
Assurance--Solicitation of Information on Quality Lending Practices

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: Through this notice, FHA solicits comment from its approved 
lenders, the lending industry generally, consumers, consumer protection 
agencies, and interested members of the public on ways to improve the 
efficiency and effectiveness of FHA's quality assurance process (QAP). 
The objective of FHA's QAP is to promote quality lending practices by 
FHA's approved lenders; practices that protect the consumer and 
mitigate risk for the lender and FHA. The feedback that FHA receives 
through this solicitation will help inform FHA of next steps that FHA 
may want to take to strengthen its current QAP.

DATES: Comment Due Date: September 9, 2013.

ADDRESSES: Interested persons are invited to submit comments regarding 
this document to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
10276, Washington, DC 20410-0500. Communications must refer to the 
above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare

[[Page 41076]]

and submit a comment, ensures timely receipt by HUD, and enables HUD to 
make them immediately available to the public. Comments submitted 
electronically through the www.regulations.gov Web site can be viewed 
by other commenters and interested members of the public. Commenters 
should follow the instructions provided on that site to submit comments 
electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
document.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Kathleen A. Zadareky, Associate Deputy 
Assistant Secretary for Single Family Housing, Office of Housing, 
Department of Housing and Urban Development, 451 7th Street SW., 
Washington, DC 20410-8000; telephone number 202- 708-3175 (this is not 
a toll-free number). Persons with hearing or speech challenges may 
access this number through TTY by calling the toll-free Federal Relay 
Service at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    FHA has long required its approved lenders to maintain and 
implement a quality control plan (QCP).\1\ A copy of the plan must be 
submitted by the lender when applying for FHA lender approval. FHA 
considers a QCP to be an important part of a lender's origination and 
servicing operations. The purpose of the QCP is to help ensure that the 
lender maintains compliance with FHA requirements and the lender's own 
policies and procedures. The QCP must be sufficient in scope to enable 
the lender to evaluate the accuracy, validity and completeness of its 
loan origination and servicing operations. Specifically, the QCP should 
be designed to meet the following basic goals: assure compliance with 
FHA's and the lender's own origination or servicing requirements 
throughout its operations; protect the lender and FHA from unacceptable 
risk; guard against errors, omissions and fraud; and assure swift and 
appropriate corrective action.
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    \1\ See Chapter 7 of FHA's Mortgagee Approval Handbook (4060.1) 
at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4060.1.
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    In addition to the lender QCP, FHA conducts an independent review 
of loan endorsements through one or more processes: post-endorsement 
technical reviews, Quality Assurance Division reviews and targeted 
lender reviews. Each of these approaches has a targeted sampling 
methodology. FHA also relies on certain metrics as part of its QAP. For 
example, for each lender, FHA computes a Compare Ratio, which measures 
the early default and claim rate on that lender's FHA mortgages, 
relative to the early default and claim rate on all FHA mortgages in 
that given geographic area.
    Over the last few years, FHA has taken several steps to strengthen 
FHA's oversight functions, and conducting an examination of FHA's 
single family QAP is another step in that direction. FHA is evaluating 
single family quality assurance alternatives that would better align 
with FHA's mission. Specifically, FHA seeks to ensure that it maintains 
and improves a quality assurance framework that does not hinder or 
dissuade lending to FHA-targeted populations, enhances the efficiency 
and effectiveness of the QAP, ensures compensation to FHA for defects 
resulting from the lender manufacturing process, and applies fairly to 
all lenders. FHA also seeks a framework that ensures that loans are 
reviewed within a reasonable time period, post-endorsement, to allow 
FHA to use loan quality findings to improve credit policy and to allow 
lenders to improve their FHA origination practices. Any changes 
initiated as a result of this solicitation will be prospective only, 
and will not apply to any pending claims, reviews, or enforcement 
actions.

II. Solicitation of Comment

    As part of FHA's own evaluation of the QAP, FHA welcomes input from 
warehouse lenders, retail lenders, mortgage bankers, wholesale lenders, 
mortgage brokers, federal, state, and local consumer protection and 
enforcement agencies, consumer groups and other interested parties in 
the mortgage lending industry and the broader public. FHA specifically 
seeks input that addresses one or more of the following areas, which 
are the current focus of FHA regarding the QAP:
    1. Loan defect and appropriate consequence (e.g. indemnification, 
other administrative remedies). What types of loan manufacturing or 
compliance defects found in the QAP should be subject to 
indemnification or other administrative remedies or a combination of 
responses?
    2. Annual review and comparison of rate of early defaults and 
claims. FHA is currently required by statute to review, at least 
annually, the rate of early defaults and claims for FHA-insured single 
family mortgages originated and underwritten by each mortgagee and, for 
each mortgagee, to compare these rates to those of other mortgagees 
originating or underwriting mortgages in the same geographic area. FHA 
is examining how, within the current parameters, the review and 
comparison may achieve an improved assessment of a mortgagee's 
performance. For example, whether FHA should establish a specific 
standard of defaults and claims which mortgagees should not exceed 
within a given construct. This standard would be based on FHA's review 
of all mortgagees' performance in the area, thus undertaking the 
statutorily required comparative review, but would also be based on 
certain specified criteria that reflect generally accepted practices of 
prudent and responsible lending.
    3. Standard of overall manufacturing quality. FHA is considering 
whether to establish a threshold manufacturing (or loan deficiency) 
risk tolerance. Such a standard might set a maximum threshold for the 
percent of loans with defects, or unacceptable patterns of recurring 
defects that, when surpassed, would automatically subject that lender 
to additional oversight, or trigger enforcement action.
    4. Statistical sampling. FHA is also considering whether to 
establish a process to review a statistically significant random sample 
of loans for each mortgagee within a prescribed time frame after loan 
endorsement. Lenders would receive feedback on findings within an 
established timeframe. FHA would use the statistical sample, to 
estimate the defect rate on each lender's overall FHA portfolio and 
then extrapolate the origination defect rate to all lender originations 
during the sampled time period, and thus have the lender compensate FHA 
for the estimated total risk to FHA resulting from the lender's 
origination processes. The purpose of this process would be to

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increase the efficiency of FHA's post-endorsement review process. HUD 
invites comment on the use of and optimal methodology for a 
statistically significant random sample, including the nature of the 
loans that should be included or excluded from the sample.
    While FHA specifically seeks comment on the four areas identified 
above, FHA welcomes comment on all issues related to its QAP and how 
this process may be improved. Based on information received in response 
to this solicitation, FHA will decide what, if any, action may be 
appropriate with regard to FHA's Single Family Quality Assurance 
practices.

    Dated: July 3, 2013.
Carol J. Galante,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 2013-16483 Filed 7-8-13; 8:45 am]
BILLING CODE 4210-67-P