Notice of Material Event Reporting - Pitfalls for FHA Mortgagees

With sighs of relief, the vast majority of Federal Housing Administration (FHA) mortgage insurance program participants completed the fiscal year 2015 annual recertification process. The process requires attesting to 10 broad and somewhat ambiguous statements regarding the mortgagee’s compliance with FHA approval and program requirements, or explaining to FHA’s Lender Approval and Recertification Division (the Division) why such certifications cannot be made.

Unfortunately, certain mortgagees’ relief may be short-lived, as this year, the Division appears to have scrutinized mortgagees that identified “unable to certify” events for the first time in this annual process, but had not reported them as Notices of Material Events (NME) during the calendar year. In some cases, the Division has referred mortgagees to the Mortgagee Review Board (MRB) for failure to file an NME in accordance with FHA requirements, although the MRB may not have issued Notices of Violation yet.

Unfortunately, these mortgagees may have hit an unintentional regulatory speed bump caused by inconsistent language resulting from the various changes made by HUD, including the updated definition of “Unresolved Finding” that became effective in September 2015. Although it may not be possible to cure past shortcomings, mortgagees subject to MRB referrals can consider whether arguments may be available that events they did not report were not actually subject to a reporting obligation. Furthermore, all mortgagees can assess their compliance efforts with the NME requirement to reduce their risks going forward. Nevertheless, compliance challenges will remain to the extent it is unclear whether an event is reportable or a mortgagee’s ability to report the event is restricted by other regulators’ confidential supervisory information (CSI) protections.

FHA NOTIFICATION REQUIREMENTS

There are three types of notifications that mortgagees may be required to submit to FHA:

1. Information Updates, through which mortgagees use the Lender Electronic Assessment Portal (LEAP) to communicate to FHA changes to their corporate or branch information that do not require HUD approval—such as administrative contact changes and principal/authorized agent relationship updates;
2. Change Requests, through which mortgagees request approval to change certain information in LEAP—such as adding Title I or Title II insurance authority; and
3. Notices of Material Events, through which mortgagees notify HUD of issues potentially impacting their FHA loan program approval. An NME filing must be accompanied by a brief description of the event being reported and supporting documentation. Such filings are the focus of the remainder of this article.

Originally published in Mortgage Compliance Magazine; reprinted with permission.