COVID-19: Are Mortgagees required to conduct Quality Control (QC) reviews of Early Payment Defaults (EPDs) that were caused by the COVID-19 pandemic?

FHA has observed a significant increase in Early Payment Default (EPD) nationwide.  Most are likely caused by loss of employment and/or income due to the COVID-19 pandemic, not the result of non-compliance with FHA Single Family origination and underwriting requirements.  Therefore, FHA is providing Mortgagees with flexibility by temporarily waiving its requirements found in Handbook 4000.1, Sections V.A.3.a.i(C) and V.A.3.a.iv(B)(2). 
 
FHA issued a waiver on June 18, 2020 advising Mortgagees that they are not required to conduct QC reviews of EPDs that would have been selected as part of a Mortgagee's May, June or July 2020 QC selections.
 
FHA issued a subsequent waiver on August 26, 2020 advising Mortgagees that they are not required to conduct QC reviews for EPDs that would have been selected as part of the Mortgagee’s August 2020 QC sections, provided that the Mortgages have been reported using Single Family Default Monitoring System (SFDMS) Delinquency and Default Reason Code 055 – Related to National Emergency Declaration. This code indicates that the Mortgagee granted forbearance relief under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Mortgagee must review all other EPDs that would have been included in their August QC selections.
 
Mortgagees must continue to meet all other loan-level QC requirements in Section V.A.3. For example, Mortgagees must select FHA-insured loans for review via random and discretionary sampling methods that meet the conditions described in Section V.A.3.a.iv. These random and discretionary samples may include EPDs.

The waiver is available at: 
https://www.hud.gov/sites/dfiles/OCHCO/documents/TempQCEPDAppraisalReviewWaiver08262020.pdf  
 
Handbook 4000.1 is available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh


 

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-05531