FHA Requires Lenders to Self-Report

Lenders who are FHA-approved and lend on single-family property now face a new set of reporting requirements.  Effective last month, lenders must report “material findings” of suspected fraud or material misrepresentation, discovered through the lender’s quality control process, directly to the Federal Housing Administration.  The lender must also disclose what the lender is doing to resolve the issue.  Any issues that have already been resolved need not be reported.

So, what’s a “material finding”?  A material finding is any finding that would have caused the lender to disapprove the loan or not request an FHA endorsement had the lender discovered the material finding before the loan was approved.  For example, if the borrower would not have qualified under FHA guidelines but was approved anyway because of the lender’s failure to verify his eligibility, income, employment, credit, or the appraisal of the house, that would constitute a “material finding”.  If the home the borrower purchased was not repaired to FHA standards even though the appraisal noted significant deficiencies, that would be a “material finding” as well.

If lenders fail to report such material findings to the FHA, they are subject to administrative action.