FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Loan File Selection (05/09/2022)

FHA Single Family Housing Policy Handbook 4000.1, Part V — a. Loan File Selection (05/09/2022)

a. Loan File Selection (05/09/2022) i. Time Frame for Selection and Review (A) Pre-closing Reviews Mortgagees must select Mortgages for pre-closing reviews during each month. Mortgages selected for pre-closing review must be reviewed after the Mortgage is approved by an FHA Direct Endorsement (DE) underwriter, and prior to closing. (B) Post-closing Reviews Mortgagees must select Mortgages for post-closing reviews on a monthly basis. The selection must be comprised of loans closed in the prior one-month period. Mortgages selected must be reviewed within 60 Days from the end of the prior one-month period. (C) Early Payment Default Reviews Mortgagees must select Early Payment Defaults (EPD) for review on a monthly basis. EPDs selected must be reviewed within 60 Days from the end of the month in which the loan was selected. (D) Servicing Reviews Mortgagees must select Mortgages for servicing reviews on a monthly basis. Mortgages selected for servicing reviews must be reviewed within 60 Days from the end of the month in which the loan was selected. ii. Scope The Mortgagee’s QC Plan must provide for the thorough evaluation of all Loan Administration functions for which the Mortgagee is responsible. The Mortgagee must expand the scope of the QC review as appropriate when fraud or patterns of deficiencies are uncovered. iii. Sample Size Standard The Mortgagee’s QC Plan must provide for a combination of both pre-closing and post- closing reviews. The Mortgagee’s QC Plan must provide for review of an appropriately sized, statistically valid sample that complies with the following. The Mortgagee must calculate its FHA QC sample size separately for FHA-insured Mortgages it originates/underwrites versus services. V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees 3. Loan Level Quality Control Program Requirements Handbook 4000.1 1706 Last Revised: 11/26/2025 (A) 3,500 or Fewer FHA-Insured Mortgages per Year Mortgagees that originate/underwrite or service 3,500 or fewer FHA-insured Mortgages per year must review a minimum of 10 percent of the FHA-insured Mortgages the Mortgagee originates/underwrites or services. (B) More Than 3,500 FHA-Insured Mortgages per Year Mortgagees that originate/underwrite or service more than 3,500 FHA Mortgages per year must review either 10 percent of the FHA-insured Mortgages the Mortgagee originates/underwrites or services, or a stratified random sample that is of sufficient size to ensure a 95 percent confidence level with a confidence interval not to exceed 2 percent on an annual basis, based on the defect rates for FHA-insured Mortgages recently reviewed by the Mortgagee. For origination and underwriting reviews, the stratification should be based on mortgage product type and the source of origination. For servicing reviews, the stratification should be based on servicing functions in the following categories: general servicing; default management and loss mitigation; escrow administration; foreclosure administration; and claims. (C) Percent of Pre- and Post-closing Reviews The Mortgagee’s required FHA QC sample size must comply with the following balance of pre- and post-closing reviews: Type of Review % of FHA QC Sample Size Pre-closing Review 10% or less Post-closing Review 90% or more (D) Exception Mortgagees that close nine or fewer loans during the prior one-month period must select a minimum of one loan each month for pre-closing review. iv. Sample Composition Standard The Mortgagee’s QC Plan must contain provisions to select FHA-insured Mortgages for review via random, EPDs, and discretionary sample selection methods that meet the following conditions. Only random and discretionary samples may be included in the sample size standard. (A) Random The Mortgagee must select FHA-insured Mortgages through the use of statistical sampling such that each of the Mortgagee’s FHA-insured Mortgages has an equal V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees 3. Loan Level Quality Control Program Requirements Handbook 4000.1 1707 Last Revised: 11/26/2025 chance of being selected. The random sample must be drawn from all of the Mortgagee’s FHA-insured Mortgages, regardless of origination source or program type. (B) Early Payment Defaults (1) Definition Early Payment Defaults (EPD) are all Mortgages that become 60 Days delinquent within the first six payments. (2) Standard The Mortgagee must review all EPDs underwritten by the Mortgagee, regardless of which Mortgagee services the Mortgage. Title II Mortgagees may use Neighborhood Watch to assist with identifying EPDs. (C) Discretionary The Mortgagee must focus discretionary samples on programs, participants, or sources that represent a high level of risk, which may include disproportionate loan volume, default rates, new relationships, or concentration in soft market areas. v. Required Documentation The Mortgagee must document how the sample size and selections were determined.

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