FHA Investing Mortgagees No Longer Required to Provide Compliance Report

By: Phillip L. Schulman, *Nathan Pysno
*Mr. Pysno is not admitted to the D.C. Bar; currently admitted to the Maryland Bar.

A recent change to the HUD Office of the Inspector General Audit Guide has removed the requirement that all FHA investing mortgagees submit reports on internal controls and compliance.

An investing mortgagee or lender may purchase, sell, and hold FHA-insured mortgages but cannot originate or fund FHA loans. An investing mortgagee may service FHA loans with approval of the HUD Secretary.

The new rule, in Chapter 7 of the Audit Guide,  states that investing mortgagees are now required to provide only audited financial statements and a computation of adjusted net worth. A report on internal controls and a report on compliance are now only required for investing mortgagees that are authorized to service FHA-insured loans.

Previously, all investing mortgagees were required to file a compliance report. This presented a problem for investing mortgagees who were not involved in servicing. Because the role of many investing mortgagees was limited to investing or holding mortgages, they did not need to comply with requirements for originating or servicing loans. Thus, it was not entirely clear what sort of compliance issues were expected to be included in their report. The new rule eliminates this issue by removing the requirement of filing a compliance report for investing mortgagees who do not service loans.