FHA Details New Approach to Loan Quality Assurance

The Federal Housing Administration last week posted a new “defect taxonomy” that explains how the agency will categorize loan defects found in the single family loans it guarantees. The guidelines are part of FHA’s quality assurance efforts following several cases where lenders were forced to absorb losses on FHA loans with faulty underwriting.

The taxonomy consolidates 99 different defect codes into nine and includes information on the defects’ source and relative severity. “This new approach will give lenders additional information that helps identify where their challenges are in originating FHA loans and allow them to make changes to reduce errors that potentially trigger enforcement actions,” the agency explained in a press release. “The increased clarity with respect to quality assurance measures enhances access for potential borrowers because lenders can originate loans confidently-knowing their mortgages meet FHA standards.”

The FHA has not yet set an effective date for the new taxonomy.