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c. Fraud, Misrepresentation, and Other Findings (11/10/2026)
i. Definitions
(A) Finding
A Finding is a determination of defect by the Mortgagee.
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V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees
2. Institutional Quality Control Program Requirements
(B) Material Finding
In the context of mortgage origination and underwriting, a Finding is Material if disclosure of the Finding would have altered the Mortgagee’s decision to approve the Mortgage or to endorse or seek endorsement from FHA for insurance of the Mortgage.
In the context of mortgage servicing, a Finding is Material if it has an adverse impact on the Property and/or FHA.
(C) Mitigated Finding
In the context of mortgage origination and underwriting, a Finding has been Mitigated if the Mortgagee has adequately addressed the deficiencies underlying the Finding, and such deficiencies have been remedied so that the Mortgagee’s decision to approve the Mortgage or to endorse or seek endorsement from FHA for insurance of the Mortgage is acceptable to FHA.
In the context of mortgage servicing, a Finding has been Mitigated if the Mortgagee has adequately addressed the deficiencies underlying the Finding, and such deficiencies have been remedied through mortgage servicing actions taken by the Mortgagee so there is no longer an adverse impact on the Property and/or FHA.
ii. Standard
The Mortgagee must monitor all FHA-insured Mortgages it originates, underwrites, services, or purchases, including those Mortgages originated by sponsored Third-Party Originators (TPO), for potential fraud, material misrepresentations, or other Material Findings.
Suspected instances of fraud, material misrepresentations, and other Material Findings must be investigated and documented by the Mortgagee’s QC team, who must determine whether or not fraud or material misrepresentation actually occurred, or whether Material Findings exist.
iii. Internal Reporting to Senior Management
The Mortgagee’s written QC Plan must contain a process for QC staff to report Findings identified through the QC process to senior management that complies with the following requirements.
(A) Time Frame for Reporting
For all Mortgages selected, Mortgagees must complete the initial Findings report within 60 Days of the date of selection.
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V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees
2. Institutional Quality Control Program Requirements
Initial review Findings must be reported to the Mortgagee’s senior management within 30 Days of completion of the initial Findings report.
The Mortgagee’s final Findings report must be issued within 60 Days of the date the initial review Findings were reported to senior management.
(B) Corrective Action Plan
Mortgagee senior management must review and respond to each instance of fraud, material misrepresentation, or other Material Finding. The Mortgagee’s final report must identify the corrective and curative actions being taken, the timetable for completion, and any planned follow-up activities.
(C) Follow Up
The Mortgagee must discuss all Findings with the responsible party(ies) in order to ensure corrective action and to prevent similar Findings from occurring in the future.
iv. External Reporting to FHA
(A) Fraud and Material Misrepresentation
The Mortgagee must report to FHA all Findings of fraud and material misrepresentation.
(B) Material Findings
The Mortgagee must report to FHA all Material Findings concerning the origination, underwriting, or servicing of a Mortgage that the Mortgagee is unable to mitigate.
(C) Mitigated Findings
Findings that do not involve fraud or material misrepresentation and were already Mitigated by the Mortgagee do not have to be reported to FHA.
(D) Time Frame for Reporting
The Mortgagee must report all Findings of fraud or material misrepresentation to FHA immediately.
The Mortgagee must report all other Material Findings that the Mortgagee is unable to mitigate to FHA no later than 90 Days after the completion of the initial Findings report.
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V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees
2. Institutional Quality Control Program Requirements
(E) Corrective Action Plan
For all Findings that must be reported, the Mortgagee must identify what actions have been taken to attempt to mitigate each Finding, and report any planned or pending follow-up activities.
(F) Method of Reporting
(1) Title II Mortgages
The Title II Mortgagee must use the Self-Report feature in the Loan Review System (LRS) to report Title II Mortgage Findings to FHA. FHA may request supporting documentation, including the endorsement case binder, the QC report, and any other documentation necessary for FHA to fully evaluate the Finding.
(2) Title I Loans
The Title I Lender must make a Report of Non-compliant Activities to report Title I Loan Findings to FHA. The Report must be on the Title I Lender’s letterhead and detail the Finding(s) and Corrective Action Plan. The report must contain the following information, if applicable, to assist in any FHA review:
• Title I Loan number
• Borrower name, address and telephone number
• Property address
• Loan amount
• Loan date
• Property inspection date
• Title I Lender loan number
• Loan officer
• Dealer name, address, telephone number, and Taxpayer Identification Number (TIN)
• Manufactured Home Loan retailer name, address, and telephone number
The report must be sent to:
Housing Office of Lender Activities and Program Compliance Attn: Director, Quality Assurance Division Department of Housing and Urban Development 451 7th Street, S.W. Washington, DC 20410
If the Title I Loan has been insured by HUD, the insurance on the Title I Loan will stay in effect. If the Non-Compliant activity was caused or sanctioned by an employee of a Title I Lender, HUD may request that the Title I Lender indemnify HUD for any loss sustained, or may impose other sanctions against the Title I Lender.
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V. QUALITY CONTROL, OVERSIGHT, AND COMPLIANCE A. Quality Control of Lenders and Mortgagees
3. Loan Level Quality Control Program Requirements
(G) Suspected HUD Involvement
If the Mortgagee suspects HUD employees or contractors were involved in fraud or material misrepresentation, the Mortgagee must refer the matter directly to HUD’s Office of Inspector General (OIG). All referrals to the OIG should be made to the OIG Hotline’s call center at 1-800-347-3735 or via the OIG Hotline’s website at www.hudoig.gov/hotline.
v. Required Documentation
The Mortgagee must retain all QC review results, including all selection criteria, review documentation, Findings, and actions taken to mitigate Findings.