This page contains archived HUD related news items, articles and resources.
- HUD Illustrative Independent Auditor's Reports Available
- Supervised and Non-Supervised Mortgagee Information
- Guidance Issued by HUD & AICPA Advocacy
HUD Illustrative Independent Auditor's Reports Available
HUD Issues Finalized Illustrative Auditor Reports Updated for SAS No. 117. As a result of the issuance of SAS No. 117, Compliance Audits, the HUD Office of Inspector General (OIG) has issued updated illustrative auditor internal control and compliance reports in the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). The illustrations in the HUD Guide that are affected are Examples B; B-1; B-2; C. In addition, HUD issued an updated illustrative compliance report for nonmajor HUD program transactions (Example D) which was not impacted by SAS No. 117, but was revised to be consistent with wording used in the other updated report illustrations. Please note that these report illustrations also reflect the terminology and definitions from SAS No. 115, Communicating Internal Control matters Identified in an Audit, which was effective for audits of financial statements for periods on or after December 15, 2009 The March 2011 HUD transmittal provides a summary of the changes as well as the illustrative reports. The reports have been posted to the portion of the HUD Web site that includes the HUD Guide.
The following updated HUD report illustrations are available:
- Example B: Independent Auditor's Report On Internal Control (Combined Report Applicable To Internal Control Over Financial Reporting Based On An Audit Of Financial Statements And Internal Control Over Compliance For HUD-Assisted Programs—No Material Weaknesses, No Significant Deficiencies Identified)
- Example B-1: Independent Auditor's Report On Internal Control (Combined Report Applicable To Internal Control Over Financial Reporting Based On An Audit Of Financial Statements And Internal Control Over Compliance For HUD-Assisted Programs—Significant Deficiencies were Identified, No Material Weaknesses Identified)
- Example B-2: Independent Auditor's Report On Internal Control (Combined Report Applicable To Internal Control Over Financial Reporting Based On An Audit Of Financial Statements And Internal Control Over Compliance For HUD-Assisted Programs— Material Weaknesses and Significant Deficiencies were Identified)
- Example C: Independent Auditor's Report On Compliance With Specific Program Requirements that Could Have a Direct and Material Effect on Each Major HUD-Assisted Program
- Example D: Independent Auditor's Report On Compliance With Specific Requirements Applicable to Nonmajor HUD Program Transactions
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Supervised and Non-Supervised Mortgagee Information
HUD Staff Clarifies Responsibility When FHA Approved Lender Has Outsourced Loan Servicing
Recently, U.S. Department of Housing and Urban Development (HUD) staff received an inquiry from an auditor asking for clarification of the auditor’s responsibility when auditing a HUD Federal Housing Administration (FHA) approved lender that has outsourced its loan servicing. The following is the answer that was received:
“The FHA approved lender is responsible for its actions as a servicer. The Independent Public Accountant (IPA) auditing the FHA approved lender must perform the necessary compliance testing in order to issue an opinion on whether the FHA approved lender has complied in all material respects, with the compliance requirements referred to in the Consolidated Audit Guide for Audits of HUD Programs
(the audit guide) issued by the HUD Office of the Inspector General, including servicing. The FHA approved lender must provide an independent auditor’s report on compliance with specific program requirements that could have a direct and material effect on each major HUD assisted program as required by the audit guide as part of the annual recertification process. The FHA approved lender is also responsible for the actions of the sub-servicer regarding its loans being serviced.
Per Handbook 4330.1 (as revised), the sub-servicer is also responsible as an FHA approved lender for its actions in servicing the FHA loans. Therefore, the sub-servicer must be compliant with HUD/FHA quality control requirements for servicing FHA loans. The sub-servicer must also provide an independent auditor’s report on compliance with specific program requirements that could have a direct and material effect on each major HUD assisted program as required by the audit guide during its annual recertification process.
To avoid duplication of effort, the FHA approved lender may provide a copy of the sub-service’s audit of compliance completed by the sub-servicer’s IPA. The audit must contain an unqualified opinion that the sub-servicer has complied, in all material respects, with the compliance requirements contained in the audit guide. The FHA approved lender’s compliance report must reference the compliance report issued by the sub-servicer’s IPA and be attached to the FHA approved lender’s annual recertification documentation submitted through LASS. A qualified compliance report prepared by the sub-servicer’s IPA will not meet this requirement.”
HUD Issues Audit Waivers for Supervised Lenders
As further discussed in GAQC Alert #190
, on March 13, 2012, the U.S. Department of Housing and Urban Development (HUD) sent an e-mail to supervised lenders and mortgagees (e.g., banks and credit unions) participating in HUD Federal Housing Administration (FHA) programs, informing them of several important audit requirement waivers for small supervised lenders and mortgagees. On the compliance audit side, the interim changes waive the requirement to submit a report on internal controls as it relates to administering HUD-assisted programs or a report on compliance with specific requirements applicable to major and non-major HUD programs. Additionally, in late February 2012, HUD extended a previously issued financial statement audit waiver through April 7, 2013. A HUD “Frequently Asked Question
” document was recently updated to reflect the extension of the financial statement waiver.
Access a GAQC Web Event on Understanding and Reporting Issues for 2011 Audits of Supervised Mortgagees
The purpose of this archived Web event
is to help participants understand the latest information regarding audit and reporting requirements established by the U. S Department of Housing and Urban Development (HUD) for supervised mortgagees, including banks and credit unions. These requirements were effective for the first time in 2010 audits and the timing of this GAQC Web event is intended to assist auditors as they launch into their 2011 year-end audits.
: In March 2012, HUD issued interim guidance that included waiver of the compliance audit requirements for small supervised lenders and mortgagees. While this Web event does not mention the waiver (because it occurred prior to the waiver issuance), it still contains useful information for auditors of supervised lenders. However, we strongly suggest you read GAQC Alert #190
, to supplement this Web event so that you have the latest information.
HUD Multifamily Entities Get 30-Day Extension for FASS Submissions with 12/31/10 Year-Ends
The GAQC has learned that the HUD Office of Asset Management issued a “Blanket 30-Day Extension
” on March 31, 2011 for multifamily submissions of audited financial statements and other required information to the HUD Financial Assessment Subsystem (FASS).
Audit Requirements Related to New HUD Requirements over Supervised & Non-Supervised Mortgagees
The follow summarizes the new audit requirements related to supervised and non-supervised mortgagees. Note that this is discussed in more depth in GAQC Alert #159.
HUD Issues Updated Information on New Audit Requirements for Supervised Mortgagees
. In late 2009, HUD issued Mortgagee Letter 2009-31 titled, Strengthening Counterparty Risk Management
(ML 2009-31), which resulted in sweeping audit requirement changes for supervised mortgagees that participate in the Federal Housing Administration (FHA) insured loan program. The new rule, effective for fiscal years ending on or after January 2, 2010, require a financial statement audit performed under Government Auditing Standards
(also referred to as the Yellow Book) and a compliance audit under the Consolidated Audit Guide for Audits of HUD Programs
(the HUD Guide). Further, HUD is requiring that financial information and related audit results be submitted through the Lender Assessment Subsystem (LASS) within 90 days of the institution’s fiscal year-end. Needless to say, there have been many questions about the rules from auditors, many of which have been submitted to the GAQC by member firms that also have banking practices. In October 2010, the Journal of Accountancy issued an article titled, AICPA Seeks Further Guidance From Regulators on New FHA Program Requirement
, which provides a good summary of previous activities regarding these new rules and related auditor concerns and questions that were raised at that time.
In January 2011, HUD issued several pieces of additional guidance that we want to make you aware of as follows.
- Mortgagee Letter 2011-05. This Mortgagee Letter titled, Revised Audited Financial Statement Reporting Requirements for Supervised Lenders in Parent-Subsidiary Structures and New Financial Reporting Requirements for Multifamily Mortgagees (ML 2011-05), was issued on January 5, 2011, and is effective immediately.
- Amendment to Chapter 7 of the HUD Guide. Soon after the issuance of ML 2011-05, the HUD Office of Inspector General issued a revision to Chapter 7 of the HUD Guide. The amendment, issued on January 19, 2011, incorporates the loan fees requirements of ML 2011-05 and establishes related auditor requirements. You can access the transmittal letter and chapter amendment by clicking here.
- Question and Answer Document. In January, HUD also released a document titled, Qs & As on Mortgagee Letter 2011-05, which includes three questions and related answers, primarily addressing the new loan fee requirements outlined in ML 2011-05. Click here to access the Q&A document.
Certain HUD Guidance in ML 2011-05 and Chapter 7 Revisions Apply to Non-Supervised Mortgagees. If your firm audits non-supervised mortgagees, you should be sure that those involved in those engagements are aware that the loan fee requirements in ML 2011-05 and the related revisions to Chapter 7 of the HUD Guide described above are applicable to them. This could be something that might be overlooked by auditors of non-supervised mortgagees that have not been closely following the supervised mortgagee guidance and rules.
New Audit Requirements for Supervised Mortgagees. A September 2009 HUD mortgagee letter (#2009-31) and an April 20, 2010, final HUD rule (click here to access this rule) establish new HUD audit requirements for supervised mortgagees. There have been many questions about the implementation of these new requirements. The GAQC has been working with HUD, the AICPA Depository Institutions Expert Panel, and others to gain clarity on the audit requirement. In October 2010, the Journal of Accountancy featured an online article describing the latest information on these audits. Click here to access the article and watch this Web page for further updates.
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Guidance Issued by HUD & AICPA
HUD Updated Chapter 6 of Consolidated Audit Guide for Audits of HUD Programs
In May 2012, HUD issued a revised Chapter 6, Ginnie Mae Issuers of Mortgage-Backed Securities Audit Guidance to its Consolidated Audit Guide for Audits of HUD Programs. The revisions reflect changes to net worth, capital, and liquidity requirements and to provide new reporting formats.
- Updates to net worth requirements:
- changes time lines for existing users to 10/1/11 and for newly approved users to the time of approval
- increases single-family minimum net worth requirements to $2.5 million plus 0.2 percent of the total effective outstanding obligations
- increases manufactured housing minimum net worth requirements to $10 million
- adds a clarifying statement that issuers approved for more than one program type must follow the highest program minimum net worth requirements
- Outlines new liquidity and capital requirements for all issuers which became effective 10/1/11. Provides a list of unacceptable assets for the computation of adjusted net worth
- Provides reporting formats for issuers' use
- Provides an illustrative report of independent auditors on consolidating balance sheet and statement of income.
The chapter was updated to conform to the updated Ginnie Mae MBS Guide which was recently issued. Chapter 6 was effective upon issuance.
Loan Correspondent Audits No Longer Required. On April 20, 2010, HUD issued a final rule that eliminated the audit requirement for loan correspondents (previously, loan correspondents were required to have a financial statement audit and a compliance audit under the HUD Consolidated Audit Guide. Click here to access the final HUD rule.
AICPA Issues Comment Letter on FHA Proposal Affecting Loan Correspondents. On December 23, 2009, the AICPA issued a comment letter on certain provisions of a proposed rule titled, Federal Housing Administration (FHA): Continuation of FHA Reform—Strengthening Risk Management Through Responsible FHA-Approved Lenders. The aspect of this proposal that the AICPA commented on will likely be of interest to members that audit loan correspondents under the HUD Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). If approved as proposed, the FHA would no longer approve loan correspondents (mortgage brokers) to be approved participants in FHA programs. Rather, their sponsoring approved mortgagees (mortgage banks), would be responsible for the loan correspondents and assume liability for the FHA-insured loans underwritten and closed in the name of the approved mortgagee. The AICPA’s letter (which can be accessed by clicking here) asks for clarification on whether loan correspondents will continue to be required to have their annual financial statements audited and/or to undergo the annual compliance audit under the HUD Guide. Further, the AICPA letter states that if it is the FHA’s intent to eliminate the audit requirements that (1) additional guidance should be added to the final rule to assist sponsoring mortgagees in their role of assuming responsibility for loan correspondents; (2) CPAs can play an important role in assisting sponsoring mortgagees in this regard; and (3) the AICPA stands ready to work with the FHA and sponsoring mortgagee community to explore CPA services that could be provided.
HUD Issues Additional Guidance on PHA Completion of the FDS and GAQC Releases Related Illustrative Auditor Reporting Guidance. During January 2009, HUD issued a follow-up Notice (to a related December Notice) for Public Housing Agencies (PHA) on its Web site titled, Un-Audited Financial Submission Procedure for Public Housing Agencies With Fiscal Year Ends of June 30, 2008 Through March 31, 2009. The Notice announced the availability of the previously promised Excel tool version of the updated financial data schedule (the FDS tool) and instructions for submitting it. GAQC Alert #104 describes the most recent HUD guidance, as well as several considerations for auditors that are issuing the SAS No. 29, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents (AICPA, Professional Standards, vol. 1, AU section 551), “in relation to” reporting (SAS 29 opinion) on the FDS. This GAQC Alert also includes information on auditor subsequent event considerations and an illustrative report for separate SAS No. 29 reporting on the FDS (click here to access the illustrative report). See GAQC Alert #104 for more information.
You should refer to the item below titled, HUD Issues Guidance on PHA Completion of the FDS and Related Auditor Reporting, and GAQC Alert No. 96 for more background and a refresher on the two options that HUD provided for meeting the FDS requirements in a related December Notice.
HUD Issues Guidance on PHA Completion of the FDS and Related Auditor Reporting. On December 10, 2008, HUD issued a notice providing Public Housing Agencies (PHAs) with guidance on how to meet the requirements for preparing the required financial data schedule (FDS), as well as the related auditor reporting. The HUD guidance was necessary in that there has been a delay in the availability of a revised FDS format by HUD. GAQC Alert No. 96 is intended to inform our member firms that perform audits of PHAs about the new HUD guidance and what to expect going forward. Additionally, GAQC Alert No. 96 is very helpful in that it also discusses the following:
- Why the Need for this Guidance?
- What is in the HUD Guidance?
- AICPA Auditor Guidance
- What About the HUD Electronic Submission?
The HUD guidance titled, Revised SAS 29 Audited Submission Procedure for Public Housing Agencies (PHAs) With Fiscal Year End of June 30, 2008, can be accessed on the HUD Financial Assessment of Public Housing Agencies Web page
Passage of New Housing Act Continues Correspondent Lender Audit Requirement
. There is finally a resolution to the question of whether the audit requirement for correspondent lenders will continue and the answer is YES. The House and Senate worked throughout June and July to come up with a package that would assist homeowners who cannot meet their mortgage payments and also to calm the markets in the wake of Fannie Mae and Freddie Mac's problems. The result is the Housing and Economic Recovery Act (H.R. 3221) which maintains the audit requirements for correspondent lenders selling FHA products intact. President Bush signed H.R. 3221 into law on July 30.
For purposes of background, prior to the introduction of H.R. 3221 there were several bills to help struggling homeowners amidst the subprime crisis that had been considered by the House and Senate. A previous House bill had been of particular interest to some of our members that audit correspondent lenders in that it included a provision that would allow certain correspondent lenders an option to replace the current audit requirement with a surety bond. The AICPA, joined by several financial trade associations, strongly opposed the efforts to substitute a surety bond for the audit requirement and ultimately were able to successfully make the case that the regulatory audit requirement should not be loosened.
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