HUD Information: News 

The following news items should be of interest to auditors that perform HUD audits.  

Current News
NEW HUD Issues Final Clarified Auditor Report Illustrations

As noted in GAQC Alert #214, when HUD issued an update to Chapter 2, Reporting Requirements and Sample Reports, of the HUD Guide, the transmittal of the chapter indicated it did not include report illustrations. Instead, HUD asked the AICPA to provide it with updated “clarified” illustrations. With the issuance of GAQC Alert #214, the GAQC released drafts of the updated clarified reports that were sent to HUD for approval and issuance.  Late last week, HUD issued the final clarified reports and incorporated them into the version of Chapter 2 on its Web site.  Access the updated chapter 2 which includes illustrative reports.  Access the HUD transmittal announcing the addition of the illustrative reports.

For the most part, there were no substantive changes made by HUD to the reports that were provided by the GAQC.  However, during the clearance process, HUD removed a footnote that had been included in the draft illustrative HUD major program compliance and internal control over compliance report.  The footnote stated the following:  “Note that for entities subject to an audit in accordance with Chapter 7 of this Guide, staff from the HUD Recertification Branch have indicated that when such entities have been approved as both a Title I and a Title II lender, HUD considers the lender to have one major HUD program.  Therefore, the auditor’s testing and related reporting should result in an opinion on the one major HUD program.”  In speaking with the HUD Recertification Branch Chief about the reason for the footnote deletion, he stated that the deletion was made due to feedback received from other areas of HUD during the report clearance process.  He also offered assurance that his office does not expect auditors that followed the guidance in the footnote to take any follow-up action and that there was no plan to reject reports or take any other action towards auditors that followed the guidance in the footnote for their completed 12/31/12 year-end audits or those that are near completion.  With regard to audits of year-ends after 12/31/12, the Recertification Branch will work to develop guidance that further explains the impact of the footnote deletion on major program identification and testing.  The GAQC will closely monitor this situation and communicate any guidance issued by the Recertification Branch in the future. 
 
NEW HUD Report Illustrations
As noted in GAQC Alert #210, HUD recently updated the reporting guidance in Chapter 2, Reporting Requirements and Sample Reports, of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide). However, HUD did not include report illustrations in the updated Chapter 2. Instead, HUD asked the AICPA to provide it with updated “clarified” illustrations that are in line with those that will appear in the GAS-A133 Guide for use in the HUD Guide. As noted in GAQC Alert #214, the GAQC has developed illustrative HUD reports, modeling them after the illustrations posted above, and has sent them to HUD for purposes of adding the illustrations as an addendum to Chapter 2 of the HUD Guide. Since it is likely to take HUD some time to formally issue the report illustrations, the GAQC recommends that you use these clarified reports for your HUD audits until such time that HUD formally issues the report illustrations. At that time we will update the links below to direct you to the HUD Web site. See GAQC Alert #214 for more information.  

• Access illustrative financial statement report for HUD recipients.
• Access illustrative HUD Government Auditing Standards report illustrations.
• Access HUD compliance audit report illustrations.

NEW HUD Updates Reporting Guidance for all Entities Covered by the HUD Consolidated Audit Guide
On January 24, 2013, HUD updated the reporting guidance in Chapter 2, Reporting Requirements and Sample Reports.  The revisions were made to align the HUD guidance with the 2011 Government Auditing Standards issued by the U.S. Government Accountability Office and generally accepted auditing standards, issued by the AICPA.  A significant change in the guidance is the elimination of separate reporting on compliance with respect to nonmajor HUD programs.  The updated chapter 2 does not include auditor’s reporting examples.  Those reports will be added in a future revision (see more about HUD report status in item below).

Chapter 2 will be effective for audits of entities with fiscal years ending on or after March 31, 2013.  Early application is encouraged by HUD.  In addition to the elimination of nonmajor reporting, the other significant changes to chapter 2 are listed below:

NEW HUD Updates Audit Threshold for FHA-Approved Lenders
As noted below, in late 2012, HUD updated its guidance for FHA-approved lenders.  On January 24, 2013, HUD released a related amendment to Chapter 1, General Audit Guidance (see page 1-5), of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide), to remove the $2 million major program threshold for FHA-approved lenders.  This change was made in light of the revisions to Chapter 2 of the HUD Guide (see above) that deleted the non-major program reporting requirement.  However, since all FHA-lenders must comply with quality control, net worth, liquidity, and licensing requirements, HUD is now requiring that FHA-approved lenders having combined originations and a servicing portfolio of less than $2,000,000, to undergo a full compliance audit that covers only the following compliance requirements in Chapter 7: (1) section 7-5.A., Quality Control Plan; and (2) section 7-5.G., Lender Annual Recertification, Adjusted Net Worth, Liquidity and Licensing.  For all other FHA-approved lenders, the compliance audit continues to be performed using the entirety of Chapter 7 of the HUD Guide.  This change applies to audits of entities with fiscal years ending on or after March 31, 2013. For those auditors electing early application of the non-major program changes to Chapter 2 of the HUD Guide, this change is to be used for audits of entities with fiscal years ending on or after December 31, 2012.

HUD Updates Audit Guide for FHA-Approved Lenders
In December 2012, HUD updated the guidance contained within the Consolidated Audit Guide for Audits of HUD Programs, relating to institutions that participate in the Federal Housing Administration (FHA) insurance programs for Title I property improvement and manufactured housing loans and for Title II single family and multifamily mortgages.   A new Chapter 7, FHA-Approved Lenders Audit Guidance, was issued that merged the content of the previous chapter 8 of the HUD Guide with chapter 7 and eliminated chapter 8 from the HUD Guide.  The requirements in chapter 7 apply to audits of profit-motivated FHA-approved lenders with fiscal years ending on or after December 31, 2012.  The significant changes to the chapter include:

• Applies to all approved supervised and nonsupervised lenders;
• Removed references to loan correspondents and inserted information on third-party originators;
• Uses the terminology of “lender” and borrower” instead of “mortgagee” and “mortgagor;”
• Added paragraph 7-2 to differentiate the reporting requirements for the various types of lenders approved to participate in FHA programs;
• Added revised audited financial statement reporting requirements for supervised lenders in parent-subsidiary structures (paragraph 7-3);
• Paragraph 7-4 discusses lender responsibility for the electronic submission of the audited financial statements and compliance data and auditors’ involvement in the electronic submission process;
• The compliance requirements and suggested audit procedures were restructured to set forth requirements and procedures relating to:
  • Both Title I and Title II lenders (paragraph 7-5)
  • Title I lenders (paragraph 7-6);
• Includes financial reporting requirements for multifamily lenders that were added as paragraph 7-7.

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