This page contains archived HUD related news items, articles and resources.
Final Additional Extension for Certain HUD Lenders and Mortgagees
The Federal Housing Administration (FHA) has granted a final extension until July 31, 2014 for Title I and Title II lenders and mortgagees with fiscal years ending December 31, 2013, January 31, 2014,
February 28, 2014 and March 31, 2014 to submit complete recertification packages in FHA’s Lender Electronic Assessment Portal (LEAP). HUD had previously announced an additional extension to July 15th but prior to the announcement of the extension, the due date for those entities was June 30, 2014. LEAP went live on May 27, 2014 but FHA understands that some users are having difficulty with certain functions in the new LEAP system. View the extension announcement.
HUD LEAP Go-Live Date Delayed Until May 27th
As noted in GAQC Alert #247, the Housing and Urban Development (HUD) Lender Electronic Assessment Portal (LEAP) was expected to go live on May 9, 2014. HUD announced that LEAP will now deploy on May 27, 2014. Lenders with a December 2013, January 2014, or February 2014 fiscal year end must complete all recertification steps in LEAP no later than 30 days from system deployment. A LEAP 3.0 User Manual is now available on the HUD LEAP Information page.
HUD Extends Filing Deadlines and Other News for Lenders and Multifamily Housing Properties
HUD Announces May 9th Go-Live Date for Lender Electronic Assessment Portal (LEAP) and Related June 9th Submission Extension. In a HUD webinar held on March 26, 2014, HUD announced that LEAP would go-live on May 9, 2014. As further described in GAQC Alert #243, HUD Mortgagee Letter (ML) 2013-42 indicates that the deadline for the annual recertification for Title I and Title II lenders and mortgagees with a December 31, 2013, fiscal year-end would be extended 30 days after the go-live date. Therefore, in the recent HUD webinar, HUD announced that an automatic extension to June 9, 2014, would be provided for December 31, 2013, year-end submissions. Because the go-live date will also occur after the annual recertification deadline for lenders with January 31, 2014 and February 28, 2014, year-ends, HUD also announced it will grant individual extensions to June 9, 2014, for those lenders. Note that for lenders with a March 31, 2014, year-end, recertification deadlines will revert back to the normal 90-day submission deadline (i.e., June 30, 2014). To learn more about the updated LEAP system and annual recertification process view the March 26, 2014 HUD webinar titled, FHA Lender System Update, Recertification Process and Timeline Changes, Title I and Title II Consolidation. Access the webinar materials. Access archived recordings of other recently held HUD lender webinars.
HUD Issues Guidance on Audit Report Due Date for Lenders with December 2013, January 2014, or February 2014 Year-Ends. On March 27, 2014, HUD issued a memorandum titled, Clarification on Recertification Filing Extension and Audit Report Date. The memorandum addresses a confusing point raised during the HUD webinar around the required date of the auditor's reports. As noted in GAQC Alert #243, HUD staff had previously stated that the due-date extension discussed in Mortgagee Letter (ML) 2013-42 related only to the electronic filing through LEAP, and that the audit(s) should be completed within 90 days of fiscal year-end (i.e., HUD had expected audits to be complete and all reports, other than the LEAP submission agreed-upon procedures report, to be dated no later than March 31, 2014). The new memorandum provides more flexibility by stating that lenders with December, January, or February year-ends should plan ahead in order to complete all applicable recertification steps (certification, fee payment, submission of financial information) by June 9, 2014. Importantly, it also states that there are no interim due dates for the individual steps and that lenders will not be subject to penalties or enforcement actions based on the audit report date.
HUD Issues LEAP Agreed-Upon Procedures Report Preview. In late February, HUD issued a preview of the Agreed-Upon Procedures (AUP) Report, on its "LEAP information" page. This report will be incorporated into LEAP and used by auditors in the agreed-upon procedures engagement associated with the LEAP electronic submission. As noted in GAQC Alert #243, previous to issuing this illustrative report, HUD also released Excel versions of the LEAP Audit Related Questions (ARQ) and the Financial Data Template (FDT). Access the ARQ and the FDT on the "LEAP Information" page.
Housing News - HUD Extends Submission Deadline. HUD posted an extension notice on their Real Estate Assessment Center (REAC) Financial Assessment of Multifamily Housing Web page relating to multifamily housing properties insured and/or subsidized by HUD with a fiscal year ended December 31, 2013. The notice provides a global 30-day extension with a new due date of April 30, 2014. The notice reads as follows:
"The Office of Housing has authorized a global 30-day extension to all owners with fiscal years ended 12/31/13. This extension is being offered to allow owners and auditors additional time to adapt to the requirements of Housing Notice H 2013-23, and the FASSUB system release on December 6, 2013, that implemented revisions to the HUD Consolidated Audit Guide, Handbook 2000.04. Submissions with fiscal years ended 12/31/13 will now be due on April 30, 2014."
HUD Issues LEAP Audit Related Questions (ARQ) and Financial Data Template (FDT)
As noted in previous GAQC communications, HUD Federal Housing Administration (FHA) is in the process of replacing the Lender Assessment Subsystem (LASS) with a new Lender Electronic Assessment Portal (LEAP). As a result, HUD extended the deadline for the filing of the annual recertification package (including submission of financial information) for lenders with a December 31, 2013, year end past the normal due date of March 31st (see Mortgagee Letter (ML) 2013-42: Extension of Annual Recertification Filing Deadline for Title I and Title II Lenders and Mortgagees with a December 31, 2013 Fiscal Year End.) During a recent HUD LEAP update webinar, HUD indicated that the go live date for LEAP is expected to be in April 2014. ML-2013-42 states that the submission deadline will be extended 30 days after HUD's new LEAP system is deployed and functioning.
In advance of the LEAP launch, HUD FHA recently released Excel versions of the LEAP ARQ document and the FDT to enable lenders to create a hard copy of the completed ARQ and FDT prior to the lender's data entry to LEAP. Access the ARQ and the FDT at www.hud.gov/lenders. (Look for the "LEAP Information" link in the Lender Approval and Recertification section.) The ARQ includes various questions about the entity, the audit opinion, and findings. It has separate tabs for supervised large lenders, supervised small lenders, unsupervised lenders, investing lenders, and government lenders (as defined in chapter 7 of the HUD Consolidated Audit Guide (HUD Guide)). However, the tabs for supervised small lenders and government lenders indicate there is no ARQ requirement for those entities. The FDT, which the auditor reports on in-relation-to the financial statements, also includes tabs for the various types of lenders. Each tab includes the various financial statement amounts required to be entered for each type of entity. However, the tab for government lenders indicates there is no FDT requirement for these entities.
Even though HUD has indicated that the LEAP submission deadline has been extended, HUD staff has stated that the due-date extension relates to the electronic filing through LEAP only, and the audit(s) should be completed within 90 days of fiscal year-end. Therefore, auditors are expected to complete the audit(s) and date all reports, other than the LEAP submission agreed-upon procedures report, no later than March 31, 2014. The excel version of the FDT, referred to above, will allow auditors to complete the necessary "in-relation-to" procedures on the supplementary schedule and date the related "in-relation-to" reporting by March 31, 2014. See AU-C 725, Supplementary information in Relation to the Financial Statements as a Whole. The LEAP agreed-upon procedures cannot be completed and related report dated until after LEAP is available.
HUD Extends Annual Recertification Filing Deadline for Certain Title I and Title II Lenders
On November 27, 2013, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2013-42: Extension of Annual Recertification Filing Deadline for Title I and Title II Lenders and Mortgagees with a December 31, 2013 Fiscal Year End. ML 2013-42 informs Title I and Title II lenders and mortgagees with a December 31, 2013 fiscal year end that effective immediately, the deadline for filing their annual recertification package (including submission of financial information) has been extended. This ML was necessary due to the expected timing of HUD's release of a new Lender Electronic Assessment Portal (LEAP) which will replace the Lender Assessment Subsytem (LASS). LEAP will be launched after the March 31st HUD submission deadline for entities with a December 31st year-end. Therefore, ML-2013-42 states that the submission deadline will be extended 30 days after HUD's new LEAP system is implemented. It goes on to state that lenders and mortgagees with a fiscal year end of December 31, 2013 should be prepared to complete the recertification process, including the submission of financial information and fee payments, not later than May 31, 2014.
Archive of February 2014, HUD LEAP Webinar Now Available
In early February 2014, HUD held a Web event titled, FHA's Lender Electronic Assessment Portal (LEAP) Update, which provides information about the new LEAP system and how it improves business functionality. It also provides more information about recertification process changes and insight into Title I & II consolidation. Access course materials.
HUD Lender Electronic Assessment Portal (LEAP) Webinar
HUD held a webinar in November 2013, providing details of the new LEAP system that will replace the current LASS system and the consolidation of Title I and Title II lender ID numbers. The presentation slides can be accessed at http://portal.hud.gov/hudportal/documents/huddoc?id=SF-T1and2.pdf.
HUD Issues Update to the HUD Guide
HUD recently issued a revision to Chapter 1, General Audit Guidance, of the HUD Guide. The revised guidance in Chapter 1 applies to all entities required to undergo an audit under the HUD Guide and is effective for audits of entities with year ends ending on or after June 30, 2013.
The transmittal letter for Chapter 1 indicates that the revision is intended to reflect changes in Government Auditing Standards and the clarified auditing standards issued by the AICPA. The last time this chapter was significantly revised was in April 2011. After the 2011 update, the GAQC communicated certain comments and questions to HUD about the chapter. Some of the new revisions to Chapter 1 are addressing the previous GAQC feedback. In January 2013, a more directed change was made to Chapter 1 to eliminate the $2 million major program threshold for FHA-approved lenders (see GAQC Alert #210). That change continues to be reflected in the new chapter.
Some of the changes being made to Chapter 1 are as follows:
- The chapter clarifies that the HUD Guide is mandatory for audits of for-profit entities that are subject to HUD's uniform financial reporting standards and related mortgagee letters. Additionally, it clarifies that the HUD Guide requires a financial statement audit and a compliance audit of the major HUD programs and is clearer about the requirements for each, including that the HUD Guide is to be used for the compliance audit portion of the audit.
- The chapter clarifies that audits of states, local Governments and not-for-profit organizations are subject to Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, and that auditors should use the OMB Compliance Supplement (Supplement) and not the HUD Guide for those audits. It goes on to state that the HUD Guide can be used to build an audit program in accordance with Part 7 of the Supplement when a program covered in the HUD Guide is not included in the Supplement. Finally, it removes the previous discussion in Chapter 1 of the submission of the single audit reporting package directly to HUD.
- The auditor qualifications section of the previous chapter was removed. That section discussed matters such as peer review, licensing, and independence. Even though these items were removed from the chapter, auditors should keep in mind that Government Auditing Standards applies to these HUD audits and includes many of the same topic areas within its general standards. Note that HUD did add paragraph 1-8 to the new chapter to remind auditors about the Government Auditing Standards requirement for peer review and to emphasize that the peer review report does not need to be submitted by the auditor to HUD or the HUD Office of Inspector General unless requested or provided for in another chapter of the HUD Guide.
- The previous table that described major program threshold amounts has been deleted and the threshold requirements are now discussed in paragraph format. In general, the information discussed on this topic area is unchanged.
- The sampling requirements discussion has been enhanced. Additionally, the chapter now permits the auditor to follow the sampling approach in either Appendix A of Chapter 1 or the AICPA's Audit Guide, Government Auditing Standards and Circular A-133 Audits (GAS-A133 Guide). Note that Chapter 11 of the GAS-A133 Guide (which is the chapter that discusses sampling) will provide useful guidance to auditors even if they are using the sampling guidance in Chapter 1 of the HUD Guide. Finally, the Chapter 1, Appendix A, guidance on sampling was revised to define small populations as 250 items or fewer, to be more consistent with the AICPA GAS-A133 Guide. The previous threshold for small items in the Chapter 1 Appendix was set at 200.
- The Chapter was updated to remove material that was duplicative or conflicting with other chapters. It was also streamlined to remove duplicative references or restatements of requirements in Government Auditing Standards or generally accepted auditing standards. Auditors should closely look at paragraph 1-5, Planning the Audit, which includes a number of these types of "streamlining" changes.
- Discussion regarding the corrective action plan and Fair Housing and Nondiscrimination requirements were removed from Chapter 1 as these are covered elsewhere in the HUD Guide.
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.
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.
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:
- Paragraph 2-1 provides background on the reporting standards and requirements applicable to an audit performed pursuant to the consolidated audit guide.
- Paragraphs 2-2 and 2-3 cover report issuance and distribution requirements.
- Revised instructions in paragraph 2-4 relating to the required reporting package.
- Suggested auditor’s reports on internal control and compliance were aligned to be consistent with the AICPA’s Audit Guide: Government Auditing Standards and Circular A-133 Audits.
- Separate reporting on compliance with specific requirements applicable to fair housing and nondiscrimination was eliminated.
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 origination 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.
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.
- 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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