Audits of FHA-Approved Participants and Related HUD Requirements

In 2009, the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA),  which provide insurance on mortgages on single family and multi-family homes, announced credit policy changes requiring mortgage bankers to submit audited annual financial statements to FHA and to undergo an audit of their compliance with HUD requirements.  Separately, HUD announced that the FHA was proposing a new rule to strengthen risk management.  The proposed rule would no longer require FHA to approve loan correspondents (mortgage brokers) participating in the FHA program, nor would HUD require them to submit audited financial statements or audits of their compliance with HUD requirements.  Instead, the proposal would shift accountability for the underwriting of FHA-insured loans to the mortgage banks.

The AICPA did not take a position regarding the annual audits of mortgage banks.  However, the AICPA issued a comment letter on the FHA proposed rule on December 23, 2009 asking for clarification on whether mortgage brokers will continue to be required to provide for audits of their annual financial statements and undergo the annual compliance audit.  The AICPA believes that if the FHA’s intent was to eliminate the audit requirements for mortgage brokers and shift the responsibility to mortgage bankers, additional guidance is needed for banks in their new role of assuming responsibility for brokers. CPAs can play an important role in assisting mortgage bankers in this regard and the AICPA stands ready to work with the FHA and mortgage bankers to explore CPA services that can and should be provided.

The FHA issued final guidance in April 2010 eliminating the audit requirements for loan correspondents, including audits of December 31, 2009 financial statements.

Throughout fall and winter of 2010-11, the Government Audit Quality Center (GAQC) has been actively involved in working with several federal agencies that are establishing financial statement and compliance auditing requirements for for-profit organizations.  HUD’s new audit rules affect both supervised and non-supervised mortgagees, and require a financial statement audit performed under the 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).  Depository institutions with fiscal years ending on or after January 1, 2010, are required to comply and submit their financial information and related audit results within 90 days of the institution's fiscal year-end.  The GAQC has provided members with guidance on the AICPA’s Government Audit Quality webpage, and a October 2010, Journal of Accountancy article titled, AICPA Seeks Further Guidance From Regulators on New FHA Program Requirement, provides a good summary of previous activities regarding these new rules and related auditor concerns and questions that were raised at that time.

The AICPA provides guidance for its members who audit all federal programs, including HUD programs, on the AICPA’s Governmental Audit Quality Center.

AICPA Letter

December 23, 2009 - Comment Letter on FHA Proposal Affecting Loan Correspondents

Links to Regulatory Proposals and Documents

November 30, 2009 Proposed Rule, Federal Housing Administration (FHA):  Continuation of FHA Reform—Strengthening Risk Management Through Responsible FHA-Approved Lenders

November 30, 2009 HUD Press Release No. 09-216, FHA Proposes New Rules to Strengthen Risk Management

September 18, 2009, HUD Mortgagee 2009-31, Strengthening Counterparty Risk Management (click here to view all HUD Mortgagee letters, including 2009-31)

Staff Contacts

Diana Huntress Deem
Senior Manager, Congressional and Political Affairs

Mary Foelster
Director, Governmental Auditing and Accounting