HUD Guidance on Affiliate/Vendor/Third Party Monitoring
Does HUD’s requirement for Approved Mortgagees to periodically monitor its “affiliates” include vendors and other third parties?
Yes, the Chapter V.A.2.ii of the HUD Handbook 4000.1 (the “Handbook”) defines “affiliates” to include contractors, agents, vendors, sub-servicers, and sponsored third party originators (“TPOs”) who participate in FHA programs on behalf of the FHA-approved Mortgagee. This may include, but is not necessarily limited to, appraisers, appraisal management companies, closing/settlement agents, title insurance companies, and marketing companies producing FHA advertisements. The Handbook indicates a Mortgagee must ensure its “affiliates” are eligible and properly trained to participate in FHA programs and that they adhere to FHA requirements when performing activities related to the Mortgagee’s FHA business.
At a minimum, affiliate monitoring must ensure that affiliates are not ineligible from participating in FHA programs by reviewing affiliates against the (i) Excluded Parties List using the System for Award Management (SAM) website and (ii) the Limited Denial of Participation List. Further, on an at least semi-annual basis, an approved mortgagee must re-verify its affiliates’ compliance with all applicable laws related to licensing, qualification, eligibility, or approval to originate or subservice FHA mortgages. This may include, but is not necessarily limited to, reviewing a subservicer’s or TPO’s licenses in NMLS, reviewing State bar sites for closing attorneys, and checking State Department of Insurance websites for title insurance companies/agents. For affiliates that originate, underwrite or service loans on behalf of the mortgagee, the mortgagee must also perform loan-level quality control reviews. A mortgagee must document the methodology used to review its affiliates, the results of each review, and any corrective actions taken as a result of the review findings. Affiliate review requirements and the procedures adopted to monitor affiliates should also be documented in a mortgagee’s Quality Control Plan.