Test Cases

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Recently I have had several questions from mortgage lenders as well as banks that are beginning their FHA test cases. Everyone seems to want to know the procedure, what to expect and what FHA will be looking hardest for when reviewing the test cases. As a result of these questions, I thought today would be a good day to give everyone some insight into what to expect once you start sending your test cases to HUD for review.

To start, I want to mention that every newly approved FHA lender must complete 15 test cases which will be reviewed by HUD. These cases will be re underwritten by the girls and guys at your local HOC to determine if the newly approved lender understands not only the principals of FHA underwriting but also all of the technical pieces that go hand in hand with FHA lending as a whole.

Of these 15 cases, 10 must be manually underwritten by the FHA Direct Endorsement lender. This means that only 5 of the prospective cases may include automated underwriting findings which indicate that the loan has been approved by Total Scorecard.

In addition, these 5 cases may also include FHA streamline refinance transactions. The other 10 cases must be full manual underwrites which adhere to FHA standard documentation requirements where manual underwriting is concerned. These standards include credit and inquiry explanation, evidence of liquidation of funds to close, bankruptcy papers, divorce decrees etc. In other words, documentation, documentation, and more documentation.

In my experience with test cases which I have completed on at least 4 occasions, including 203K test cases, I would like to say that there is not such thing as to much documentation.

Secondly, I would suggest underwriting them twice, you can not be to careful. Make sure that every document contains the correct information and the underwriting approval documents are all signed and dated appropriately. Watch your compliance items carefully. Make sure that the 92900 dates match the dates on the initial 1003 and that all required FHA disclosures have been signed and dated by the borrowers.

Your credit documentation must be supportive of the overall loan file and any indication of additional circumstances that may result from standard documentation must be addressed and fully documented. An example would be multiple deposits appearing on borrower’s bank statements where the borrower’s may have direct deposit. Even if the deposits are small, say $150.00, ask the borrower to provide an explanation as to the source of funds for the deposits.

Next, remember the technical piece. FHA also wants to see that the lender has an understanding of their responsibilities where FHA connection is concerned. FHA case number assignment needs to be in the file and include evidence of validation of borrowers social security numbers, LDP and GSA must be printed and included in the file and finally, make sure to complete the Appraisal Logging screens in FHA connection and print this information and put it in the file. If appraisal logging is not complete, FHA will send the file back with an NOR.

Finally, remember to use the colored FHA case binders that were provided to your office by your local HOC. Note on the top of the case binder, Pre Closing Review in large letters, perhaps use a black marker. This is really important as to make sure the case does not end up in the insuring department with several thousand other case binders, it takes days and possibly weeks to find them.

Also, remember that FHA is currently reviewing test cases for several lenders so give yourself plenty of time of pre closing review particularly where the purchase transactions are concerned. It will take a week or more in some instances to get your firm commitment from HUD. If you want to check the status of the case while it is at the HOC, log into case query on FHA connection, it will tell you if the FC or Firm Commitment has been issued. If it has, simply print it from FHA connection and you are good to close. If you have further questions, contact your local HOC before proceeding, the last thing anyone needs is an uninsured loan on their books. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.