Federal Landscape

FHA Targets COVID Compliance in Loan Servicing

FHA’s March 2021 Quality Assurance update signaled an increased focus on Servicing and Servicing QC. Director Jack Higgins advised, that like other agencies and regulators, FHA is dedicating resources to servicing oversight and enforcement in the COVID and post-COVID era. Servicers should expect Lender Monitoring Exams to be scheduled in the coming months.

Higgins emphasized that as large numbers of borrowers come out of forbearance throughout this year and into the next, servicers must be ready to appropriately implement FHA’s expanded loss mitigation options. The most recent program updates were published in ML 21-05 and have been incorporated into Handbook 4000.1 Section III.A.2. Higgins also noted that the National Servicing Center (NSC) has posted a comprehensive webinar covering the updates, available via the NSC training page.

Lenders should be prepared for examiners to look closely at:

  • QC Program: Has the program been updated to test for COVID-specific requirements? Lenders should review job aids and checklist. Lenders are required to maintain an up-to-date QC plan and program. Servicing QC must encompass requirements related to the COVID-19 National Emergency (Handbook 4000.1 III.A.3.d), including:
    • Loss Mitigation for Borrowers Affected by COVID-19
      • COVID-19 Forbearance
      • COVID-19 Home Retention/Disposition Options 
    • Single Family Default Monitoring System (SFDMS) Reporting Requirements
  • Staff Training: Have QC and servicing staff been trained on COVID loss mitigation options? Lenders must ensure that staff are trained all areas of FHA policy applicable to their positions. Higgins noted that while FHA offers policy update webinars, these sessions are not likely not sufficient training to ensure that staff understand how FHA guidelines are operationalized by the lender.
  • QC Sampling: Is the sample selection process updated monthly based on current portfolio size and composition? Does selection ensure that all aspects of the FHA servicing operation are tested? Lenders should be prepared to show evidence that they are sampling COVID-impacted loans.

Finally, Higgins noted that FHA will also be focusing on issues of concern identified by the CFPB in its January Supervisory Highlights Report. Servicers should be prepared to explain how they manage these issues, including:

  • Accuracy of forbearance and loss mitigation information provided to consumers; 
  • Suspension of collections and default notices, late fees, and foreclosure initiation for borrowers in forbearance;
  • Timely processing of forbearance requests; and
  • Enrollment of borrowers in automatic or unwanted forbearances.

Need more information about FHA compliance? Contact SitusAMC’s Residential Consulting & Advisory team at

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