FHA Finalizes Changes to Defect Taxonomy

FHA Finalizes Changes to Defect Taxonomy

Effective immediately, Mortgagee Letter 2024-14 updates FHA’s Defect Taxonomy guidelines to include fraud or material misrepresentation involving a Third-Party Originator (TPO) as a Tier 1 severity defect.

Why it matters: Mortgagees are responsible for the actions of their TPOs under 24 CFR § 202.8(a)(3) and Handbook 4000.1 Section I.A.5.a.v. The changes in ML 24-14 better align the Defect Taxonomy with these requirements and mitigate risk to the Mutual Mortgage Insurance Fund.

  • ML 24-14 applies to all FHA Title II Single Family mortgage programs, including HECM.

The big picture: Based on this update, FHA will seek life-of-loan indemnification from Mortgagees when there is evidence of fraud or material misrepresentation involving a sponsored TPO, regardless of whether FHA identifies specific red flags that should have been questioned at underwriting.

Published by

Darryl Hicks

Darryl Hicks is Vice President of Communications for the National Reverse Mortgage Lenders Association. In this capacity, Hicks writes for NRMLA's publications, manages the association's web sites and social media accounts, assists committees and the Board of Directors, and manages the Certified Reverse Mortgage Professional designation. Prior to joining NRMLA in 1999, Hicks spent three years in the Washington, D.C. bureau for National Mortgage News.