InfoBytes, August 5, 2011 - Weekly In-depth review of news & developments in the financial services industry


Topics In This Issue

• Federal Issues

• State Issues

• Courts

• Miscellany

• Firm News

• Mortgages

• Banking

• Litigation

• Criminal Enforcement Action

Excerpt from "Mortgages"

HUD Issues Mortgagee Letter 2011-25 on Reporting Requirements. On July 28, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2011-25, advising Federal Housing Administration (FHA) supervised lenders that they are not required to submit audited financial statements to FHA if they are (i) small supervised lenders, (ii) regulated by the Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), or National Credit Union Administration (NCUA), and (iii) have consolidated assets that do not meet the threshold requirements mandated by those agencies for submitting audited financial statements. (The threshold requirements are set forth at 12 C.F.R. §§ 363.1(a) (FDIC), 562.4(b)(2) (OTS), and 715.4(c) (NCUA). The Mortgagee Letter notes that under current regulations, these exemptions apply to supervised institutions with less than $500 million in assets in 2010.) These new directions apply at the time of approval and at recertification, but expire on April 7, 2012. Supervised lenders who are not required to submit audited financial statements to FHA must submit (i) a copy of their unaudited regulatory report (also known as a Report of Condition and Income, or a Call Report) as of their fiscal year end, (ii) an independent auditor's report on internal control relating to the administration of HUD-assisted programs, and (iii) an independent auditor's report on compliance with specific requirements applicable to major and non-major HUD programs as set forth at chapters 1, 2 and 7 of HUD OIG Handbook 2000.04. In addition, FHA-approved supervised lenders who are in parent-subsidiary relationships, and who choose to submit the audited consolidated financial statements of a parent company in accordance with Mortgagee Letter 2011-05, are no longer required to submit internally prepared consolidating schedules. These lenders must instead submit a copy of the subsidiary's unaudited regulatory report (i.e., the Report of Condition and Income or Call Report) as of the lender's fiscal year end. All FHA approval requirements, including net worth and liquidity requirements, remain in effect for FHA-approved entities submitting the audited consolidated financial statements of a parent company. Finally, Mortgagee Letter 2011-25 provides that until the Lender Assessment Subsystem (LASS) is updated to permit the submission of unaudited regulatory reports through a separate attachment, supervised lenders must submit these reports by uploading them with the auditor's footnote in LASS. Note that as of July 21, 2011, the functions of the OTS have been transferred to the Office of the Comptroller of the Currency (OCC), FDIC, Federal Reserve Board and Consumer Financial Protection Bureau, and the OTS became part of the OCC.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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