By Ellen Fisher, CPA, Senior Audit Manager
The Department of Housing and Urban Development (HUD) has made several changes to the reporting requirements for supervised mortgagees. Beginning with HUD Mortgagee Letter 2009-31, supervised lenders were required to submit annual audited financial statements electronically through HUD’s LASS on-line system.
In January 2011, HUD issued Mortgagee Letter 2011-05 that revised the audit reporting requirements for supervised lenders. The revised reporting requirements allow a supervised lender in a parent-subsidiary structure to submit audited consolidated financial statements of the parent company if the parent company executes a written guarantee of the on-going net worth and liquidity compliance of the FHA approved subsidiary. The FHA approved lender is also required to submit their fourth quarter Call Report, a Compliance Report and an Internal Control Report. This Mortgagee Letter still requires submission of audit reports on the LASS system.
In July 2011, HUD issued Mortgagee Letter 2011-25 that further revised the reporting requirements for small supervised lenders and provided a reprieve from the audited financial statements requirement. Supervised lenders with assets of less than $500 million are not required to submit audited financial statements nor an audited computation of net worth. This new exemption for audited financial statements will expire on April 7, 2012 and there has been no guidance regarding what will happen after the expiration date. The lender must still submit their fourth quarter Call Report and Compliance and Internal Control Reports issued by an independent auditor.
HUD has issued Frequently Asked Questions for Mortgagee Letter 2011-25 in which HUD states that supervised lenders with less than $500 million in assets may mail hard copies of the required reports rather than submitting them on the LASS system. This is because the LASS system has not yet been updated to accept submissions under these revised reporting requirements. There are specific requirements for mailed hard copies such as
1) you must submit two copies of each report,
2) you must include a cover letter with the FHA lender/mortgagee identification number that claims the exemption for supervised lenders under the April 7, 2011 waiver, and
3) the FHA lender/mortgagee identification number must be written on the upper right-hand corner of each separate document.
Financial institutions need to engage a CPA firm to perform the necessary compliance and internal control audit procedures and to issue the compliance and internal control reports. The procedures to be performed by the CPA firm and report examples are outlined in chapters 1, 2 and 7 of the HUD Handbook Consolidated Audit Guide for Audits of HUD Programs.
In summary, as it stands right now, if you are an FHA Supervised Lender with total assets under $500 million, there is no financial statement audit requirement for 2011. You are required to submit your fourth quarter call report and both the Compliance and Internal Control Reports as previously discussed. These reports may be submitted via mail which is a significant reprieve from the challenges of the LASS system.
If you have any questions on these reporting requirements, please feel free to contact Ellen Fisher at any time by phone at (719) 630-1186 or email firstname.lastname@example.org.