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.
