Consumer complaint received 2024-07-16
Product: Mortgage — FHA mortgage
Issue: Applying for a mortgage or refinancing an existing mortgage — Negative impact of inaccurate appraisal
Company: CARDINAL FINANCIAL COMPANY, LIMITED PARTNERSHIP (TX)

In XXXX of XXXX  I reported an over {$10000.00} health and safety error and omission in my FHA appraisal that would have disqualified the home from funding. I have since learned HUD and the FHA rely on the lender to not only self report errors, but they allow them to choose the severity category out of the XXXX XXXX XXXX  choices, some of which having lesser penalties than others. Cardinal Financial chose the category of property eligibility rather than property appraisal because the category of property appraisal incriminates appraiser and/or underwriter and is a severity level of 2 requiring Mitigating Documentation OR Indemnification Life-of-Loan and states FHA is unable to determine appraiser and/or underwriter compliance with applicable policies for the appraisal, collateral valuation, or property acceptability due to absence of valid documentation. 

FHA is able to conclude that the property was not appraised and/or underwritten in compliance with applicable policies and the appraised value is not supported or the property is not acceptable as a result. 

Documentation required for specific property types, programs/products, or by construction status was not obtained to support FHA max insurable loan amount. 

Due to Cardinal Financial choosing the incorrect category and not checking the box for Fraud in the self-report system, FHA prematurely excused them with the following that Cardinal used to close my initial complaint. 

FHA closed the review stating to the lender. Thank you for the self-report regarding the properties well and septic. FHA has taken the appropriate actions and has determined that lender could not have known about the well and septic prior to closing. No further action is required. 

It was classified as Tier 4 ( indicating that the Mortgagee did not know and could not have known ). 

Through two years and nine months of research, recent communication and policy updates from FHA commissioner XXXX XXXX proves that classification was wrong. 

" According to my team, they have looked into your situation multiple times and have determined that there is nothing HUD can do. They have advised you to file a complaint with your state regulators. While I have asked them to go back to look again, I do not have any reason to believe the answer will be different, and unfortunately another inquiry will likely take at least several weeks at best and possibly longer. 

Have you filed a complaint with state regulators, the CFPB, the Appraisal Foundation, or anyone else besides HUD? '' Sincerely yours, XXXX XXXX XXXX XXXX Secretary for Housing and Federal Housing Commissioner U.S. Department of Housing and Urban Development XXXX XXXX She also issued the following update to the Defect Taxonomy requiring fraud and misrepresentation be classified as a severity level 1 not 4. 

Effective Date The provisions of this ML are effective immediately. 
All updates will be incorporated into a forthcoming update of the HUD Handbook XXXX, FHA Single Family Housing Policy Handbook ( Handbook  XXXX ). 
Affected Programs The provisions of this ML apply to all FHA Title II Single Family mortgage programs. 
Background The FHA Defect Taxonomy ( Handbook XXXX, Appendix XXXX ) is FHAs quality assurance framework for Title II loan reviews. It provides a consistent method for identifying defects at the loan level, useful data and feedback through structured categorization of defects, and balance between FHAs statutory obligation to mitigate risk to the XXXX XXXX  XXXX XXXX ( XXXX ) and quality assurance business processes. 
Mortgagee Letter XXXX, Continued 2 The Fraud or Misrepresentation section of the FHA Defect Taxonomy currently states that Findings of fraud or materially misrepresented information can fall into one of two severity tiers : Tier 1 ( indicating that the Mortgagee knew or should have known ), or Tier 4 ( indicating that the Mortgagee did not know and could not have known ). 
It further states that FHA determines if the Mortgagee knew or should have known based on whether : An employee of the Mortgagee was involved, and/or Red flags in the loan file that should have been questioned by the underwriting Mortgagee. 
Mortgagees are responsible for the actions of their sponsored TPOs under 24 CFR 202.8 ( a ) ( XXXX ) and XXXX XXXX Section I.A.5.a.v. To better align the Defect Taxonomy with these existing requirements and mitigate risk to the MMIF, FHA is updating the Defect Taxonomy to include fraud or material misrepresentation involving a sponsored TPO as one of the knew or should have known conditions used by FHA to determine whether a Tier 1 severity classification is appropriate. 
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. 

Please review my initial complaint using the most recent update which requires the lender to mitigate.