Situation
Following substantial revisions to the Post Endorsement Technical Review (PETR) process – one of its key underwriting control processes – the Federal Housing Administration needed to assess whether adequate controls were in place to mitigate risks to its insurance fund.
In response to changes in the overall lending climate, FHA revised the PETR process to streamline its system of codes and ratings used to represent the level of risk in order to increase the effectiveness of the PETR process as a risk control. Following these revisions, FHA contracted Concentrance Consulting Group to perform a Front-End Risk Assessment (FERA) of this revised PETR process in accordance with HUD procedures and handbooks. The purpose of the FERA was to assess whether adequate controls were in place to mitigate risks to the insurance fund.
Approach
The Concentrance team employed a variety of informaion gathering techniques including:
- Discussions among stakeholders including FHA Headquarters (HQ) and Home Ownership Center (HOC) staff, HOC contractors, lenders, and other industry participants such as industry trade associations
- Review of key documents relating to the PETR process
- Leverage of the interviews and the reviewed documentation to depict the event cycles of the PETR process, and to identify PETR information requirements
- Examination of loan files that had been reviewed through the PETR process which allowed us to determine how, and the consistency with which the codes and ratings were being applied
Outcome
The Concentrance team identified control objectives and measures in order to assist FHA is measuring on-going effectiveness of the PETR process. In addition, we leveraged the information gathered to develop recommendations to increase the effectiveness of the PETR process by specifically addressing Procedures for Overall Risk Assessment, Performance Measurement and Data Integrity Checks.