Consider enhancing the SMART system, by adding fields (a) requiring FHA’s loan servicing contractor to enter the amount on the original mortgage and promissory note and (b) calculating the difference between the partial claim amount in SMART and the amount entered from the documents.

Implement an enhanced review process to ensure the receipt of partial claim documents is accurately marked in SMART so that the Missing Documents Report will be accurate.

Determine which report accurately reflects the status of partial claims without original documentation, certify the completeness and accuracy of the identified report, and provide the report to the General Ledger Division for the reclassification entry.

• A change control protocol for changes in programs, policies, existing controls, and source documents, including impact assessments and approvals.
• Cross-functional review involving the policy, program, accounting, financial reporting, and compliance teams before any changes are finalized.
• Documentation of rationale and expected financial impact for each change.
• Training and  awareness for management on the importance of following the governance framework for change management. 

Record journal entries to reclassify the HECM cases with missing original first notes for more than 90 days from loans receivable to accounts receivable.
 

Ensure the report provided by the NSC to reclassify partial claims from loans receivable to account receivable is appropriate for financial reporting and document the decision.
 

Implement a procedure to test journal entry posting models and their effect on the financial statements and related note disclosures when there are program changes requiring new journal entries.

Develop a standard operating procedure that details the rationale, calculation, and underlying support needed for the amounts and narrative descriptions in the financial statement note disclosures, including borrowing authority.

Implement quality control checks that reconcile financial statement disclosure amounts to the general ledger and other supporting documentation as part of the financial statements review and approval process.
 

Systematically evaluate whether control deficiencies identified by the AIR program have affected the accuracy or completeness of HUD’s financial statements. This assessment should include: 
a) Review relevant financial statement line items, disclosure, and account balances for misstatements attributable to ineffective controls;
b) Document the evaluation results, including the rationale for conclusions regarding the presence or absence of misstatements;
c) Make correcting entries to September 30, 2025 balances, as appropriate;
d) Retain supporting analysis for both internal and external review; and
e) Leverage test of balances results to inform remediation efforts.

Work with program offices through remediation activities to determine the underlying causes of the control deficiencies identified by the AIR program.
 

Based on the causes identified, coordinate with the program offices through remediation activities to develop corrective action plans with defined milestones, responsible parties, and timelines. Progress should be tracked, documented, and periodically reported to senior management.
 

Require targeted, role-specific training for program office staff and managers in areas where deficiencies were identified, including approvals, segregation of duties, recordkeeping, and delegated authority. This training should reinforce the importance of compliance with internal control requirements and include HUD escalation and enforcement mechanisms.

Assess and address barriers to timely and adequate responses from program offices during AIR program internal control testing. This assessment should:
a) Identify recurring causes for delayed or incomplete responses from program offices and implement escalation protocols or incentives to ensure timely fulfillment of AIR program requests;
b) Identify and implement efficiencies in the testing process to optimize the time program offices spend on the AIR program, such as streamlining communication, clarifying expectations, finding alternatives to time consuming tasks, and optimizing scheduling;
c) Provide additional guidance, training, or resources to program offices as needed to improve the quality and timeliness of submissions; and
d) Monitor response rates and timeliness, reporting persistent issues to senior leadership for corrective action.

Re-examine and enhance HUD’s process for evaluating the potential financial impact of control deficiencies identified by the AIR program or other sources to ensure that:
a) Assessments of financial impact are initiated promptly upon identification of control deficiencies;
b) The evaluation process is structured to deliver clear, actionable conclusions in sufficient time to inform any necessary adjustments to financial statements prior to the financial report date; and
c) Documentation of the assessment process and results is maintained to support audit requirements and management’s assertions.
 

Coordinate with the Principal Deputy Assistance Secretary for each Program Office to:
a) Define governance protocols to include reassessing HUD’s escalation protocols and enforcement mechanisms for repeated or willful noncompliance with documented controls, such as additional oversight, retraining, or disciplinary action as appropriate. Based on the assessment, update those protocols and mechanisms, as warranted.
b) Establish and resource a HUD-wide centralized digital repository for artifacts and key supporting documentation to provide consistent documentation retention and accessibility. Based on this initiative, define governance protocols for repository use, including security, version control, timely review/update requirements, and periodic audits to validate compliance.
 

Update its QC plan and related processes and procedures to align with requirements for loan selection, including documenting how loan selections were determined.

Update its QC plan and related processes and procedures to align with requirements for (1) loan file reviews, including requirements to reverify borrower information, obtain appraisal field reviews, and complete reviews in a timely manner; (2) assessment of findings; (3) reporting findings internally and documenting response to findings; (4) mitigation of findings; and (5) reporting findings to HUD when required.

Provide annual training to its staff and management on HUD requirements for lender QC programs and provide proof of training to HUD.

Review the 101 EPD loans not previously selected for review and submit the results to HUD, including any findings of fraud, material misrepresentations, or other material findings that it is unable to mitigate. If required, Neighborhood Loans should execute indemnification agreements or reimburse claims paid to help protect the FHA insurance fund from unacceptable risk.