The FHA will implement its new Loan Review System that features a defect taxonomy on May 15, 2017. The new system is designed to reduce potential lender liability when FHA loans go into default. The LRS will be used to manage FHA single-family loan and monitoring reviews as well as lender self-reporting of fraud, misrepresentation and other material findings. A change in the pre-endorsement loan review period from pre-closing to post-closing will also become effective on May 15. Scrutinizing loans after they close prior to endorsement for FHA insurance would ensure that loans have no material defects or material errors that could expose the lender to enforcement action or false-claim litigation and the likelihood of a hefty settlement. The defect taxonomy will help lenders identify and classify loan-level defects uncovered through individual loan reviews. Material loan defects have been narrowed down to ...