How Long Does a Lender Need to Keep an FHA Loan File?

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Maintaing loan files is a crucial component of compliance at all lending institutions. While several state and federal guidelines govern document retention, most companies make their own rules as well. Guidelines for how long a lender must keep an FHA loan on file are specific. Banking commissioners conduct internal and external audits periodically on all lenders to ensure compliance.

FHA Guidelines

The Federal Housing Authority requires that lenders retain copies of all mortgage documents for all secured loans for the life of the loan—until it is paid in full—plus an additional three years. This means all lenders who finance FHA loans must keep a file of active and inactive mortgages, which includes second mortgages and HELOCs (Home Equity Lines of Credit).

HMDA Reportable

The Home Mortgage Disclosure Act must be read to all consumers applying for a secured loan in the first lien position (first mortgages) and any consumer seeking a closed-end loan (secured or otherwise) for the purpose of home improvements. Lenders must retain these files—active, inactive or incomplete—indefinitely.

Proprietary Rules

Some companies, in accordance with their own policies, retain FHA files indefinitely. In some cases, executives may direct branch offices that have not followed compliance to retain all documents so they can conduct further audits.

Lenders and Borrowers

While lenders must retain FHA files for three years after a loan has been satisfied, Bankrate.com, a third-party financial advice site, recommends consumers save old loan files—FHA or otherwise—for at least six years after a loan has been paid off. This includes the Deed, HUD 1-A, loan agreement, arbitration riders and any other signed document.

Precaution

Lenders and borrowers should err on the side of caution when it comes to legal documents. On the lender side, retaining a document or loan file longer than mandated can actually result in penalties. In many cases, such penalties are meted out in-house during internal audits. While there may not be a prescribed federal penalty for holding documents too long, retaining documents lenders no longer need simply widens their legal liability. However, consumers should retain any document or loan file that they believe is pertinent.

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