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Early payment default reviews: FHA, Fannie Mae and Freddie Mac

An early payment default (EPD) review is a post-closing QC review of a loan that went seriously delinquent soon after closing. FHA defines an EPD as a mortgage that becomes 60 days delinquent within the first six payments and requires you to review every one you underwrote. Fannie Mae names EPDs as a discretionary target without defining them, and Freddie Mac requires a monthly risk-based sample of loans 60 or more days past due in the first six months after the Note Date.

Key numbers

  • 60 days delinquent within the first six payments is FHA's EPD definition (HUD Handbook 4000.1, V.A.3.a.iv(B)(1))
  • 60 days from the end of the month of selection to finish an FHA EPD review (4000.1, V.A.3.a.i(C))
  • 60 or more days past due in the first six months following the Note Date is Freddie Mac's targeted-sample trigger (Guide 3402.2(a)(ii))
  • "including early payment defaults" is Fannie Mae's only EPD reference in the post-closing selection rules (Selling Guide D1-3-01)
  • 90 days for Freddie Mac to report QC results to senior management, counted from file selection (Guide 3402.3, Reporting results)

What FHA requires

HUD's definition is short: "Early Payment Defaults (EPD) are all Mortgages that become 60 Days delinquent within the first six payments." It sits in the Sample Composition Standard, V.A.3.a.iv(B), next to the random and discretionary samples.

The standard is just as short. You "must review all EPDs underwritten by the Mortgagee, regardless of which Mortgagee services the Mortgage." Title II mortgagees "may use Neighborhood Watch to assist with identifying EPDs."

Two details trip up QC plans. EPDs sit outside the sizing math: the Handbook says "Only random and discretionary samples may be included in the sample size standard." An EPD review does not count toward your 10% (or statistical) FHA sample. And the clock is its own: selection is monthly, and EPDs "must be reviewed within 60 Days from the end of the month in which the loan was selected" (V.A.3.a.i(C)).

The disaster exception in ML 2026-09

Mortgagee Letter 2026-09, dated June 23, 2026 and "effective immediately," added a permanent exception at V.A.3.a.iv(B)(3). You are not required to review an EPD that meets all three conditions:

  • the property is in a Presidentially-Declared Major Disaster Area (PDMDA);
  • the mortgage closed before the Incident Period start date, as FEMA defines it; and
  • the loan became an EPD after the Incident Period start date.

HUD's reason: many post-disaster defaults "are likely the result of loss of employment/income, property damage, forced relocation, and other factors unrelated to noncompliance with FHA requirements." The exception replaces case-by-case waivers and appears in Handbook 4000.1 as revised August 12, 2026. A loan that misses any one condition stays in the EPD population.

What Fannie Mae requires

D1-3-01 (dated 04/01/2026 in the Guide published October 7, 2026) requires post-closing QC to include random and discretionary selections. For the discretionary side, the lender's process "must target areas the lender identifies as having a higher potential for errors and loans that may have a high risk of misrepresentation or fraud, including early payment defaults, as described in A3-4-03."

That is the full extent of it. D1-3-01 has no definition of an EPD, no delinquency window and no required review percentage, and A3-4-03 has no EPD wording to fill the gap. Those choices fall to your QC plan and risk assessment. The whole QC cycle must finish within 90 days from the month of disbursement or acquisition.

What Freddie Mac requires

Section 3402.2(a) (effective 09/02/2026) requires three post-closing sample types: random, targeted and discretionary. The targeted sample is the EPD sample: "Each month, the Seller must select an appropriate risk-based sample of Mortgages sold to Freddie Mac that become 60 days or more past due in the first six months following the Note Date." Those Mortgages "must be carefully evaluated to determine the presence of any fraud or other deficiency."

Two differences from FHA: Freddie Mac measures from the Note Date in months, where FHA counts payments, and it asks for an "appropriate risk-based sample," not every loan.

Side by side

FHAFannie MaeFreddie Mac
Source4000.1 V.A.3.a.iv(B)D1-3-01Guide 3402.2(a)(ii)
Definition60 days delinquent within the first six paymentsNot defined60 or more days past due in the first six months after the Note Date
Review requiredAll EPDs you underwrote, regardless of servicerNamed as a discretionary targetRisk-based targeted sample, monthly
TimingSelect monthly; review within 60 days of the end of the selection monthWhole QC cycle within 90 days of the disbursement or acquisition monthResults to senior management within 90 days of file selection
Carve-outPDMDA exception (ML 2026-09)None statedNone stated

"First payment default"

None of the agency sources cited here defines "first payment default" or uses the phrase. It is industry shorthand, usually meaning a borrower who misses the very first payment. Because it is not a regulatory term, write your QC plan in the agency's wording and say which definition applies to which investor's loans.

Why FHA early defaults carry extra weight

HUD also watches early performance outside your QC. Under Credit Watch Termination (V.E.3.a.iii), FHA reviews default and claim rates quarterly, limited to mortgages with an amortization date within the preceding 24 months. In 24 CFR 202.2, a "default" for that purpose is 90 or more days in default within 24 months after the mortgage is insured, and a "claim" is an insurance claim paid within 24 months. That is a different test from the 60-day EPD definition, and HUD does not link the two. The source texts do not connect your EPD review to Credit Watch, but both concern loans that perform badly soon after insurance. See FHA compare ratio and HUD Credit Watch for how the compare ratio and Credit Watch work.

What the review should find

An EPD review is a re-underwrite, not a servicing note. Freddie Mac's purpose is to find "fraud or other deficiency." Ask what was true at closing that the file did not show: whether income was real and stable, funds sourced, every debt counted. Record the answer either way, because "no defect found" is defensible only if the file shows the work.

How Flightline checks this

Flightline reviews the whole loan file, follows the evidence when something doesn't add up, and returns defensible findings the same day. An EPD file is exactly where that matters: the review runs tests across areas such as income, assets, credit, fraud signals and undisclosed debt, on each file they apply to, and verifies its conclusions before raising a finding. Every finding comes with the evidence by page and the requirement cited to its section. Flightline is independent of the process that made the loan, and your QC plan and your sign-off stay yours. Read a sample report · Review a file with us

FAQ

What is an early payment default?

For FHA, a mortgage that becomes 60 days delinquent within the first six payments. Freddie Mac uses 60 or more days past due in the first six months after the Note Date. Fannie Mae does not define it.

Must I review every FHA EPD?

Every one you underwrote, whoever services it, unless it meets all three PDMDA exception conditions from ML 2026-09.

Does an EPD review count toward my FHA sample size?

No. Only random and discretionary samples count toward the sample size standard.

What does first payment default mean?

It is an industry term that none of the cited agency sources define. Check which definition your investor or QC plan uses before you rely on it.

Does Fannie Mae require EPD reviews?

D1-3-01 requires your discretionary selection process to target loans at high risk of misrepresentation or fraud, "including early payment defaults." It sets no definition or minimum count, so your QC plan has to.

Sources

See the requirement behind every finding.

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