# FHA compare ratio and HUD Credit Watch Updated September 26, 2026 The FHA compare ratio is your early default and claim rate on FHA loans divided by the rate for all lenders in the same area, times 100. Above 150 in a HUD field office area, you are on Credit Watch. Above 200, and above the national rate, HUD may terminate your authority to originate or underwrite there. ## How HUD calculates it HUD's Neighborhood Watch Early Warning System defines it by example: if a lender has an 8% default rate in California and 4% of all California loans defaulted, its compare ratio is 200%. The baseline can be an area or another lender. You reach it through FHA Connection; Early Warning data refreshes monthly. The regulation never says "compare ratio." 24 CFR 202.2 measures everything against the "normal rate": the default and claim rate for the area a HUD field office serves, or another area HUD designates. A default is an insured loan 90 or more days in default within 24 months after it was insured. A claim is one HUD pays within that same window. Handbook 4000.1 adds the timing: FHA reviews rates quarterly, counting only loans with an amortization date in the preceding 24 months. In Neighborhood Watch, use the "Seriously Delinquent" option for Credit Watch analysis, and remember its counts can include loans that later cured. ## The thresholds | Level | Test | What can happen | Source | |---|---|---|---| | Credit Watch Status | Your rate in an area is above 150% of the normal rate | You are on Credit Watch and responsible for monitoring your own rates | 24 CFR 202.3(c)(2)(ii) | | Termination cause | Your rate in an area is above 200% of the normal rate and above the national default and claim rate | HUD may give notice ending origination and/or Direct Endorsement authority there, 60 days after the notice | 24 CFR 202.3(c)(2)(iii) | | Lender Insurance | LI Compare Ratio at or below 150% (loans you underwrote vs. all mortgagees in the same states, two-year period) | Required to obtain LI authority | Handbook 4000.1 I.A.5.b | Under 24 CFR 202.3(c)(2), origination and underwriting are separate tests. A high rate on loans you originated puts your origination approval at risk; a high rate on loans you underwrote puts your Direct Endorsement approval at risk. HUD can also review a branch on its own and terminate that branch or the whole operation. Before sending a notice, HUD checks census-tract concentrations and may hold off if the high rate comes from lending in underserved areas. ## A worked example Illustrative numbers only. Your loans in one field office area that began amortizing in the past 24 months have a 3.6% default and claim rate. The area rate is 1.5% and the national rate is 2.0%. 1. Compare ratio: 3.6 ÷ 1.5 × 100 = 240. 2. Credit Watch Status: 240 is above 150. 3. Termination test 1: 3.6% is above 200% × 1.5% = 3.0%. 4. Termination test 2: 3.6% is above the 2.0% national rate. Both termination tests are met, so HUD may send a proposed termination notice after its underserved-area check. At a 4.0% national rate, test 2 fails: you are on Credit Watch but don't meet the termination cause. ## If you get a notice You can request an informal conference in writing with the Deputy Assistant Secretary for Single Family Housing or a designee. 24 CFR 202.3(c)(2)(iv) says HUD must receive your request within 30 calendar days of the notice date, while the Handbook says within 30 days of receipt. Plan to the notice date. The conference is held within 60 days of the notice unless extended, and HUD may withdraw the notice over factors beyond your control. Under Handbook 4000.1 V.E.3.a.iii, if you don't request a conference, your authority ends 60 days from the notice date. If you do and HUD sustains the termination, it takes effect when you receive the Final Notice of Determination. Once a proposed notice arrives, you can't open new FHA branches in the cited area. The Handbook limits termination to the field office area named in the notice, and your general FHA approval stays. Loans a DE underwriter approved, or that got a Firm Commitment, before termination can still be endorsed; earlier-stage cases can go to another mortgagee. 24 CFR 202.3(e) and the Handbook let you apply for reinstatement after six months. You need an independent CPA analysis of the underlying cause and a corrective action plan with evidence it is in place, filed through LEAP. ## Where your QC plan comes in Your QC plan is where you catch the causes before they show up in the rate. Handbook 4000.1 V.A.3.a defines an early payment default (EPD) as a loan that goes 60 days delinquent within the first six payments. You must review every EPD you underwrote, no matter who services it, except for a narrow disaster-area carve-out. Select EPDs monthly and finish each review within 60 days of the end of the month you selected it. Neighborhood Watch can help you find them. Your discretionary sample must target high-risk programs, participants or sources, which can include default rates. The EPD window (60 days within six payments) is much tighter than the Credit Watch window (90 days within 24 months). EPD reviews are your earliest look at the loans that drive the rate HUD measures. ## HUD's own loan reviews FHA records its post-endorsement reviews in the Loan Review System (LRS) and classifies findings with the FHA Defect Taxonomy, Appendix 8.0 of Handbook 4000.1. Each finding gets a defect area, source, cause and one of four severity tiers. Tiers 1 and 2 are unacceptable, need your response and remedy in LRS, and line up with the Material Finding definition for your own QC. Tiers 3 and 4 need no response. You can rebut in LRS, and you may use the taxonomy as a reference for your own reviews. The Handbook addresses mail for HUD's Quality Assurance Division care of the Office of Lender Activities and Program Compliance. Flightline reviews complete FHA loan files and ties each finding to the evidence page and the requirement it cites, so your EPD reviews can start from the same findings. You still own the QC plan, the monitoring of your default rates and your responses to HUD. ## FAQ **Is a compare ratio above 150 a violation?** No. It puts you on Credit Watch Status. Termination takes a rate above 200% of the area rate that is also above the national rate. **What counts as a default for Credit Watch?** A loan 90 or more days in default within 24 months after it was insured. A claim HUD pays within the same 24 months counts too. **Is an early payment default the same as a Credit Watch default?** No. An EPD is a loan 60 days delinquent within the first six payments, and it drives your QC reviews. A Credit Watch default is 90 days in default within 24 months. ## Sources - 24 CFR 202.2, Definitions (eCFR, current as of September 24, 2026): https://www.ecfr.gov/current/title-24/subtitle-B/chapter-II/subchapter-B/part-202/subpart-A/section-202.2 - 24 CFR 202.3(c)(2) and (e), Credit Watch Termination and Reinstatement (eCFR, current as of September 24, 2026; last amended 78 FR 57060, September 17, 2013): https://www.ecfr.gov/current/title-24/subtitle-B/chapter-II/subchapter-B/part-202/subpart-A/section-202.3 - HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (issued August 12, 2026): I.A.5.b Lender Insurance Authority (01/24/2022); V.A.3.a Loan File Selection (06/23/2026); V.C.3.b Title II Loan Reviews (04/10/2025); V.E.3.a.iii Credit Watch Termination of Title II Mortgagees (05/09/2022); Appendix 8.0 FHA Defect Taxonomy (11/10/2026): https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf - HUD Neighborhood Watch Early Warning System, About, FAQ and Help pages (undated; accessed September 2026): https://entp.hud.gov/sfnw/public/ This guide summarizes agency requirements as of the date above. It is not legal advice.