Prefunding/Preclosing Quality Control Review – Freddie Mac
Freddie Mac requires that a Lender establish a pre-funding (pre-closing) quality control loan review process that contains a sample selection and provides enough time for reviews to be completed before closing. There must be procedures established to report deficiencies to senior management and to take the appropriate corrective measures. The pre-funding (pre-closing) quality control loan review process must also document the resolution of any defects and should establish procedures for canceling/postponing a closing when the review reveals deficiencies or when the review cannot be completed before closing.
The pre-funding (pre-closing) quality control loan review should include loans that reflect the full scope of the Lender’s products. When selecting loans for review the Lender should make sure to target certain loan samples in order to review the work of new employees, confirm that a new product is being originated in accordance with policies, and to evaluate the work of a particular employee when fraud is suspected. The method in which the Lender chooses their samples should be examined regularly so as to ensure its effectiveness.
For the validation and re-verification process, Freddie Mac requires that the pre-funding (pre-closing) quality control loan review include validation or re-verification of: data entered into Loan Product Advisor; Social Security numbers (unless validated during the loan origination process); income documentation and its calculation; employment; assets required to close or meet reserve requirements; property valuation documentation; adequate mortgage insurance; and whether additional credit was granted and considered when the credit report reveals inquiries within the previous 120 days.
Regulatory Solutions is available to assist you. Just visit our pre-funding/pre-closing quality control reviews page. Regulatory Solutions will provide you with the independent solution you need to ensure your prefunding files are reviewed in accordance with agency guidelines.
Pre-Funding/Pre-Closing Quality Control Review – Fannie Mae
According to the Fannie Mae Selling Guide, the Lender should establish a process for selecting loans for pre-funding quality control loan reviews and that those who are performing the review must be completely separate from the loan origination process. When establishing pre-funding quality control loan reviews, the Lender should take into account the risks inherent in its established origination process, volume of loans, and product mixes. The Lender should make sure to include loans that have been identified as having a higher risk for errors or fraud. These could include loans with complex income calculations, that have properties located in an area with a high delinquency rate, and those that were originated or processed by a new loan officer. The method used for the sample loan selection should be regularly reviewed by management so as to ensure its effectiveness.
The pre-funding quality control loan process has to include a review of certain data points and documents for accuracy and completeness. Fannie Mae has stated that a Lender must review: the data entered into an AUS; Social Security Number(s); income calculations and any supporting documentation; employment documentation (this does include verbal verifications); assets needed to close; the appraisal (if one was ordered); and documentation of adequate mortgage insurance coverage. This is just the minimum that Fannie Mae requires to be reviewed and it is up to the Lender to perform a more expansive review if necessary. Fannie Mae has made a few caveats to this process. If income or assets were validated by DU, then the Lender is not required to perform any recalculations as part of their pre-funding quality control loan review. Also, it is up to the Lender to ensure that all of the information entered into DU is appropriate and the Lender should investigate any inconsistencies that appear in the loan file.
For reporting the pre-funding quality control loan reviews, the Lender should establish a process to report any defects that were found. This has to include: monthly reporting to senior management; communicating with parties that could resolve these defects; and documenting any resolution of the defects. The reports must have more than just a summary report of all of the findings. They must also contain a description of the sample selection along with any defect trending information.
Regulatory Solutions is available to assist you. Just visit our pre-funding/pre-closing quality control reviews page. Regulatory Solutions will provide you with the independent solution you need to ensure your prefunding files are reviewed in accordance with agency guidelines.
HMDA – Action Taken
We are now almost two months into the new HMDA regulation and there have been several questions as to reporting the action taken. Specifically, when to report an application as being withdrawn or file being closed for incompleteness. While this data point existed under the old HMDA regulation, it can still be confusing.
First there are applications that must be reported as being withdrawn. Under the new HMDA regulation, withdrawn is reported when the application is expressly withdrawn by the applicant before a credit decision was made. An application is also reported as withdrawn if the financial institution provides conditional approval that specifies underwriting conditions which must be met and the applicant withdraws the application before satisfying all of the specified underwriting and credit worthiness conditions. An application would still be considered as being “withdrawn” if the financial institution made a counteroffer which the borrower agreed to and the loan was subsequently conditionally approved with underwriting conditions but the borrower later withdraws before satisfying those conditions.
When do you report an application as being closed for incompleteness? This part of the HMDA regulation coincides with ECOA. While the HMDA regulation itself does not necessarily require a notice to be sent regarding missing information, for an application to be considered as “file closed for incompleteness”, however a written notice of incompleteness as described under Regulation B 12 CFR 1002.9 (c)(2) must be sent to the applicant. If the applicant fails to respond to the written notice, there is no further action needed on the part of the financial institution and the action taken would be “file closed for incompleteness”. If an oral request for additional information is made by the financial institution and, if the application remains incomplete after the oral request is made, then a written notice denying the application based on the application being incomplete must be sent. In this instance, the file is denied for incompleteness instead of being closed for incompleteness. There are some financial institutions that provide both the notice of incompleteness under Regulation B, and then send an notice of denial for incompleteness. In this circumstance, reporting the application as closed for incompleteness or denied is left entirely up to the financial institution. As always, remember to document your file accordingly.
For more information on our HMDA services please contact Regulatory Solutions at contact@regulatorysol.com or Toll Free 855.734.7655.