Is your Quality Control (“QC”) Vendor Meeting Deadlines?
One of the questions posed in the recently published Quality Insider by Fannie Mae (https://singlefamily.fanniemae.com/media/28786/display) was “Is your QC vendor completing the file reviews in a timely manner? Are you holding the QC vendor accountable to the timeline?” This is a question you should be asking and if the answer is NO, maybe you should be looking at other options.
Fannie Mae requires that mortgage loan post-closing quality control reviews be completed within 120 days from the month of the loan closing and if your post-closing quality control cycle is in arrears more than one 30-day cycle then the lender must self-report in Loan Quality Connect.
Regulatory Solutions provides timely pre-funding, post-closing and servicing quality control reviews. Contact Regulatory Solutions today to discuss how we can get you back on track with your mortgage loan quality control needs.
Fannie Mae New Approved Mortgage Insurance Forms
Fannie Mae has just announced a change in their mortgage insurance forms. Any loan with mortgage insurance that is sold or securitized by Fannie Mae must be insured using one of the new approved forms. This will take effect on any loan application that was taken on or after March 1, 2020. Fannie Mae has stated that if an application taken after that time with mortgage insurance is insured under any previously approved form, it will not be eligible for delivery and will be subject to repurchase. There is an exception to this change. Loans that are refinanced into a High LTV Refinance loan may continue to be insured under the previously approved form. However, if a new mortgage insurance certificate is issued, then this exception does not apply.
Fannie Mae Quality Control Timing Requirements
Fannie Mae recently updated its Selling Guide with announcement SEL-2019-03 which includes the requirement that lenders notify Fannie Mae using the self-report functionality in Loan Quality Connect within 30 days if the lender’s post closing quality control cycle is in arrears more than one 30-day cycle. Fannie Mae requires that mortgage loan post closing quality control reviews must be completed within 120 days from the month of the loan closing. If you need assistance in meeting this timing requirement, please contact Regulatory Solutions for all your post-closing quality control needs.
Home Mortgage Disclosure Act (FHA Requirements)
Have you revised your Quality Control Program yet to meet the new reporting requirements for HMDA? If not, it could play a part in your ability to sell loans to certain government agencies. FHA in particular requires that a lender’s Quality Control Program be compliant with the Home Mortgage Disclosure Act’s reporting requirements. The Quality Control Program should ensure that the information you are reporting is accurate and that the report itself is not only correct but is made timely. With the passing of the new HMDA regulation which became effective at the beginning of 2018, and for those lenders that became exempt from reporting the expanded data fields with the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, you should ensure that your current Quality Control Program has been revised to meet the applicable HMDA reporting requirements.
At Regulatory Solutions, we provide services to meet all of your HMDA needs. We are capable of not only ensuring that your Quality Control Program meets the reporting requirements for federal agencies and federal regulations, but can also perform full HMDA scrubs.
Denied/Non-Originated Quality Control Reviews
In the mortgage world when you say the words quality control, post closing quality control loan file reviews immediately come to mind. Did you know that non-originated loan reviews are also considered a part of quality control? Freddie Mac’s Quality Control Best Practices states that as part of your quality control process you should include a random sample of your declined loan applications. In addition, FHA requires that you review a random statistical sample of rejected applications within 90 days from the end of the month in which the decision was made. Regulatory Solutions can assist you with these monthly non-originated reviews to ensure you are in compliance with agency and regulatory requirements including the Equal Credit Opportunity Act (ECOA).
Pre-funding/Pre-closing Quality Control Review VA and USDA
A pre-funding / pre-closing quality control loan review must include 10% of all VA-guaranteed mortgages each month. As with other quality control policies, there must be procedures in place to notify senior management of any deficiencies found in the course of the review. Also, the quality control plan must establish an effective method for senior management to address and correct these deficiencies. If a pattern emerges from the deficiencies found, then there should be corrective instructions provided to the applicable employee.
The pre-funding (pre-closing) quality control loan plan must also provide a procedure for promptly reporting any violation of a regulation or false statements to the VA. It must also contain procedures for the Lender to remain up to date with any future VA pre-funding (pre-closing) requirements. Like with FHA, the Lender must check that no one involved in the origination or underwriting process is debarred or suspended.
USDA/RHS
USDA/RHS has not established any specifics for a pre-funding quality control loan review process when dealing with RHS loans. Merely that a Lender must have an effective pre-funding review process.
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 pre-funding files are reviewed in accordance with agency guidelines.
Pre-funding/Pre-closing Quality Control Review – FHA
FHA requires that pre-funding (pre-closing) quality control loan reviews should occur each month and that the loans selected for review must have been approved by an FHA Direct Endorsement underwriter before the pre-funding (pre-closing) quality control loan review can take place. According to FHA, the review should be 10% or less of the sample size and the review staff should operate independently from the Lender’s loan production or administration process. If nine or fewer FHA loans were closed during the prior month, then at least one FHA loan must be selected for pre-funding (pre-closing) quality control loan review. FHA also requires that the Lender verify that none of the participants in the transaction are debarred or suspended under an LDP and FHA program.
The following documents must be a part of the pre-funding (pre-closing) quality control loan review: appraisal; mortgage application, eligibility, and all underwriting documents; disclosures and legal compliance; mortgage origination documents; handling of mortgage documents; credit reports (a new report does not have to be ordered); any outstanding debt obligations; verifications of employment and deposit; self-employment information; source of funds; underwriting completeness and accuracy; property flipping restrictions; prohibited restrictive covenants; QM; Loan Estimate; any discrepancies in the loan file; and verification of any condition clearance. The results of the reviews must be reported to senior management on a monthly basis. The feedback that is provided should be used to create Action Plans so as to prevent the same mistakes from happening in the future. Any conflicting information in these documents should be resolved with the underwriter and any discrepancies found have to be resolved before closing. FHA also requires that if any discoveries of fraud or material misrepresentations are found during the review, they should be reported immediately to HUD/FHA.
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 pre-funding files are reviewed in accordance with agency guidelines.
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.
Discretionary Post-Closing Quality Control Requirements
In addition to random samples, Fannie Mae and Freddie Mac require discretionary and/or target reviews for post closing quality control. Fannie Mae requires a monthly discretionary sample in addition to a lender’s random sample. This discretionary review should focus on loans with a higher potential for errors, misrepresentation, or fraud and should include, but not be limited to the following:
• Unique underwriting/processing/appraisal techniques
• Lender personnel
• Patterns identified in other reviews
• TPOs
• Higher-risk property types
Discretionary reviews can be full file reviews (probably best for new loan officers or TPOs) or can be targeted based on patterns identified in previous reviews (such as compliance, appraisals, income, etc.). Fannie Mae incorporates “targeted reviews” into discretionary reviews. These do not have to be two separate reviews.
Freddie Mac requires post closing quality control review samples to include targeted and discretionary reviews in addition to your random sample. Freddie Mac defines targeted reviews as any mortgages sold to Freddie Mac that become 60 days or more past due in the first six months following the note date, which are also known as Early Payment Defaults.
Freddie Mac’s discretionary samples for post closing quality control should include mortgages selected on a non-random basis from a specific population. Freddie Mac guidelines state that discretionary samples must be selected to evaluate the work of a particular employee or mortgage transaction participant when there is a reason to suspect fraud. Discretionary samples should also be selected as needed in order to:
• Review the work of a new branch office, employee, or third-party originator
• Validate that a new product or offering is being originated in accordance with the Seller’s policies and procedures
There is no set number of loans required for discretionary reviews, and the number of loans reviewed can be changed on a monthly at management’s discretion.
Please contact Regulatory Solutions to discuss how we can assist you in completing your discretionary and targeted post closing quality control reviews.