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
• 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.