While selling on the secondary market has slowed down at many institutions (for many reasons), it is still important to have a strong quality control (QC) process in place. Given the uncertainty in the market and borrower financial stability, ensuring quality loans are being sold to investors is imperative to avoid having to repurchase a loan in the future. Investors have been making some changes to these requirements, including the timing of QC reviews that you will want to be aware of.
Institutions that sell loans in the secondary market are required by the Investors to have a post-closing quality control (QC) review completed on a monthly or quarterly basis (depending on the investor). The most common investors are:
- Fannie Mae
- Freddie Mac
- Ginnie Mae
- Mortgage Partnership Finance Programs (FHLB Members)
In March 2023 Fannie Mae made some changes to the Selling Guide that included modernization of the valuation method used to help streamline the loan decision making process as well as sample size updates for the pre-funding reviews to 10% of the prior month’s closings or 750 loans (whichever is less). Additionally, the timeline for completing the post-closing quality control review was adjusted from 120 days to 90 days requiring financial institutions to comply by the September 1, 2023. For example, if the cycle is from September 1 – 30, 2023, the review would need to be completed by December 31, 2023 (90 days from cycle end date). This was designed to make it possible for lenders to identify errors in a timely fashion and prevent future occurrences. However, it has created some challenges within financial intuitions to be able to have the staffing resources to complete these reviews in the shorter timeframe.
There are specific requirements depending on the investor that are detailed in their Selling Guides that need to be included in the post-closing QC reviews and they must be completed independently of the Mortgage origination and underwriting departments. Required elements include, but are not limited to:
- Reviewing the loan file for required closing documentation.
- Review of certain disclosures required by RESPA/Reg Z.
- Timing of the review process.
- Loan sample selection (size - random, statistical, or discretionary).
- Underwriting approval conditions.
- Reverification of assets, credit history, income, employment, and taxes.
- Data integrity, including red flags & social security number.
- Appraisal compliance requirements.
- Management reporting and defect rates.
Bonadio offers Outsourced Mortgage QC services to assist financial institutions in meeting the post-closing QC requirements set by the Investors to ensure the required elements are met, including meeting the new review timelines established by Fannie Mae and any other updates that are made to the Investor’s selling guides. Our reviews can be completed in person if files are not yet paperless or fully remotely using secure technologies to access loan file information. A report is provided to management reporting the results of the review and noting any findings, if applicable, periodically based on the timing requirements of the investor.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.