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Quality Control for Mortgage Origination Policy Manual Table of Contents
TABLE OF CONTENTS............................................................................................................................................ 1 CHAPTER 1 INTRODUCTION ....................................................................................................................... 7
1.1 GOALS AND OBJECTIVES ..................................................................................... 7 1.2 CORPORATE MISSION STATEMENT FOR QUALITY CONTROL
1.2.1 Quality Control Policy .................................................................................................... 7 1.2.2 Quality Control Plan ........................................................................................................ 7
1.3 REGULATORY COMPLIANCE ............................................................................... 8 1.4 REQUIRED REVIEW .............................................................................................. 9 1.5 APPLICABILITY ..................................................................................................... 9 1.6 SEPARATION OF DUTIES ..................................................................................... 9 1.7 EARLY DETECTION WARNING SYSTEM ......................................................... 10 1.8 EMPLOYEE BACKGROUND, RESTRICTIONS, AND DISCIPLINARY
ACTION .................................................................................................................. 11 1.9 CORRECTIVE ACTION AND REMEDIATION ................................................... 11
CHAPTER 2 ACCOUNTABILITY AND MONITORING ......................................................................... 13
CHAPTER 3 STAFF AND TRAINING ........................................................................................................ 15
3.1 ONGOING TRAINING ........................................................................................... 15 3.2 NEW HIRE TRAINING ......................................................................................... 17
CHAPTER 4 PRE-FUNDING QUALITY CONTROL ................................................................................ 18
4.1 GENERAL REQUIREMENTS OF PRE-FUNDING REVIEW .............................. 18 4.2 SOCIAL SECURITY NUMBER VERIFICATION ................................................. 18 4.3 RED FLAG DETECTION ....................................................................................... 18 4.4 ADDRESS DISCREPANCIES ................................................................................ 19 4.5 CREDIT ALERTS AND WARNINGS ................................................................... 19 4.6 FRAUD INVESTIGATION .................................................................................... 19 4.7 PRE-FUNDING EMPLOYMENT VERIFICATION .............................................. 20 4.8 PRE-FUNDING UNDERWRITING OF APPRAISALS ........................................ 20 4.9 PRE-FUNDING REVERIFICATIONS .................................................................. 20 4.10 PRE-FUNDING MANAGEMENT REPORTS AND TRENDING ............................ 21 4.11 THIRD-PARTY ORIGINATORS .............................................................................. 21
4.11.1 Requirements for Quality Control Review of Third Party Originators .... 21 4.11.2 Transfer of Servicing of Third-Party Originations ......................................... 22
CHAPTER 5 FANNIE MAE REQUIREMENTS ......................................................................................... 23
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5.1 LENDER QUALITY CONTROL REQUIREMENTS ............................................. 23 5.2 QUALITY CONTROL PLAN OVERVIEW ........................................................... 24
5.2.1 Quality Control Plan Validation Topics ................................................................... 24 5.2.2 Day 1 Certainty ............................................................................................................... 25
5.3 QUALITY CONTROL PLAN CONTENTS ............................................................ 26 5.4 LOAN QUALITY .................................................................................................... 27
5.5 PRE-FUNDING QUALITY CONTROL REQUIREMENTS ................................. 28 5.6 POST-CLOSING QUALITY CONTROL REQUIREMENTS ................................ 29 5.7 POST-CLOSING QUALITY CONTROL SAMPLING REQUIREMENTS ........... 30
5.7.1 Random Selections and Statistical Sampling ......................................................... 31 5.7.2 Discretionary Sampling ............................................................................................... 31
5.8 ABILITY TO REPAY AND QUALIFIED MORTGAGE REQUIREMENTS ........ 32
5.8.1 ATR Covered Loan Eligibility Requirements ......................................................... 32 5.8.2 ATR Exempt Loan Eligibility Requirements .......................................................... 33 5.8.3 Points and Fees Limitations ....................................................................................... 33 5.8.4 Mortgage Loans with Prepayment Penalties ......................................................... 34 5.8.5 Refi Plus® Higher-Priced Mortgage Loans ............................................................. 34 5.8.6 Qualifying Interest Rate for Seven-Year and Ten-Year ARMs .......................... 34 5.8.7 Retired Product Features ............................................................................................ 34
5.9 RULES FOR DOCUMENT REVERIFICATION ................................................... 34 5.10 RULES FOR NEW CREDIT REPORTS ................................................................... 36 5.11 RULES FOR NEW APPRAISALS ............................................................................. 36
5.11.1 Verification of Appraisals by Field Review ...................................................... 37 5.11.2 Verification of Appraisals by Desk Review ....................................................... 37 5.11.3 Components of the Appraisal Review Process ................................................ 38
5.12 RULES FOR REVIEWING DU UNDERWRITING DECISION ............................... 38
5.13 RULES FOR DATA INTEGRITY CHECK ................................................................ 39 5.14 RULES FOR REVIEW OF CLOSING DOCUMENTS ............................................... 40 5.15 RULES FOR VERIFICATION OF OCCUPANCY ..................................................... 41 5.16 RULES FOR DUE DILIGENCE OF THIRD-PARTY QUALITY CONTROL
PROVIDERS .......................................................................................................... 41 5.17 MANAGEMENT REPORTS ...................................................................................... 41 5.18 RULES FOR MONTHLY REPORTING OF DEFECT RATE ................................... 42
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5.19 DELIVERY CYCLE OF QUALITY CONTROL FINDINGS ...................................... 43 5.20 RECORD RETENTION ............................................................................................. 43 5.21 OUTSOURCING OF THE QUALITY CONTROL PROCESS ................................... 43 5.22 INTERNAL AUDIT OF QUALITY CONTROL PROCESS ...................................... 44 5.23 INELIGIBLE DELIVERY TO FANNIE MAE AND SELF-REPORTING
CHAPTER 6 FREDDIE MAC REQUIREMENTS ...................................................................................... 47
6.1 BASIC ELEMENTS OF FREDDIE MAC’S QUALITY CONTROL PROGRAM .. 47 6.2 RULES FOR DOCUMENTING REVIEWS ........................................................... 48 6.3 REPORTING REQUIREMENTS ........................................................................... 48
6.3.1 Mortgage Sample Selection Documentation .......................................................... 50 6.3.2 Individual Mortgage File Report ............................................................................... 50 6.3.3 Summary Report of Individual Findings ................................................................. 50 6.3.4 Reporting of Quality Control Findings to Affected Areas .................................. 50 6.3.5 Regular Report of Quality Control Findings to Senior Management .............. 50 6.3.6 Management’s Response to Quality Control Findings ........................................ 51 6.3.7 Fraud and Other Suspicious Activity Report ......................................................... 51 6.3.8 Corrective Actions Status Report .............................................................................. 53 6.3.9 Report to Investors, Mortgage Insurers, or Government Agencies ................ 53 6.3.10 Tracking, Trending, and Special Reports .......................................................... 53
6.4 RETENTION OF QUALITY CONTROL RECORDS ............................................ 54 6.5 PRE-CLOSING REVIEWS ..................................................................................... 54
6.8.1 Rule for Document Reverification ............................................................................ 58 6.8.2 Verifications of Employment, Income, and Sources of Funds .......................... 59 6.8.3 Social Security Number Validation ........................................................................... 59 6.8.4 Credit Reports ................................................................................................................ 60
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6.9 RULES FOR NEW APPRAISALS ......................................................................... 61 6.10 RULE FOR DATA INTEGRITY REVIEW................................................................ 62 6.11 RULE FOR CLOSING DOCUMENTS REVIEW ....................................................... 63 6.12 LOAN QUALITY ADVISORSM AND RESUBMISSION ........................................... 64 6.13 FREDDIE MAC POST-FUNDING QUALITY CONTROL REVIEW ....................... 64
7.4 DATA INTEGRITY ................................................................................................ 78
7.4.1 Referred Applications .................................................................................................. 78 7.4.2 Overrides .......................................................................................................................... 78
7.5 SALE AND TRANSFER OF LOANS ..................................................................... 79 7.6 SUMMARY OF QUALITY CONTROL REQUIRED ELEMENTS ........................ 79
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CHAPTER 8 VA REQUIREMENTS ............................................................................................................. 81
8.1 REQUIREMENTS FOR VA AUTOMATIC LENDER AUTHORITY ................... 81
8.1.1 VA Quality Control Audit Program ........................................................................... 81 8.1.2 VA Quality Control Plan Elements ............................................................................ 81 8.1.3 Procedures and Access to Regulations .................................................................... 81
8.2 SITE REVIEW REQUIREMENTS ........................................................................ 82 8.3 REPORTING AND CORRECTIVE ACTION ........................................................ 82 8.4 REQUIREMENTS FOR ADEQUATE QUALITY CONTROL SCOPE ................. 82 8.5 RULES FOR REVIEWING THE LOAN FILE ....................................................... 83
CHAPTER 9 MORTGAGE PARTNERSHIP FINANCE PROGRAM REQUIREMENTS .................... 85
9.1 QUALITY CONTROL PROGRAM REQUIREMENTS ......................................... 85 9.2 USE OF THIRD-PARTY QUALITY CONTROL SERVICES ............................... 87 9.3 QUALITY STANDARDS AND MEASURES ......................................................... 87 9.4 SAMPLE SELECTION ........................................................................................... 88
9.4.1 Pre-Closing Quality Control Sample ......................................................................... 89 9.4.2 Post-Closing Quality Control Sample ....................................................................... 90
9.5 EARLY PAYMENT DEFAULT MORTGAGES ..................................................... 91 9.6 ORIGINATION DOCUMENTS TO REVIEW ....................................................... 91
9.6.1 Reverifications Made by Vendor ............................................................................... 92 9.6.2 Verifications of Employment and Income .............................................................. 92 9.6.3 Source of Funds .............................................................................................................. 93 9.6.4 Credit Reports ................................................................................................................ 94 9.6.5 Owner Occupancy .......................................................................................................... 94 9.6.6 Review Appraisals ......................................................................................................... 94 9.6.7 Verification of Excluded Parties ................................................................................ 95
9.7 PRE-CLOSING DATA VERIFICATION ............................................................... 96 9.8 POST-CLOSING VERIFICATION ........................................................................ 96 9.9 CLOSING DOCUMENTS REVIEW ....................................................................... 97 9.10 REPORTING REQUIREMENTS .............................................................................. 98 9.11 RETENTION OF QUALITY CONTROL RECORDS ................................................ 99
CHAPTER 10 USDA RURAL DEVELOPMENT PLAN REQUIREMENTS .......................................... 100
10.1 BASICS OF USDA QUALITY CONTROL PLAN .................................................. 100 10.2 FRAUD DETECTION AND PREVENTION .......................................................... 100
CHAPTER 11 BEST PRACTICES—POST-FUNDING QUALITY CONTROL GENERAL PROCEDURES ...................................................................................................................... 102
11.1 UNIFORM RESIDENTIAL LOAN APPLICATION SIGNATURES AND COMPLETION .................................................................................................... 102
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11.2 VERIFICATIONS AND OTHER SIGNATURE FORMS ....................................... 102 11.3 COMPLIANCE FORMS .......................................................................................... 103 11.4 CLOSING DISCLOSURE ........................................................................................ 103 11.5 REVIEW OF LOAN DOCUMENTS........................................................................ 104 11.6 TITLE CERTIFICATION AND REPORT ............................................................. 106 11.7 HAZARD INSURANCE .......................................................................................... 106 11.8 PROPERTY APPRAISALS: DESK REVIEW ........................................................ 107 11.9 ANALYSIS OF THE FIELD REVIEW APPRAISAL ............................................. 108 11.10 PLOT PLAN OR SURVEY ...................................................................................... 108 11.11 FLOOD AND ENVIRONMENT.............................................................................. 108 11.12 REVIEW AND REVERIFICATION OF BORROWER FUNDS ............................ 109 11.13 REVIEW AND REVERIFICATION OF BORROWER CREDIT/OBLIGATIONS109 11.14 REVERIFICATION OF BORROWER INCOME ................................................... 110 11.15 RISK RATINGS OF QUALITY CONTROL EXCEPTION ITEMS ........................ 111 11.16 DOCUMENTING EXCEPTION ITEMS ................................................................. 112 11.17 REMEDIATION OF EXCEPTION ITEMS ............................................................ 112 11.18 TRENDING REPORTS BY ORIGINATOR OR TPO ........................................... 113 11.19 TRENDING REPORTS BY SETTLEMENT AGENT ............................................ 113 11.20 TRENDING REPORTS BY PROPERTY APPRAISER ........................................ 113 11.21 AGENCY/INVESTOR PENALTIES ....................................................................... 113
CHAPTER 12 BEST PRACTICES FOR EXPANDED QUALITY CONTROL ....................................... 115
12.1 CONTROL POINT #1—QUALITY CONTROL PLAN ELEMENTS ................... 115 12.2 CONTROL POINT #2—INTERNAL AND THIRD-PARTY DATA AND FRAUD
TOOLS ................................................................................................................. 115 12.3 CONTROL POINT #3—UNDERWRITING AND ELIGIBILITY ........................ 116 12.4 CONTROL POINT #4—PRE-FUNDING QUALITY CONTROL ........................ 117 12.5 CONTROL POINT #5—PRE-CLOSING DOCUMENT REVIEW ........................ 118 12.6 CONTROL POINT #6—REPORTING ................................................................. 119 12.7 CONTROL POINT #7—ACTION PLAN FOR REMEDIATION/CORRECTION
OF ERRORS ........................................................................................................ 119 12.8 CONTROL POINT #8—RECORD RETENTION ................................................. 120
CHAPTER 13 BEST PRACTICES—QUALITY CONTROL REPORTS ................................................. 122 CHAPTER 14 APPENDIX ............................................................................................................................. 124