To preserve the integrity of the process, all post-closing QC employees (including those related to establishing, monitoring, and enforcing procedures) must be independent of the production, underwriting, and closing departments. If it is not evident that a lender’s organizational structure allows for separation of these functions, the lender’s QC plan must include the rationale for the lack of separation as well as the controls that have been established to mitigate the potential risks associated with the lack of separation of these functions. Additionally, lenders must be able to demonstrate the following in their QC program:
clearly defined testing protocols that are governed by change control and approval authority that support program-level independence, and
documentation at the loan level that supports changes to audit decisions made during the review and rebuttal process.
Lenders must establish minimum requirements for the skill set and expertise of the staff managing and performing the QC file review process, including the QC vendor oversight, as applicable, by documenting minimum job qualifications. Lenders are responsible for ensuring that all individuals conducting QC reviews are adequately trained and have sufficient experience levels relative to the reviews being conducted, including manual underwriting and/or loans processed through any automated underwriting systems utilized by the lender. Lenders are also responsible for ensuring that the reviewers conducting more complex or specialized reviews (for example, appraisals, self-employed borrowers) have the requisite knowledge and experience to do so.
Detailed policies and procedures for the QC file review process must be provided to all employees who will be involved with the QC file reviews.
The lender is responsible for developing and maintaining loan quality standards and developing a QC plan to achieve those standards. Fannie Mae holds the lender fully accountable for its overall QC program and for ensuring that QC loan file reviews comply with Fannie Mae’s requirements, regardless of whether the work is performed by the lender itself or by an outsourced QC service provider. The lender’s contract for services is not a substitute for the lender establishing and maintaining its own QC plan.
The lender must ensure that the QC vendor conducts its reviews in accordance with the lender’s QC plan. The QC vendor must have written policies and procedures detailing its review methodologies, including selections, identification of defects and trends, reverifications, and reporting those results to the lender. The lender must ensure that the vendor’s review staff possesses the qualifications and experience required to provide quality reviews and meaningful analysis, and that the vendor’s policies and procedures align with the lender’s QC policies and procedures and meet Fannie Mae’s requirements.
The lender must fully incorporate the results of the vendor’s reviews into its QC reporting and remediation processes. The lender must have procedures to associate the appropriate severity levels to the identified defects, and to implement corrective actions within the lender’s organization, the same as it would for defects identified by the lender’s own QC staff.
The lender’s QC plan must include processes for reviewing the vendor’s work to ensure that the lender’s requirements and guidelines are applied consistently and that the review results accurately reflect the quality of the lender’s loan originations. The lender must perform a monthly review of a minimum of 10% of the post-closing QC sample reviewed by the vendor to validate the accuracy and completeness of the vendor’s work. The 10% sample must include loans for which the vendor identified defects and for which no defects were identified. This review must be performed by the lender itself, and may not be contracted out.
Reports reflecting the final results of the 10% QC vendor review must be produced on a monthly basis and completed within 30 days following the publication of the final QC management report. Although Fannie Mae does not specify an exact format, the reports must be useful to management in evaluating and monitoring the quality of the outsourced QC service provider. The reports, at a minimum, must include
a description of the sample selected for review,
concurrence rates, and
discrepancies identified by the lender.
The management reports must focus on inaccuracies uncovered in the current month’s review as well as broad trends that are revealed by the vendor QC review process, identifying specific corrective action that is needed.
The table below provides references to the Announcements that have been issued that are related to this topic.