Selling Guide

Published October 2, 2018

Overview

The lender must verify the accuracy and integrity of the information used to support the lending decision for any mortgage loans selected for a QC review. All reverification documentation must be retained either in the underwriting file or in the lender’s QC records. The lender’s QC plan must document where the reverifications will be maintained.

When the reverifications are performed by an outsource vendor, it is acceptable for the reverification documentation to be maintained with the vendor rather than in the underwriting or QC files. In such cases, the vendor must provide the lender with the results of the reverification findings, which must be accessible to the lender along with the reverification documentation for at least three years from the date of the review and must be provided to Fannie Mae upon request.

When information obtained through the reverification process differs from the information utilized in the underwriting of the loan, the lender must re-underwrite the loan to verify that the loan remains eligible as delivered to Fannie Mae.

Review of Underwriting Decision and Approval Conditions

The lender must confirm that the mortgage loan was underwritten in accordance with Fannie Mae’s requirements and that adequate support for the underwriting decision is contained in the loan file.

The lender must confirm that all loan approval conditions required by the underwriter were satisfied and that the information on the closing documents, including the settlement statement, is consistent with the underwriting decision and the final terms of the mortgage loan.

Review of DU Findings and Conditions

For loans underwritten through DU, the lender must confirm that all DU Verification Messages/Approval Conditions that appear in the DU Underwriting Findings report were satisfactorily resolved and adequately supported by appropriate documentation. If DU returned an Ineligible recommendation, the reviewer must confirm that the loan was eligible for delivery to Fannie Mae.

For additional information on circumstances under which an Ineligible recommendation may be acceptable, see B3-2, Desktop Underwriter (DU).

General Requirements for Reverifications

When conducting the required post-closing QC reviews on loans selected through the random selection process, the reverifications or reviews noted below must be performed for all selected loans.

As part of its discretionary loan selection process, the lender may choose to make targeted loan selections designed to focus solely on a specific element of the loan, such as product, business source, or underwriting component (for example, income and employment, assets, credit, or property).

When conducting the required discretionary post-closing QC reviews, the lender must consider the purpose of the targeted selection when determining whether certain reverifications are necessary. For example, if the purpose of the targeted selection is to focus specifically on income calculations, reverification of assets or a review of the appraisal is not within the scope of the review and is not required to be completed; however, reverifications of income and employment are required. If the purpose of the targeted selection is to review loans originated through a new source of business, then all areas of the loan are in the scope of the review and all reverifications noted below must be performed. The lender must assess the purpose of the targeted loan selection and conduct the reverifications or reviews noted below as appropriate.

Use of IRS Request for Transcript of Tax Return Form 4506-T in the Lender's QC Plan

Fannie Mae requires lenders to include the requirement to submit the IRS Form 4506-T to the IRS (or designee) in their written QC plan. For all loans reviewed through the random selection process (and for loans selected through the discretionary selection process, as applicable), the post-closing QC review must include the lender's submission of the IRS Form 4506-T to the IRS (or designee) to request tax transcripts.

Transcripts must be obtained for all income types used in the underwriting process (personal and business, if applicable). If tax returns were required in the underwriting of the loan, the lender must obtain transcripts for the same tax years as documented by the borrower’s tax returns. The lender must reconcile the transcript information received from the IRS with the income documents in the loan file. See B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T, for detailed information.

The following exceptions apply:

  • Lenders that obtain the appropriate IRS transcripts during their pre-closing process (processing and underwriting) may use the same documents in their post-closing QC process without ordering new transcripts.

  • Lenders are not required to obtain tax transcripts for a borrower when all of that borrower’s income was validated by the DU validation service.

Reverification of Borrower Income, Employment, and Asset Information

For all loans selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include reverification of the borrower’s income, employment, and asset information.

The lender must reverify the borrower’s income and employment information directly with the source of the original documentation. The reverification should be in writing; however a verbal reverification is acceptable provided the lender documents the conversation in writing, stating the name, title or position, and contact information of the interviewee. The reverification documentation must be maintained in the underwriting file. If the employer does not provide verification of a borrower’s income, the loan file must be documented to state the date the information was requested, but that it was not obtained. Reverification procedures may be supplemented with alternative information sources available on the Internet, maintained by state or local licensing authorities, and other third parties.

The following exceptions apply:

  • If, during origination, the lender verified retirement and disability Social Security income by obtaining proof of current receipt (that is, bank statements showing direct deposit of the income into the borrower’s account), then the lender is not required to reverify the income with the Social Security Administration (SSA). If, however, verification of this income at origination was with a copy of the SSA award letter, then reverification directly with the SSA is required.

  • If income or employment for an individual borrower was validated by DU, reverification of the validated income and employment (and recalculation of the validated income) is not required.

  • If assets were validated by DU, reverification and recalculation of the validated assets is not required.

Fannie Mae recognizes that reverification of asset information directly from the borrower’s financial institution may not be possible in all instances. Fannie Mae requires that the lender attempt to reverify the borrower’s assets (including, if necessary, incurring any fee that the financial institution may charge to provide a reverification of assets) and reconcile the information from the financial institution with information in the underwriting file. If the reverification of asset information cannot be obtained from the financial institution, the lender should document its attempt in its QC records.

Reverification of Borrower’s Credit History

For all loans selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include reverification of the borrower’s credit history.

If a borrower’s credit was evaluated by using a traditional credit report, the lender must reverify the borrower’s credit history by obtaining a new tri-merge credit report. The new report does not need to include trended credit data even if reflected on the credit report used for underwriting purposes. Lenders are not required to analyze trended credit data in the new credit report.

If a borrower’s credit history was evaluated by using nontraditional credit or a nontraditional mortgage credit report, the lender must reverify each of the credit references on that report. If the lender obtained written references from creditors, the lender’s QC review process must include reverification of each of the credit references.

The liability information obtained on the new credit report must be reconciled against the credit report or references used at the time of underwriting the loan to identify any discrepancies or the existence of any debt that may not have been taken into account when the loan was underwritten. The lender must also review any “potential red flag” messages appearing in the DU Underwriting Findings report or alerts created by sources other than DU associated with the credit report to ensure all messages have been addressed and documented, and that the loan is eligible for sale to Fannie Mae.

Verification of Owner-Occupancy

For all loans secured by a principal residence that are selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include verification of owner-occupancy. The lender must review the property insurance policy and other documentation in the file (for example, appraisal, income tax returns or transcripts) to confirm that there are no indicators that the property is not the borrower’s principal residence.

Related Announcements

The table below provides references to the Announcements and Release Notes that have been issued that are related to this topic.

Announcements and Release Notes Issue Date
Announcement SEL-2017–02 February 28, 2017
Announcement SEL-2016–09 December 6, 2016
Announcement SEL-2016–08 October 24, 2016
Announcement SEL-2016–04 May 31, 2016
Announcement SEL-2015–13 December 15, 2015
Announcement SEL–2014–10 July 29, 2014
Announcement SEL-2013–05 July 30, 2013
Announcement SEL-2013–04 May 28, 2013
Announcement SEL-2012–07 August 21, 2012
DU Version 9.0 July 24, 2012
Announcement SEL-2012–01 January 31, 2012
Announcement SEL-2010–03 March 29, 2010