News

Denied/Non-Originated Quality Control Reviews

In the mortgage world when you say the words quality control, post closing quality control loan file reviews immediately come to mind. Did you know that non-originated loan reviews are also considered a part of quality control?  Freddie Mac’s Quality Control Best Practices states that as part of your quality control process you should include a random sample of your declined loan applications.  In addition, FHA requires that you review a random statistical sample of rejected applications within 90 days from the end of the month in which the decision was made.   Regulatory Solutions can assist you with these monthly non-originated reviews to ensure you ae in compliance with agency and regulatory requirements including the Equal Credit Opportunity Act (ECOA).

HMDA Scrubs

We are just over half way through the new year under the new Regulation C rules which changed the Home Mortgage Disclosure Act (“HMDA”) reporting requirements.  Have you scrubbed your HMDA data in accordance with the new rules?  If not, let Regulatory Solutions help!  We have developed proprietary HMDA software to assist in the data integrity review of your HMDA data.  Our software produces exception based reports so that you know exactly what corrections need to be made by loan number. The report also provides you with a total number of exceptions and percentages based on data points.  If you are interested in Regulatory Solutions scrubbing your HMDA data, please contact us at 855.734.7655.

Quality Control HMDA Requirements

Did you know that your HMDA data plays an important role when you are selling your loans to various agencies? Do you have the right procedures in place for the 2018 Quality Control HMDA requirements?

Most agencies require the lender to submit various HMDA data points as part of the purchasing process. With the new HMDA regulation that just took effect in January 2018, this means that the expanded GMI will play a key role in the purchasing process for most agencies.  Freddie Mac in particular specifically requires the lender report the GMI, Rate Spread, and HOEPA information for each loan that Freddie Mac purchases.

Fannie Mae, FHA, and Rural Housing require more than just the reporting of HMDA data points. Before these agencies will consider purchasing loans from your institution, you must show that you have procedures in place and are complying with the current HMDA regulation as part of your Quality Control Program. FHA has an additional requirement that the HMDA information that is being reported be accurate.

At Culp QC, a division of Regulatory Solutions we are here to help. We provide in-depth Quality Control reviews, HMDA scrubs and other regulatory services to help you with your compliance needs.

Pre-funding/Pre-closing Quality Control Loan Review – VA and USDA

VA

A pre-funding / pre-closing quality control loan review must include 10% of all VA-guaranteed mortgages each month. As with other quality control policies, there must be procedures in place to notify senior management of any deficiencies found in the course of the review. Also, the quality control plan must establish an effective method for senior management to address and correct these deficiencies. If a pattern emerges from the deficiencies found, then there should be corrective instructions provided to the applicable employee.

The pre-funding (pre-closing) quality control loan plan must also provide a procedure for promptly reporting any violation of a regulation or false statements to the VA. It must also contain procedures for the Lender to remain up to date with any future VA pre-funding (pre-closing) requirements. Like with FHA, the Lender must check that no one involved in the origination or underwriting process is debarred or suspended.

USDA/RHS

USDA/RHS has not established any specifics for a pre-funding quality control loan review process when dealing with RHS loans. Merely that a Lender must have an effective pre-funding review process.

Culp QC, a division of Regulatory Solutions, is available to assist you with your pre-funding/pre-closing quality control reviews. Culp QC, a division of Regulatory Solutions, will provide you with the independent solution you need to ensure your prefunding files are reviewed in accordance with agency guidelines.

Pre-funding/Pre-closing Quality Control Review – FHA

FHA requires that pre-funding (pre-closing) quality control loan reviews should occur each month and that the loans selected for review must have been approved by an FHA Direct Endorsement underwriter before the pre-funding (pre-closing) quality control loan review can take place. According to FHA, the review should be 10% or less of the sample size and the review staff should operate independently from the Lender’s loan production or administration process. If nine or fewer FHA loans were closed during the prior month, then at least one FHA loan must be selected for pre-funding (pre-closing) quality control loan review. FHA also requires that the Lender verify that none of the participants in the transaction are debarred or suspended under an LDP and FHA program.

The following documents must be a part of the pre-funding (pre-closing) quality control loan review: appraisal; mortgage application, eligibility, and all underwriting documents; disclosures and legal compliance; mortgage origination documents; handling of mortgage documents; credit reports (a new report does not have to be ordered); any outstanding debt obligations; verifications of employment and deposit; self-employment information; source of funds; underwriting completeness and accuracy; property flipping restrictions; prohibited restrictive covenants; QM; Loan Estimate; any discrepancies in the loan file; and verification of any condition clearance. The results of the reviews must be reported to senior management on a monthly basis. The feedback that is provided should be used to create Action Plans so as to prevent the same mistakes from happening in the future. Any conflicting information in these documents should be resolved with the underwriter and any discrepancies found have to be resolved before closing. FHA also requires that if any discoveries of fraud or material misrepresentations are found during the review, they should be reported immediately to HUD/FHA.

Culp QC, a division of Regulatory Solutions, is available to assist you with your pre-funding /pre-closing quality control reviews. Culp QC, a division of Regulatory Solutions, will provide you with the independent solution you need to ensure your pre-funding files are reviewed in accordance with agency guidelines.

Pre-funding/Pre-closing Quality Control Review – Freddie Mac

Freddie Mac requires that a Lender establish a pre-funding / pre-closing quality control loan review process that contains a sample selection and provides enough time for reviews to be completed before closing. There must be procedures established to report deficiencies to senior management and to take the appropriate corrective measures. The pre-funding (pre-closing) quality control loan review process must also document the resolution of any defects and should establish procedures for canceling/postponing a closing when the review reveals deficiencies or when the review cannot be completed before closing.

The pre-funding (pre-closing) quality control loan review should include loans that reflect the full scope of the Lender’s products. When selecting loans for review the Lender should make sure to target certain loan samples in order to review the work of new employees, confirm that a new product is being originated in accordance with policies, and to evaluate the work of a particular employee when fraud is suspected. The method in which the Lender chooses their samples should be examined regularly so as to ensure its effectiveness.

For the validation and re-verification process, Freddie Mac requires that the pre-funding (pre-closing) quality control loan review include validation or re-verification of: data entered into Loan Product Advisor; Social Security numbers (unless validated during the loan origination process); income documentation and its calculation; employment; assets required to close or meet reserve requirements; property valuation documentation; adequate mortgage insurance; and whether additional credit was granted and considered when the credit report reveals inquiries within the previous 120 days.

Regulatory Solutions is available to assist you with your pre-funding/pre-closing quality control reviews. Regulatory Solutions will provide you with the independent solution you need to ensure your pre-funding files are reviewed in accordance with agency guidelines.

Pre-Funding/Pre-Closing Quality Control Review – Fannie Mae

According to the Fannie Mae Selling Guide, the Lender should establish a process for selecting loans for pre-funding quality control loan reviews and that those who are performing the review must be completely separate from the loan origination process. When establishing pre-funding quality control loan reviews, the Lender should take into account the risks inherent in its established origination process, volume of loans, and product mixes. The Lender should make sure to include loans that have been identified as having a higher risk for errors or fraud. These could include loans with complex income calculations, that have properties located in an area with a high delinquency rate, and those that were originated or processed by a new loan officer. The method used for the sample loan selection should be regularly reviewed by management so as to ensure its effectiveness.

The pre-funding quality control loan process has to include a review of certain data points and documents for accuracy and completeness. Fannie Mae has stated that a Lender must review: the data entered into an AUS; Social Security Number(s); income calculations and any supporting documentation; employment documentation (this does include verbal verifications); assets needed to close; the appraisal (if one was ordered); and documentation of adequate mortgage insurance coverage. This is just the minimum that Fannie Mae requires to be reviewed and it is up to the Lender to perform a more expansive review if necessary.  Fannie Mae has made a few caveats to this process. If income or assets were validated by DU, then the Lender is not required to perform any recalculations as part of their pre-funding quality control loan review.  Also, it is up to the Lender to ensure that all of the information entered into DU is appropriate and the Lender should investigate any inconsistencies that appear in the loan file.

For reporting the pre-funding quality control loan reviews, the Lender should establish a process to report any defects that were found. This has to include: monthly reporting to senior management; communicating with parties that could resolve these defects; and documenting any resolution of the defects. The reports must have more than just a summary report of all of the findings. They must also contain a description of the sample selection along with any defect trending information.

Culp QC, a division of Regulatory Solutions, is available to assist you with your pre-funding/pre-closing quality control reviews. Culp QC, a division of Regulatory Solutions, will provide you with the independent solution you need to ensure your pre-funding files are reviewed in accordance with agency guidelines.

Regulatory Solutions Acquires Assets of Culp QC, Inc.

Regulatory Solutions LLC is pleased to announce that it has acquired the assets of Culp QC, Inc., a provider of quality control, post closing audit services to the mortgage industry. This transaction will significantly increase Regulatory Solutions’ business as well as its presence throughout the United States. Culp QC will continue to operate as a separate division of Regulatory Solutions under the Culp QC name with offices in Owensboro, Kentucky. Terms are undisclosed.

more: Regulatory Solutions Acquires Assets of Culp QC, Inc.