Fannie Mae has just announced a change in their mortgage insurance forms. Any loan with mortgage insurance that is sold or securitized by Fannie Mae must be insured using one of the new approved forms. This will take effect on any loan application that was taken on or after March 1, 2020. Fannie Mae has stated that if an application taken after that time with mortgage insurance is insured under any previously approved form, it will not be eligible for delivery and will be subject to repurchase. There is an exception to this change. Loans that are refinanced into a High LTV Refinance loan may continue to be insured under the previously approved form. However, if a new mortgage insurance certificate is issued, then this exception does not apply.
On July 25, 2019, the CFPB issued an advance notice of proposed rulemaking looking for feedback on the expiration of the temporary GSE patch. This patch specifically grants Qualified Mortgage status to loans eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac. As it stands, the GSE patch will end in January 2021 and the CFPB has stated their intention to let it expire. Along with announcing the expiration of the GSE patch, the CFPB is asking for feedback as to whether the definition of a Qualified Mortgage should be revised.
The full text of the advance notice with instructions on submitting feedback can be found here: https://files.consumerfinance.gov/f/documents/cfpb_anpr_qualified-mortgage-definition-truth-in-lending-act-reg-z.pdf
Fannie Mae recently updated its Selling Guide with announcement SEL-2019-03 which includes the requirement that lenders notify Fannie Mae using the self-report functionality in Loan Quality Connect within 30 days if the lender’s post-closing quality control cycle is in arrears more than one 30-day cycle. Fannie Mae requires that mortgage loan post-closing quality control reviews must be completed within 120 days from the month of the loan closing. If you need assistance in meeting this timing requirement, please contact Regulatory Solutions for all your post-closing quality control needs.
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.