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In April, Fannie Mae® launched a new series of articles dedicated to helping their sellers strengthen their core quality control (QC) governance plans. The first installment covered the importance of a well-defined and thorough Fannie Mae QC Plan. In it, they laid out eight common gaps frequently missing in QC plans they audit.
Below I share all eight and how LoanHD®, LoanLogics’ data-driven loan quality management platform, and audit services that utilize it, address requirements for each area.
Rationale for Target Defect Rate and Severity Levels and Plan to Review Annually – Customizable, real-time reporting gives lenders the ability to accurately drill down on defect rates at any point throughout the year. With these flexible tools, lenders can closely monitor trends and set standards for what best mitigates risk for all parties in the loan lifecycle.
Plan for Adherence to 120 Day QC Cycle & Notification Requirements – Fannie Mae has strict guidelines for the length of the QC process and related reporting. Efficient reviews are possible with LoanHD, because rules-based automation completes a significant portion of audit tests, focusing auditors only on exceptions, From an audit services perspective. Post-Closing results are delivered on a flow basis with complete results within as little as 30 days. Standard SLAs for Pre-Closing results are within 24-48 hours or less.
Documented Sampling Strategy & Outsourced QC Vendor Review – In addition to being able to easily stratify samples to evaluate production quality and evaluate risk, LoanHD also meets the requirements to “Audit the Auditor”. This module makes it easy to automate the review of loans audited by your outsourcing provider to see if the defects found are consistent with your own findings.
Directive to Pay for the Cost of Reverifications –Lenders are required to pay all necessary fees to obtain reverification of income, employment and assets. This must be clearly outlined in a lender’s QC plan to comply with agency regulations. LoanLogics’ audit service practice handles the reverifications on behalf of our clients and then builds the service and ordering fee into our pricing. Those using LoanHD to perform QC reviews with their own staff tend to leverage third-party agencies to perform the reverifications and have contractual arrangements to pay for the service separately. LoanHD makes it easy to track these orders and append them to the loan file for future salability and reporting.
Defined Process for Review of all Documentation – Whether you need to confirm a borrower’s social security or the existence of a critical document, LoanHD leverages our machine learning-powered doc processing to classify all documents in a loan file and extract, verify and validate the data used to perform QC audits. This data purification step delivers a 360-degree view of 99% accurate data compared across documents and systems.
Documented Collateral Risk Assessment Process – LoanLogics implemented the completed Collateral Risk Assessment questionnaire as part of the loan-level reporting package. To address the needs of our audit services clients and ensure tight compliance on this new appraisal change, we are trifurcating the review process (across credit, compliance, collateral), sending this review to a skilled subject matter expert on appraisal theory.
Documented Process for Resubmission of Loans to Desktop Underwriter® (DU®) – In the eyes of Fannie Mae, a good QC plan includes a way to identify, document, and resubmit loans with quality issues. Audit-specific worksheets in LoanHD use the simplicity of a green light to indicate a test has passed and red to signal to auditors that a manual review of loan file data is required during the QC process. Once defects are identified, real-time notifications to responsible parties are sent through the LoanHD Audit Response Center (ARC). This secure web portal, provides a centralized, streamlined rebuttal process. Information and documentation can be shared within the ARC to efficiently clear defects.
Corrective Action Procedures – When it comes to instituting an Action Plan to correct defects, digital tools make the process easy to track and monitor. After identifying the defect, the plan of action, and the staff members in the organization who need to be trained, these tools can allow you to define and record everything from the suspected root cause, targeted percent reduction goals & key dates, to the owner of effort. From there, QC managers can see the success rate of the established trainings by watching the defect rate go south to reach the target goal.
For more on what makes a strong QC Plan and more best practices in loan quality take a look back at some previous LoanLogics blogs or this evergreen one I wrote in 2021.
