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 are in compliance with agency and regulatory requirements including the Equal Credit Opportunity Act (ECOA).

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.

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