A changing perspective on valuation, loan quality, and sweat equity
Fannie Mae is modernizing their approach to doing business issuing changes that begin to highlight a shift in how we do business, and certainly how we conduct quality control. The recent Selling Guide Announcement details how technology and data analytics will be the new norm for determining property valuation versus the historically traditional appraisal process. Fannie Mae has also enhanced file sampling guidance for pre-funding loan reviews and reduced post-settlement quality control review timeframes. Additional updates pertain to sweat equity, seller/servicer eligibility requirements, full file reviews in Condo Project Manager™, HomeStyle Renovation indicators, and some minor verbiage changes to the Guide.
Valuation & Appraisal Modernization
Say goodbye to appraisals as the industry welcomes appraisal waivers as the new norm in determining property value. “Appraisal waiver” will be replaced by “value acceptance” as Fannie Mae begins to affirm the lender-provided value using data and technology. A hybrid version will also be an option whereby value acceptance is coupled with property data. Under this scenario, a third party “data collector” will utilize data on both the internal and external characteristics of a subject property to confirm property eligibility for delivery to Fannie Mae. New construction will have the option of applying borrower/builder attestation letters to verify construction condition. Borrower attestation letters can be used to confirm completion of repairs, with virtual inspection technology as another possible option to verify repairs dependent upon circumstances. These attestation letters are intended to augment the hybrid appraisal process in the absence of an appraisal and certain forms. Updated valuation requirements are set to become available in Desktop Underwriter over the weekend of April 15, 2023.
Enhancing Prefunding & Post-Closing QC
Reduced timelines and heightened expectations are on the horizon for both prefunding and post-closing quality control reviews. Fannie Mae has updated the selection process for lender quality control reviews in order to align industry submission time frames, improve loan quality, and lessen the number of loans requiring lender mediation. This change applies to prefunding QC submissions for the September 1 to September 30, 2023 timeframe. Monthly prefunding reviews should at a minimum total ten percent of the previous month’s closings or 750 loans, whichever is less. Loans selected for review can be comprised of both full file reviews and component reviews that include samples covering all applicable origination channels. Bear in mind that lenders must identify certain target areas that signal greater potential for errors, misrepresentation, and fraud within their selection.
The population of loan reviews selected for post-closing reviews that are a part of the September 1, 2023 cycle, will be subject to a reduced QC timeframe of 90 days, versus the current 120 day requirement. During this new abbreviated 90-day timeframe, file selection, review, rebuttal and reporting must be all be completed. The timeframes for individual component reviews have been eliminated in hopes of assisting lenders in completing QC “as they see fit.”
Tapping Sweat Equity
Did you know that sweat equity is an option under the HomeReady® loan program? Fannie Mae has further defined the circumstances around using sweat equity and how it is calculated. Some limitations have been lifted, including the three percent down payment requirement, and the two percent cap on sweat equity used towards meeting down payment requirements. The calculation of sweat equity has been streamlined so that program providers can use an hourly rate to determine dollar value, simplifying borrower access to sweat equity funds as a source of down payment. This change can be accessed as of the weekend of April 15, 2023.
Further updates include guidance for using Condo Project Manager™ when Full Review is the specified project review method. Fannie Mae is also extending access to CPM to correspondent originators. These CPM changes begin with applications taken on or after July 1, 2023, some restrictions and exemptions apply. Financial requirements impacting seller/servicer eligibility have been refreshed in the areas of minimum net worth, minimum liquidity, and new origination liquidity. Additionally, HomeStyle Renovation loan indicators will need to be identified on specified forms in order to align with Desktop Underwriter®. Lastly, some verbiage has been updated in respect to government loan guaranty and insurance.
At QC Verify we understand that change is inevitable, especially as our industry works under the pressures of fluctuating monetary policy and recessionary fears. Our focus is to enhance your capacity to stay in front of agency and investor updates as a crucial component of managing quality control and compliance risk. By providing an individualized QC experience for your organization, we alleviate time and resources that are better utilized in advancing your origination strategy. QC Verify delivers decades of mortgage audit and QC expertise, leveraging our proven Mortgage Analysis Review Software (MARS) system and our innovative verification solution, and so much more to ensure your success. QC Verify is a boutique due diligence provider that specializes in loan quality audit and reporting, meeting today’s organizational risk needs through sophisticated technology with a human touch.
Visit QC Verify at QCVerify.com to find out how our team of dedicated quality control and audit specialists can help you stay on top of industry changes.