Earlier this month Fannie Mae released new updates to the Lender Quality Control section of the Selling Guide. Lenders have the option to incorporate changes immediately; however, at a minimum requirement updates pertaining to QC independence and statistical sampling must be implemented as a part of lender QC plans by January 1, 2020. Fannie Mae states that their objective is to “help clarify our intent and to provide flexibility to lenders”. These updates and accompanying clarification are predominately derived from lender feedback, and not only touch on QC independence and post-closing file sampling, but to the reverification process and staffing requirements tied to QC file review as well.
Most, if not all, of these QC updates and clarifications that are made a part of the Selling Guide are related to QC vendors. This means that, lenders need to not only understand the changes, but also take into consideration their oversight of these processes. The general parameters of the recent requirement updates speak to statistical sampling and the reverification of certain types of income; however, additional guide clarification has also been provided by Fannie Mae at this time. Details on both follow:
Statistical Sampling Update
Fannie Mae has changed requirements for statistical sampling variables and methodology, setting new minimums of 95% confidence, 2% precision rate and a statement period of 6 months, with a recommendation of 3 months. The lender’s sampling methodology must be thoroughly understood by the vendor to make certain they don’t under-sample.
Income Reverification Update
Both Social Security income and military income reverification have been eased. Social Security income can be reverified with executed tax transcripts after one full year of receipt. Military income no longer requires reverification directly through the U.S. military if it was documented at origination using a Leave and Earnings Statement (LES).
Clarification of Reverification Requirements
A number of reverification requirements have been clarified by Fannie Mae, to include requiring lenders to pay reverification fees directly to the original source of the information, and necessitating the reverification for sources of down payment, closing costs and reserves directly with the original documentation provider. This is applicable specifically to asset reverifications, bank statements that require additional fees, and third party employment validation services such as The Work Number and others. Reverification rep and warrant relief must comply with existing guidelines, in particular verifying adherence to the DU close-by date. In terms of reverifying information on IRS tax transcripts, lenders and vendors are instructed to refer to the corresponding job aid for specific detail.
Clarification of QC Staffing
Fannie Mae has provided information on their expectations in terms of QC staffing and the outsourcing of QC processes. Lender QC plans must include specific minimum requirements in terms of process management and vendor oversight. Lenders must also ensure that vendors reverify relevant QC data and documentation as outlined in their QC plan. Additionally, related QC reports must be issued 30 days after completion of final QC management reports.
Clarification of QC Independence
Specific details have been clarified to assist lenders in documenting “independence” in their QC plans. Methods must be taken to ensure tasks are completed in an unbiased manner at all levels. This includes a detailed testing protocol with documented change management parameters and review. Furthermore, the lender must define “acceptable means” for completing reverification in their QC plan, QC files must include documentation on successful rebuttals for up to three years, and requirements for affirmative action statements must be made a part of annual QC audit results.
With substantive changes continuing to be issued by Fannie Mae, as well as other agencies and investors, lenders need to be certain their QC vendors are positioned to go beyond checking the check box. QC vendors need to be professional and experienced, but also need to understand your business nuances so they can interpret changes to requirements and guidance in a manner that takes your culture, as well as your staffing and technical expertise, into consideration. QMS prides itself on offering a unique approach to quality control that augments the aspects of your lending institution that are most meaningful.
QMS, the mortgage quality control and audit technology solutions company, is no stranger to mortgage QC. We’ve been helping the mortgage industry stay abreast of quality control and audit requirements for over 20 years. Leveraging not only our background in the industry, but also offering superior technology through the Mortgage Analysis Review Software, MARS system, we offer personalized and sophisticated solutions for today’s QC requirements.