Gearing up for QC post government shutdown
What does the government shutdown mean for quality control in the longer term? The government has now been partially shutdown for , the longest in our history, with more than 800,000 federal workers affected. Despite efforts on the part of the industry to address multiple issues that have threatened to bring mortgage production to a halt and certainly push default rates back up, both lenders and servicers can expect clean up in numerous areas. Not only has guidance been issued by multiple agencies, some on more than one occasion, but access to critical documentation has been interrupted. From the 4506-T and 4506T-EZ (IRS Tax Transcripts), to the SSA-89 (SSN Validation), and numerous nuances to FHA-insured loans, having confidence in loan quality will require rigorous QC audit practices going forward.
Despite your operational staff’s best efforts, amidst changing guidance, rules, availability of documentation, and borrowers that are acting under distress, the margin for error and risk are way up.The shutdown started during the holiday season, which means many offices were short staffed and information on how to proceed with approvals and loan closings may not have been thoroughly communicated. What QC and audit processes has your team been able to put in place to evaluate files during this timeframe?
Going forward multiple areas should be considered for review that potentially impact loan quality, salability, or create risk of repurchase, to include but not limited to:
Income & Employment – Is income properly and completely documented in all files? Was the January 16th minimum reserve requirement applicable and if so, was it met? If the VOE requirement was waived, were the steps taken to secure the VOE documented? Was a paystub greater than 30 days accepted during shutdown; if yes, was income accurately documented?
Was proper identification in the file? If there was a discrepancy, did any loans close without the SSA-89?
FHA Underwriting – With FHA staff unavailable to underwrite and approve single-family loans, this also means they have not available to answer clarification questions. Did loans close, or were modifications executed, that had unclear interpretation of underwriting guidelines?
In this temporary, yet ongoing scenario, lenders and servicers need to be cognizant of areas that will require special review and audit.Ensuring loan quality, mitigating risk and avoiding fraud are critical means for navigating the possible QC impact of the government shutdown. Now more than ever, it’s important that your organization is partnered with a reputable and experienced QC provider.QMS has been providing boutique due diligence solutions for lenders and servicers since 1994. We understand the nuances of the mortgage business and how unforeseen events, such as a government shutdown, can impact your success. We are here to help you prepare for the possible ramifications going forward, as well as provide a fresh look at your pre-funding and audit practices.Our unique set of solutions includes QC Verify, which fully automates the asset, income and employment verification processes, as well as numerous other tools and audits in the QMS suite.Visit us at to see how our team can help mitigate risk and empower your organization.