Amidst continued market volatility affecting interest rates, production volume and pandemic protections, quality control requirements remain front and center. Errors, misrepresentations, and fraud risk all rise in this type of environment, so it should come as no surprise that we continue to see strengthening of QC requirements. Effective as of May 5, 2021, Fannie Mae is evolving their QC guidance for collateral review and risk consideration.
Fannie Mae Announcement
Earlier this month Fannie Mae released updates to their guidelines for post-closing QC reviews of appraisers and appraisals. Their goal is to incorporate improved access to data and “industry-leading” tools in the collateral space into their appraisal and appraiser QC review requirements. Per Selling Guide Announcement (SEL-2021-4), this consideration comes in the form of an optional Post-Closing QC Collateral Risk Assessment Analysis structure and checklist for review. This does not replace existing guidelines but offers a forward-thinking approach to collateral QC efforts.
The existing guidelines have required an appraisal field review on 10 percent of the loans in the QC review random selection. A desk review has been required on the 90 percent balance of the random sample. Under this new guidance, there is now a collateral risk assessment that must be completed on all loans in the QC random selection. This assessment does not need to be completed by an appraiser. However, if the lender is not able to effectively conduct this assessment, then a desk review or field review should be ordered from a certified or licensed appraiser.
Collateral Risk Assessment & Reporting
Going forward all loans in the QC random sample that include an appraisal must have a collateral risk assessment completed by the lender, or their QC partner. Although the assessment does not have to be performed by a certified or licensed appraiser, the person “must be competent in appraisal theory” and be proficient in their capacity to assess the following checklist items:
Determine if the subject property complies with eligibility requirements.
Evaluate the fitness of comparable sales.
Evaluate the fitness of appraisal report data.
Determine if the rationale used in the reconciliation of value is supported.
Propose corrective actions for defects found in the appraisal process.
If the subject property was scored using Collateral Underwriter (CU), reconcile known flags and messages. – If not scored in CU, reconcile identified quality related messages, alerts, flags, or other issues identified by the corresponding third-party tool(s).
If the aforementioned assessment is not completed or does not result in an appropriate determination of appraisal quality, then a desk review or field review should be obtained from a certified or licensed appraiser.
As a part of the collateral risk assessment, any defects that are identified must be evaluated to determine if the value is not supported and/or the loan is ineligible for sale to Fannie Mae. If the loan is not eligible for delivery, then the lender must self-report as per guidelines.
Incorporating Change
This new Fannie Mae Post-Closing QC Collateral Risk Assessment Analysis review guidance and checklist is specifically designed to help lenders and their QC partners complete an adequate post-closing QC appraisal review. This expansion of policy is effective immediately, but all property eligibility requirements must also be met in order to ensure Guide compliance.
Quality Mortgage Services (QMS) understands the importance of staying abreast of industry regulation and agency guidance to ensure prompt, accurate and thorough post-closing QC and audit practices. Our goal is to assist our clients in not only adhering to guidelines but to understand their intent, as well as their role in the direction of the industry. If your QC partner is not making this extra effort, then we encourage to connect with us. Find find out how a meaningful partnership with Quality Mortgage Services can help your organization rise above the competition in expertise and efficiency.