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Staying abreast of COVID-19 Quality Control guidance

Quality Mortgage Services (QMS) continues to focus on helping our clients and prospects stay on top of the rapidly changing flexibility in guidelines offered as a part of COVID-19 relief. Building on the QC requirements that were highlighted in our previous COVID-19 blog, the agencies have recently shared additional guidance to help clarify lender QC expectations. This information has been disseminated as a part of FAQs from Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). Additionally, the Veterans Administration (VA) has provided further guidance in terms of valuation practices.

As origination guidance invariably evolves for COVID-19 originations and related quality control requirements are updated, staying abreast of changes across multiple investors and product lines is critical to ensuring overall compliance and risk management. To assist in navigating this volatile point in time, highlights from the most recent updates to agency QC guidelines, including links to the underlying publications, are provided below:

FAQ covering multiple areas of selling under COVID-19, offering quality control clarification on LL-2020-03 (last updated 04/14/20).

  • For the most part, guidelines offered in response to COVID-19 are not mandatory but are provided in order to extend flexibility, including reverifications and field reviews.

  • Third-party QC providers should adhere to flexibilities based on guidance from the lender.

  • Fannie Mae offers a checklist for use in lieu of a field review when conducting QC reverification reviews of appraisals.

  • In the absence of 4506-T tax transcript availability, lenders must track reverification efforts as well as complete a “special discretionary” sampling (Re: LL-2020-03).

  • Lenders are asked to prioritize sampling under 4506-T guidelines based on transcript expiration date.

  • “Special discretionary” samplings do not have a specific size requirement, but are expected to be “meaningful relative to the risk evaluation”

  • Once 4506-Ts are again available through the IRS, corresponding loans must be removed from special sampling selections.

Continued guidance for selling under COVID-19, including temporary flexibility regarding seller’s post-funding quality control requirements for targeted sampling (Bulletin 2020-11, dated 04/14/20).

  • Additional permissible QC flexibility is being offered for loans identified as impacted by COVID-19 (Re: Section 3402.4(b))

  • Mortgages that are 60+ days past due during the first six months post Note date are permitted flexibility in terms of targeted sampling.

  • Lenders may select a risk-based sampling that represents mortgages past due based on COVID-19 hardship as opposed to all mortgages that meet this early term 60+ delinquency criteria.

  • There is no change in review scope for COVID-19 risk-based post-funding QC sampling. Special attention should be given to fraud and deficiency determination.

  • Freddie Mac specifically calls out that lenders should only opt for flexibility if needed.

Questions and Answers for COVID-19 covers a number of requirement areas, section F extends to Quality Control, Oversight and Compliance (last updated 04/14/20).

  • FHA will continue to conduct lender monitoring, including loan reviews, throughout the COVID-19 national emergency timeframe.

  • All reviews will be conducted remotely as on-site reviews are suspended at this time.

Although not specific to QC, the Department of Veterans Affairs (VA) issued Circular 26-20-13 subsequent to our last blog, which updates valuation requirements under COVID-19 (updated as of 04/10/20).

Although some of these updates do not call out detailed QC requirements, lenders and their QC partners will need to continue to collaborate on best practices in verifying, auditing and reporting on adherence to temporary flexibilities under COVID-19. In most instances, rep and warrant relief is not available from the GSEs, insurance or loan guarantee is also not a sure thing under COVID-19 guidelines.This scenario creates an even greater need for quality control.

QMS has been an industry staple for a number of decades, growing out of industry expertise developed in response to the S&L crisis, evolving to meet industry needs through the Great Recession, QMS is uniquely positioned to assist lenders in understanding and meeting the challenges of compliance under COVID-19.

If your organization is feeling overwhelmed, or if you’ve begun to lose confidence in your current QC provider, we would welcome the opportunity to show you the QMS difference. As a boutique full-service risk management and mortgage compliance solutions company, we encourage you to connect with us to learn more about our exceptional set of solutions designed to support your quality control and audit needs, including pre-funding, pre-purchase due diligence, post-closing and early payment default, as well as numerous other tools and audits. QMS is a dedicated member of the Mortgage Bankers Association (MBA), committed to both the industry and our valued customer base in meeting the challenges of COVID-19.

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