Methods of validating requirements
Prefunding and post-closing discretionary review selection methodologies must be regularly re-evaluated to ensure their effectiveness, and may change frequently as a result of findings from prior reviews or changes in the lender's product mix, staffing, sources of business, or other risk factors.
When the lender sells mortgage loans originated by a third party to Fannie Mae, the lender’s QC process must include additional steps to monitor the quality of third-party originations.
At a minimum, the lender must identify any loans with a defect (loans not in compliance with the or other related contractual terms and agreements) and establish a methodology by which all loans with identified defects can be categorized based on the severity of the defect.
The lender must define the severity levels appropriate to its organization and reporting needs, however, the highest level of severity must be assigned to those loans with defects resulting in the loan not being eligible as delivered to Fannie Mae.
This topic provides an overview of Fannie Mae’s requirements related to the lender’s ongoing assessment of its loan origination activities and associated processes.
(QC requirements that relate to the lender’s servicing activities are described in the An effective QC program is a key component of the lender’s overall control environment.
The lender’s QC process must include mechanisms for monitoring the quality of work performed by employees, contractors, vendors, and other third-parties involved in loan origination, property appraisal, processing, underwriting, appraisal review, and closing functions.
The lender must establish and document a process for identifying a representative sample of loans for QC file reviews for both prefunding and post-closing QC.
A target defect rate must be established that is as reasonably low as possible.The QC program defines the lender’s standards for loan quality, establishes processes designed to achieve those standards, and mitigates risks associated with the lender’s origination processes.Fannie Mae requires the lender to develop and implement a QC program that provides a structure for identifying the deficiencies in the loan manufacturing process and for implementing plans to quickly remediate those deficiencies and underlying issues.The lender’s QC program must include a documented QC plan that outlines requirements for validating that loans are originated in accordance with its established policies and procedures and The lender’s QC program must include a documented QC plan that establishes standards for quality and incorporates systems and processes for achieving those standards.The QC plan, at a minimum, must contain the following information.