D1-3-01, Lender Post-Closing Quality Control Review Process (03/01/2023)

The lender’s written QC plan must include processes for evaluating and monitoring the overall quality of the lender’s loan production and its reverification procedures.

The post-closing loan file review process must include a review of the loan to assess the accuracy and integrity of the information used to support the lending decision, the documentation of any defects identified through the review, and an assessment as to whether or not the loan complies with the Selling Guide, all related contractual terms and agreements, and is in all respects eligible for delivery to Fannie Mae.

At a minimum, the review must include an evaluation of

• the accuracy and completeness of the loan application;

• the existence and accuracy of the underwriting documents, including reverifications of underwriting documents, and a data integrity review;

• the underwriting decision to confirm it is supported;

• the output from any third-party data analysis tools;

• the data entered into DU, if applicable;

• the appraisal, if applicable;

• the property eligibility;

• the project eligibility, if applicable;

• compliance with the mortgage insurer’s guidelines, and documentation of adequate mortgage insurance coverage;

• the existence and accuracy of legal, transaction documentation (for example, sales contract), and closing documentation; and

• compliance with all federal, state, and local laws and regulations. (For additional information, see  A3-2-01, Compliance With LawsA3-2-01, Compliance With Laws.)

Loans must be selected for post-closing QC reviews on at least a monthly basis. The entire QC process (selection, review, rebuttal, and reporting) must be completed within 90 days from the month of the loan closing.

Note: Lenders must notify their Fannie Mae account team or QC Specialist if their QC cycle is in arrears more than one 30-day cycle.

Loans must be selected for post-closing QC reviews on at least a monthly basis. Lenders must select loans through both a random and a discretionary selection process. The lender’s written QC plan must include the following information regarding its loan sampling process:

• the types and frequency of selections, and

• a defined process for selecting loans for QC review.

See  D1-1-01, Lender Quality Control Programs, Plans, and ProcessesD1-1-01, Lender Quality Control Programs, Plans, and Processes, for additional information.

The lender must select for its post-closing QC review a minimum of 10% of the loans that it originates or acquires from a third party using a random selection methodology (unless a statistical sampling methodology is used). If 10% is less than one loan, then at least one loan must be selected. The loans selected must be representative of the lender’s overall book of business, including

• all of the different types of loans that the lender offers,

• loans originated by each branch office and by third-party originators, and

• manually underwritten loans as well as loans that were processed through automated underwriting system(s) utilized by the lender.

If the lender uses statistical sampling for its selection process, at a minimum, the statistical sampling model (variables) must be calculated using a 95% confidence level with a 2% precision rate and a statistical statement of six months. (Fannie Mae recommends using a three month statement.) The lender must document the methodology and provide, upon request, a detailed written justification of the methodology, including the following information:

• method for making a statistical selection;

• variables used in the selection model and how they are defined (for example, population size, precision rate, percentage of defect rate, and confidence level); and

• the results of periodic evaluations of the process and variables, and establishment of time periods for the evaluations.

Fannie Mae may require adjustments to the statistical methodology based upon its review.

Discretionary QC samples are a required element for post-closing QC plans. These selections supplement (but do not replace) a lender's random (or statistical) sample. The purpose of a discretionary sample is to look for or highlight areas that may pose unique or elevated levels of risk for the lender or to confirm that a particular control or process is working as intended.

The lender must establish a process for selecting loans for its discretionary post-closing QC selections. The process must take into account the lender’s assessment of the risks inherent in its origination processes, business sources and volume, and product mix, and must be reviewed regularly and, when necessary, adjusted to ensure that the sample selected, including sample size, is appropriate.

Loans selected for post-closing discretionary QC reviews must target areas that the lender identifies as having a higher potential for errors, misrepresentation, or fraud. Targeted areas may include the following:

• loans with characteristics related to errors or defects identified in prior prefunding and post-closing review results;

• loans with complex income calculations (for example, rental income, self-employed, short history of receipt of income);

• loans requiring the use of non-standard processing or underwriting guidelines (for example, delayed financing, multiple financed properties, assets used as income, or manual reserve calculations);

• loans secured by properties located in areas with high delinquency rates or areas experiencing rapid increases or decreases in property values;

• loans with multiple layers of credit risk, such as high LTV ratios, low credit scores, or high DTI ratios;

• loans originated or processed through various business sources, a particular branch office, staff person, contractor, third-party originator, or appraiser;

• loans originated or processed by newly hired loan officers, processors, appraisers, or other personnel or third parties involved in the loan origination process;

• loans that may be subject to concerns about delinquency rates or patterns identified in other reviews; and

• loans for which the feedback or results from third-party tools indicates potential areas of concern.

Note: Fannie Mae requires the lender to sample loans that have a high risk for fraud as part of its QC process. This includes loans that are early payment defaults. (See A3-4-03, Preventing, Detecting, and Reporting Mortgage FraudA3-4-03, Preventing, Detecting, and Reporting Mortgage Fraud.)