Every Fannie Mae lender must have a quality assurance system in place—and must agree that the system will function for as long as the lender continues to do business with Fannie Mae. Major components of the system include:

 

Verifying documentation. The quality assurance system must verify the existence and accuracy of legal documents, credit documentation and property appraisals that a lender uses to reach its underwriting decisions.

 

Written QC plan. A lender must have a written plan with a general overview of its policies on quality assurance, its commitment to quality assurance, the plan objectives and the specific risks that will be monitored and managed.

 

Full scope of origination. The plan must cover the full scope of the lender's mortgage originations—all channels of production, all mortgage products, all underwriting methods, all employees involved in the origination process as well as all vendors or contractors involved in the origination process.

 

Acquired Desktop Underwriter loans. Where a lender acquires Desktop Underwriter-processed mortgages from other lenders, its QC system should include appropriate verifications to assure that any conditions specified in the underwriting findings report have been satisfied and to confirm that the data from the closed mortgage agrees with the documents and all DU reports in the transferred underwriting file.

 

Independence of QC staffing. All QC operations and the staff that is responsible for managing the QC system must be independent of the production, underwriting and closing departments. A lender may outsource some of the quality assurance processes to a third party contractor.

 

Third party QC. Any QC contractor must have a general understanding of automated underwriting systems. The QC plan must include guidelines for monitoring and measuring the quality of a contractor's work to assure that it satisfies the lender's requirements and Fannie Mae's. The lender must have staff and procedures to evaluate the work product of the contractor and take appropriate action based on the contractor's findings.

 

QC Training. The lender must properly train employees and provide detailed standard operating procedures to all employees who will be involved with, or affected by, the quality assurance system.

 

Mortgage selection process. The plan must set out a process for selecting mortgages for QC review. Fannie Mae recommends that it include provisions for both random and discretionary selections and encourages including in the sampling not only new production, but also distressed mortgages such as those with early payment defaults.

 

Random selections. A lender must select a 10 percent random sample of the residential mortgages that it originates or acquires from a third party. The mortgages selected must be representative of the lender's overall book of business, include the different types of mortgages that the lender offers and represent mortgages originated by each branch office or by third-party originators, automated underwriting systems and electronic commerce. A lender may use statistical sampling instead of the 10 percent sampling method.

 

Targeting loans for review. A lender must always use discretionary selections to supplement random selections. Discretionary selections may relate to higher-risk mortgages such as those that involve:

  • unusual or unique processing, underwriting, or appraisal techniques,
  • mortgages processed by a particular branch office, staff person, contractor, third-party originator or appraiser, if there is concern about patterns that have been identified in other reviews or about delinquency rates, or
  • mortgages secured by properties located in areas that have high delinquency rate.

Frequency of review. A lender should select mortgages for QC
review on at least a monthly basis and the reviews generally should be completed within 90 days of the selection.

 

Reporting. The plan should set out the method and timing of reporting review findings as well as procedures for maintaining accurate and detailed records of the results of the reviews and documenting all corrective actions taken. The results of QC reviews should be reported to management on a regular basis, preferably within 30 days after a review is completed.

 

Corrective measures. The procedures should ensure that all significant issues identified through the QC review process are satisfactorily resolved. If an issue significantly affects Fannie Mae's risk for a mortgage, the lender must notify Fannie Mae immediately and then provide a written report of the findings and corrective actions being taken to its lead Fannie Mae regional office within 30 days.