Fannie Mae requires the audit system to review mortgage loan files to evaluate the loan origination and underwriting functions. The review must determine, at a minimum, whether the following requirements have been met:

 

Closing Documents. The audit must review each of the closing
documents for completeness and accuracy, including the:

  • recorded security instrument and any applicable riders or addenda,
  • note
  • mortgage assignment,
  • mortgage insurance certificate or policy,
  • VA loan guaranty certificate, RHS loan note guarantee, or HUD Indian loan guarantee certificate, as applicable,
  • title evidence,
  • plat or survey,
  • Truth-in-Lending Act disclosure,
  • HUD-l uniform settlement statement,
  • evidence of hazard and, if applicable, flood insurance, and
  • any conventional mortgage insurance certificate or policy to determine whether adequate coverage was obtained and that any contingencies specified by the MI were met.

Underwriting Documents. The audit must reverify the accuracy and integrity of the information used to support the lending decision. Documentation that must be reverified includes that initially obtained to provide information about the borrower's employment, income, assets and credit history. For Desktop Underwriter loans, the reverification includes a data integrity review to determine that the data entered into DU was complete and accurate and matches the information in the underwriting file.

 

Income and assets. The review must reverify the borrower's income, employment and asset information directly with the source of the original documentation. Generally, the reverification should be in writing, but verbal reverification may be used if the lender documents the conversation in writing and includes that documentation in the underwriting file. Alternative information sources on the Internet or information available from databases maintained by state or local licensing authorities or other third parties may supplement the reverification procedures.

 

Credit history. The audit must reverify the borrower's credit history by obtaining a new "in-file" credit report from a source other than the original credit reporting agency. This is not necessary for a DU mortgage unless data in the credit report that was evaluated by Desktop Underwriter included significant errors and the lender's underwriter ignored the data errors when he or she evaluated the borrower's credit history outside of Desktop Underwriter. When the borrower's credit history was initially evaluated by using a nontraditional residential mortgage credit report, the lender must reverify each of the credit references on that report.

 

Fraud checks. By using a borrower's social security number, credit report providers can provide fraud checks or fraud alerts along with the "in-file" credit report. A lender should consider using this service to identify invalid or illegally used social security numbers.

 

Data integrity. The audit must reverify the data integrity for a DU-processed mortgage-by checking the information that was entered into Desktop Underwriter for the borrower's name, property address, property type, mortgage term, mortgage type, loan purpose, loan-to-value ratio and the source of the documentation that was used to determine the borrower's ability to repay the mortgage and comparing that data to the information that appears on the actual documents in the underwriting file.

 

Appraisal. For 10 percent of the mortgages selected for review, the lender must reverify the appraisal or property inspection by ordering a review appraisal or property inspection to check the work of the original appraiser. This selection does not have to be the result of a random sampling, rather it may be made on the basis of the relative risk of the mortgage. For the remaining 90 percent of the mortgages selected for review, only a desk review is required.

 

Underwriting. The review determines whether the mortgage was
properly underwritten and that sound underwriting judgments were made. Manually underwritten mortgages must be reviewed for compliance with Fannie Mae's eligibility criteria and underwriting guidelines and standards. The lender also must determine that any conditions the underwriter established were satisfied and that the information on the settlement statement reflects compliance with the closing instructions for the mortgage. Generally, the lender's quality assurance process for mortgages underwritten through Desktop Underwriter is simplified. It will vary depending on Desktop Underwriter's recommendation.