Fannie Mae requires the audit system to review third party originations. A third-party origination is any mortgage that is completely or partially originated, processed, underwritten, packaged, funded or closed by an entity other than the lender that sells the mortgage to Fannie Mae (or an affiliate of the lender). Generally this means a mortgage broker or correspondent.

 

Risk management procedures. The lender must use effective third-party risk management procedures including a:

  • system for evaluating and approving third-party originators,
  • method for verifying and periodically reverifying a third-party originator's compliance with applicable laws related to licensing and qualifications for originating mortgages,
  • method for confirming that a third-party originator complies not only with its contract with the lender, but also with the terms of the lender's contract with Fannie Mae,
  • requirement that a third-party originator have a written QC plan,
  • process for resolving identified QC discrepancies and tracking remedial actions taken,
  • requirement for submitting periodic reports on activity and
    performance issues,
  • standards for evaluating a third-party originator's performance and
  • provisions for suspending or terminating the relationship.

Inclusion in regular QC audit sampling. The audit must include a representative sample of the mortgages received from the third-party originator. A lender may use any combination of pre-closing or post-closing audits based on its specific needs. If a lender uses several third-party originators, the review may be based on its total universe of third-party originations and need not be applied to each individual third-party originator.

 

Inclusion in discretionary QC audit sampling. The audit should include the discretionary selection of some of each third-party originator's production, based on the location of the security properties, the loan-to-value ratios for the mortgages, the mortgage product types, the borrowers' credit scores and the third-party originator's past performance.

 

Annual review of financial statements. The lender must conduct an annual review of the third-party originator's financial statements to determine that it is financially viable and capable of meeting its contractual obligations.

 

Annual review of mortgage performance. The lender should conduct an annual review of the performance of mortgages originated by the third-party originator paying particular attention to delinquencies, foreclosures and early payment defaults.

 

Retain documentation for QC reviews. If the selling lender assigns the servicing of its third-party originations to another Fannie Mae-approved lender, it must either retain sufficient documentary evidence to enable it to complete a subsequent QC review or make arrangements with the mortgage servicer to assure that it has access to any files required for the review.