Originating & Underwriting

Beyond the Guide

How to get the most from your quality control program

Beyond the Guide provides a road map for compliance with Part D of the Fannie Mae Selling Guide, “Ensuring Quality Control.” Released as a companion to the Selling Guide, Beyond the Guide leads you past the minimum requirements of the Selling Guide by diving deeper into best practices from Fannie Mae and across the industry.

It’s designed to help your organization achieve a higher level of efficiency and effectiveness from your QC program while keeping eyes on the future. This edition of Beyond the Guide combines more than a decade of industry learnings and observations. It includes practical illustrations to provide the necessary tools to facilitate a best-in-class QC program.

Beyond the Guide Table of Contents

We at Fannie Mae remain firmly committed to partnering with lenders to drive loan quality. We hope you find this updated Beyond the Guide helpful in managing your risk and meeting our QC requirements. Please also take advantage of the other resources we provide on our Loan Quality page.

Getting the foundation right is key to any successful endeavor.

Whether building a house or a business, you need plans and specifications, competent workers, satisfactory inspections and tests, and a method to confirm the finished product complies with the original requirements. A successful quality control (QC) program requires defining, documenting, and building the foundational plans, processes, disciplines, and oversight. This ensures it is effective in guarding the lender and its investors against costly gaps in controls.

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Prefunding QC is a foundational element of an effective QC program.

Fannie Mae provides tools, like this guide and our Quality Insider articles, among other things, that enable you to move your quality control (QC) program to the next level. Reimagining your prefunding QC (PFQC) is a logical starting point. Lenders with a deliberate and strategic method of pulling suspected quality issues forward to PFQC can make timely changes to loans moving through the pipeline. This approach yields tangible benefits by correcting quality issues before closing and reducing costly risk exposure. Only PFQC can effect change before mistakes are final and material impacts to both the borrower and the business are realized!

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Post-closing QC is an essential process and key to understanding a lender’s quality risk.

The process answers the question, “Is the loan you closed the loan you thought you closed?” If that answer is “no”, it is the lender’s responsibility to evaluate the severity of the issue and determine if the loan was not eligible to be delivered to the investor. A key part of the quality control (QC) process is also to provide information to eliminate errors on future production. QC results are a critical input to find and correct systemic issues within loan manufacturing. This work can positively impact loans in the origination pipeline and help discover other issues that pose risk.

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One of the objectives of QC is to identify and reduce fraud and misrepresentation that can occur with any loan purpose or type.

Red flag awareness is needed throughout an organization – from strategic and broad scale (digital testing of entire book) to tactical (loan-level). Staying alert for red flags through multiple methods and tools is critical. Red flag identification should be part of both post-closing and prefunding QC (PFQC) processes, but PFQC is uniquely positioned to support production teams in identifying and remedying these defects.

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Focusing primarily on credit aspects of loan files and minimizing appraisal reviews can result in a significant loan quality gap.

When looking at industry collateral QC processes and the results of lender reviews, there is a significant difference between how many in the industry perform collateral quality control and Fannie Mae’s view of collateral quality risk. Acceptable and adequate collateral is a critical element of a quality loan. Accordingly, the appraisal/collateral assessment is a critical component of QC reviews.

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QC reporting is the primary way QC aggregates loan-level results to tell the story of how an organization’s loan manufacturing process is performing.

The Selling Guide states, “QC reports are a critical component of the QC program.” Prefunding and post-closing reports should reflect review outcomes, provide reliable data that drive manufacturing improvements, and identify potential future challenges for the organization’s management. A QC program without effective reporting is like driving without a map. We know where we want to go — QC reporting is the map that helps us get there.

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What does corrective action mean? Corrective action is the process of identifying and fixing the root cause of a problem to prevent it from happening again.

Common industry terminology for this process is problem-solving. This approach helps focus ideas, prioritize tasks, and allocate necessary resources to achieve goals. True corrective action goes beyond loan-level correction or system upgrades. It is a systematic method of using data to define the problem, assess the current state root cause(s), develop and execute solutions with defined success measures, and test and monitor the effectiveness of the implemented solutions.

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Technology is transforming the financial world around us, and quality control (QC) must find ways to adapt to the transformed landscape.

New terminology, methods, and even currency have become accepted, and being “data-driven” is a necessity. Fannie Mae regularly surveys the market to better understand its changes.

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Download Beyond the Guide

Access all eight sections of Beyond the Guide in one compiled PDF document.

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Need more information?

Take advantage of the other resources we provide on our Loan Quality page.