Strengthen Loan Quality and Mitigate Risk with Selling Guide Part D Updates

Requires a minimum number of prefunding QC reviews each month. The number of monthly loan selections must equal the lesser of: 

• 10% of the prior month's total number of loans originated or acquired, or
• 750 loans.

Prefunding QC reviews now offer additional flexibility when determining their sample population, which must equal the lesser of: 

• 10% of the prior month's total number of originations or acquisitions,
• 10% of the current month’s projected originations or acquisitions, or
• 750 loans 

Reconciliation is required at the end of each month to ensure 10% is met.

For all loans secured by a principal residence selected via the random selection process and full-file discretionary selection process, the post-closing QC review must include verification of owner-occupancy. 

Lenders must review insurance or other loan file documentation to confirm no indicators that the property is not the borrower's principal residence. 

This occupancy assessment was only required in post-closing reviews.

Occupancy assessment is required during all QC full-file reviews (both prefunding and post-closing) and must cover all occupancy types (principal residences, second homes, and investment properties).

Lenders must evaluate occupancy indicators by reviewing property insurance, leases, or other loan file documentation. 

When occupancy red flags are identified, lenders must investigate further and self-report any defect.

Requires lenders to review, in post-closing QC, at least one loan from each third-party originator (TPO) every twelve months.

No requirement for discretionary sampling or reviews of TPO loans.

Post-closing QC reviews of TPO loans must include a monthly, stratified random sample to ensure the loans meet the lender’s standards for loan quality.

Discretionary sampling and reviews required for TPO loans with elevated risks as follows:

• at least one discretionary review of TPO loans with elevated risks as determined by lender’s oversight and controls.
• either full-file or component reviews
• either prefunding (pre-acquisition) or post-closing (post-acquisition).

QC collateral risk assessment must include analysis of appropriateness of comparable sales for all loans with an appraisal (conducted during random QC sample).

The lender's QC plan required an oversight process to monitor appraisers and property data collectors (PDCs).

A review of comparable sales is not required when the Collateral Underwriter® (CU®) score is 2.5 or below. The subject property must still meet Selling Guide Part A requirements.

The QC plan may, but is not required to, include monitoring of appraisers and PDCs; the lender’s obligation for oversight continues but is relocated to Selling Guide Part B4-1.3-12, reflecting a move from QC to compliance.

Lenders are required to self-report any loan identified during the QC review process having a defect that makes the loan ineligible as delivered to Fannie Mae.

The self-reporting deadline is within 30 days of the date of confirmation.

“Confirmation” is clarified to mean the publication date of the QC report identifying the ineligible loan.

Self-reporting must be completed within 30 days of the confirmation date.

• Reverification and file review requirements are reorganized for ease in navigation.
• Reverifications must be completed to reconcile the information received with the information used to underwrite the loan.
• If the reverification reveals different information, the lender must confirm the loan’s eligibility as delivered to Fannie Mae or re-underwrite the loan.
• Lenders are no longer required to utilize direct-to-source reverification methods via mail or fax.
• Reverification tracking must be included in QC reporting and documented in the loan file– including the request date and details for successful and unsuccessful attempts.

Corrective action and written action plans are Selling Guide requirements outlined in D1-1-01.

Monthly QC reporting must include written action plans to address corrective actions implemented for top defect trends.

When defect trends are identified through the review process, the lender must establish a written action plan, specific corrective action to be taken, including root cause analysis, the key personnel, the expected resolution, and the time frames for implementation and completion.

These requirements must be included in the lender's QC plan.

Reporting requirements are consolidated in a new section (D1-1-03). They include: 

• the report date
• sample selection descriptions and calculations used to determine the sample size
• the rationale for each discretionary and component review
• summaries of results for all random, discretionary, and component reviews, including TPO reviews
• defect rates and defect trending for the past three months for all severity levels, using both the defect category and subcategory.
• the resolution and corrective action plan to address specific defects and defect trends (for example…rental income) 

Reports of post-closing QC reviews must also include: 

• success rates of reverification requests segregated by reverification type (for examples of ways to track reverifications, view Reverification Tracking Process and Templates).
• self-reported loan numbers, by investor, including Fannie Mae, and
• 10% QC vendor review results. 

For a complete list of reporting requirements, please visit Section D1-1-03.