Mortgage Underwriting Quality Control

Post Recession, agencies like Fannie, Freddie and FHA has a mandate for quality control reviews to be done and reported by lenders. This requirement opened up new avenues for mortgage service providers, specifically at offshore facilities, since this activity is preferably outsourced to third party vendor.

Quality reviews involves verification of accuracy and integrity of the information supporting lending decision. Lender should confirm that the loan file was underwritten in accordance with agency guidelines and  requirements and that the documentation adequately supports underwriting decision.It also involves review of closing documents and compliance check to confirm that loan meets the mortgage terms and is charged and closed within acceptable threshold.

Quality check thus can be primarily done at 2 stage. It can either be reviewed before closing when the loan is been approved by the underwriter or after closing when the loan is funded and disbursed. Review process done before closing is called as Pre-Funding Underwriting QC while when done after closing is called as Post Audit Underwriting QC.

Pre-funding underwriting QC has very narrow timeline wherein loan is to be reviewed to report defects within 24-48 hours so that, if valid, those can be fixed before closing of the loan file. It involves complete underwriting of the loan file including Income calculation, Credit Reconciliation, Assets verification, Collateral Review and review of DU approval or data entered in automated underwriting system. Sample selection would be based on a Risk pertaining to pool of loans with reference to product, loan scenarios, underwriter, loan officer or correspondent. Summary Report summarizing sample selections, defects and resolution is to be documented and retained by the senior management.

Post-Closing Loan Review is similar to Pre-funding audit with only difference that at post close stage auditor is also suppose to look into closing documents, disclosures and review loan file for compliance with all federal, state, and local laws and regulations. Usually lender provides third party vendors a handsome timeline of 30 days to audit 10% sample size of closed loans in a given month. The entire QC process (selection, review, rebuttal, and reporting) must be completed within 120 days from the month of the loan closing. All reports and records with reference to QC process including QC reports, Review findings, Corrective action are to be documented and retained by lenders for minimum three years.

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