Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Table of Contents

TABLE OF CONTENTS............................................................................................................................................ 1 CHAPTER 1 INTRODUCTION ....................................................................................................................... 7

1.1 GOALS AND OBJECTIVES ..................................................................................... 7 1.2 CORPORATE MISSION STATEMENT FOR QUALITY CONTROL

STANDARDS ........................................................................................................... 7

1.2.1 Quality Control Policy .................................................................................................... 7 1.2.2 Quality Control Plan ........................................................................................................ 7

1.3 REGULATORY COMPLIANCE ............................................................................... 8 1.4 REQUIRED REVIEW .............................................................................................. 9 1.5 APPLICABILITY ..................................................................................................... 9 1.6 SEPARATION OF DUTIES ..................................................................................... 9 1.7 EARLY DETECTION WARNING SYSTEM ......................................................... 10 1.8 EMPLOYEE BACKGROUND, RESTRICTIONS, AND DISCIPLINARY

ACTION .................................................................................................................. 11 1.9 CORRECTIVE ACTION AND REMEDIATION ................................................... 11

CHAPTER 2 ACCOUNTABILITY AND MONITORING ......................................................................... 13

2.1 INTERNAL CONTROLS ........................................................................................ 13 2.2 MANAGERIAL OVERSIGHT ................................................................................ 14

CHAPTER 3 STAFF AND TRAINING ........................................................................................................ 15

3.1 ONGOING TRAINING ........................................................................................... 15 3.2 NEW HIRE TRAINING ......................................................................................... 17

CHAPTER 4 PRE-FUNDING QUALITY CONTROL ................................................................................ 18

4.1 GENERAL REQUIREMENTS OF PRE-FUNDING REVIEW .............................. 18 4.2 SOCIAL SECURITY NUMBER VERIFICATION ................................................. 18 4.3 RED FLAG DETECTION ....................................................................................... 18 4.4 ADDRESS DISCREPANCIES ................................................................................ 19 4.5 CREDIT ALERTS AND WARNINGS ................................................................... 19 4.6 FRAUD INVESTIGATION .................................................................................... 19 4.7 PRE-FUNDING EMPLOYMENT VERIFICATION .............................................. 20 4.8 PRE-FUNDING UNDERWRITING OF APPRAISALS ........................................ 20 4.9 PRE-FUNDING REVERIFICATIONS .................................................................. 20 4.10 PRE-FUNDING MANAGEMENT REPORTS AND TRENDING ............................ 21 4.11 THIRD-PARTY ORIGINATORS .............................................................................. 21

4.11.1 Requirements for Quality Control Review of Third Party Originators .... 21 4.11.2 Transfer of Servicing of Third-Party Originations ......................................... 22

CHAPTER 5 FANNIE MAE REQUIREMENTS ......................................................................................... 23

Sample

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Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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5.1 LENDER QUALITY CONTROL REQUIREMENTS ............................................. 23 5.2 QUALITY CONTROL PLAN OVERVIEW ........................................................... 24

5.2.1 Quality Control Plan Validation Topics ................................................................... 24 5.2.2 Day 1 Certainty ............................................................................................................... 25

5.3 QUALITY CONTROL PLAN CONTENTS ............................................................ 26 5.4 LOAN QUALITY .................................................................................................... 27

5.4.1 Loan Quality Steps Required Prior to Loan Delivery .......................................... 27

5.5 PRE-FUNDING QUALITY CONTROL REQUIREMENTS ................................. 28 5.6 POST-CLOSING QUALITY CONTROL REQUIREMENTS ................................ 29 5.7 POST-CLOSING QUALITY CONTROL SAMPLING REQUIREMENTS ........... 30

5.7.1 Random Selections and Statistical Sampling ......................................................... 31 5.7.2 Discretionary Sampling ............................................................................................... 31

5.8 ABILITY TO REPAY AND QUALIFIED MORTGAGE REQUIREMENTS ........ 32

5.8.1 ATR Covered Loan Eligibility Requirements ......................................................... 32 5.8.2 ATR Exempt Loan Eligibility Requirements .......................................................... 33 5.8.3 Points and Fees Limitations ....................................................................................... 33 5.8.4 Mortgage Loans with Prepayment Penalties ......................................................... 34 5.8.5 Refi Plus® Higher-Priced Mortgage Loans ............................................................. 34 5.8.6 Qualifying Interest Rate for Seven-Year and Ten-Year ARMs .......................... 34 5.8.7 Retired Product Features ............................................................................................ 34

5.9 RULES FOR DOCUMENT REVERIFICATION ................................................... 34 5.10 RULES FOR NEW CREDIT REPORTS ................................................................... 36 5.11 RULES FOR NEW APPRAISALS ............................................................................. 36

5.11.1 Verification of Appraisals by Field Review ...................................................... 37 5.11.2 Verification of Appraisals by Desk Review ....................................................... 37 5.11.3 Components of the Appraisal Review Process ................................................ 38

5.12 RULES FOR REVIEWING DU UNDERWRITING DECISION ............................... 38

5.12.1 Approved Loans ........................................................................................................ 38 5.12.2 Referred Loans .......................................................................................................... 38 5.12.3 Ineligible Loans ........................................................................................................ 39

5.13 RULES FOR DATA INTEGRITY CHECK ................................................................ 39 5.14 RULES FOR REVIEW OF CLOSING DOCUMENTS ............................................... 40 5.15 RULES FOR VERIFICATION OF OCCUPANCY ..................................................... 41 5.16 RULES FOR DUE DILIGENCE OF THIRD-PARTY QUALITY CONTROL

PROVIDERS .......................................................................................................... 41 5.17 MANAGEMENT REPORTS ...................................................................................... 41 5.18 RULES FOR MONTHLY REPORTING OF DEFECT RATE ................................... 42

Sample

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Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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5.19 DELIVERY CYCLE OF QUALITY CONTROL FINDINGS ...................................... 43 5.20 RECORD RETENTION ............................................................................................. 43 5.21 OUTSOURCING OF THE QUALITY CONTROL PROCESS ................................... 43 5.22 INTERNAL AUDIT OF QUALITY CONTROL PROCESS ...................................... 44 5.23 INELIGIBLE DELIVERY TO FANNIE MAE AND SELF-REPORTING

REQUIREMENTS .................................................................................................. 44 5.24 MISREPRESENTATION OR FRAUD REPORTING REQUIREMENTS ............... 46

CHAPTER 6 FREDDIE MAC REQUIREMENTS ...................................................................................... 47

6.1 BASIC ELEMENTS OF FREDDIE MAC’S QUALITY CONTROL PROGRAM .. 47 6.2 RULES FOR DOCUMENTING REVIEWS ........................................................... 48 6.3 REPORTING REQUIREMENTS ........................................................................... 48

6.3.1 Mortgage Sample Selection Documentation .......................................................... 50 6.3.2 Individual Mortgage File Report ............................................................................... 50 6.3.3 Summary Report of Individual Findings ................................................................. 50 6.3.4 Reporting of Quality Control Findings to Affected Areas .................................. 50 6.3.5 Regular Report of Quality Control Findings to Senior Management .............. 50 6.3.6 Management’s Response to Quality Control Findings ........................................ 51 6.3.7 Fraud and Other Suspicious Activity Report ......................................................... 51 6.3.8 Corrective Actions Status Report .............................................................................. 53 6.3.9 Report to Investors, Mortgage Insurers, or Government Agencies ................ 53 6.3.10 Tracking, Trending, and Special Reports .......................................................... 53

6.4 RETENTION OF QUALITY CONTROL RECORDS ............................................ 54 6.5 PRE-CLOSING REVIEWS ..................................................................................... 54

6.5.1 Procedures ....................................................................................................................... 54 6.5.2 Sample Selection ............................................................................................................ 54 6.5.3 Validation and Reverification .................................................................................... 55

6.6 POST-CLOSING SAMPLING REQUIREMENTS ................................................. 55

6.6.1 Random Sample .............................................................................................................. 55 6.6.2 Targeted Sample ............................................................................................................ 56 6.6.3 Discretionary Sample ................................................................................................... 56

6.7 ABILITY TO REPAY AND QUALIFIED MORTGAGE REQUIREMENTS ........ 57

6.7.1 Mortgages Eligible for Sale ......................................................................................... 57 6.7.2 Additional Guidance ...................................................................................................... 58

6.8 POST-CLOSING REVIEW—GENERAL REQUIREMENTS ............................... 58

6.8.1 Rule for Document Reverification ............................................................................ 58 6.8.2 Verifications of Employment, Income, and Sources of Funds .......................... 59 6.8.3 Social Security Number Validation ........................................................................... 59 6.8.4 Credit Reports ................................................................................................................ 60

Sample

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Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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6.8.5 Occupancy Verification ................................................................................................ 61

6.9 RULES FOR NEW APPRAISALS ......................................................................... 61 6.10 RULE FOR DATA INTEGRITY REVIEW................................................................ 62 6.11 RULE FOR CLOSING DOCUMENTS REVIEW ....................................................... 63 6.12 LOAN QUALITY ADVISORSM AND RESUBMISSION ........................................... 64 6.13 FREDDIE MAC POST-FUNDING QUALITY CONTROL REVIEW ....................... 64

CHAPTER 7 FHA REQUIREMENTS .......................................................................................................... 65

7.1 QUALITY CONTROL PROGRAM OVERVIEW .................................................. 65

7.1.1 Goals of FHA Quality Control...................................................................................... 65 7.1.2 Record Retention ........................................................................................................... 65 7.1.3 FHA Rule for Outsourced Quality Control .............................................................. 66 7.1.4 FHA Loan Review System ............................................................................................ 66

7.2 OPERATIONAL QUALITY CONTROL PROGRAM REQUIREMENTS ............ 66

7.2.1 Quality Control Operations Independent from Loan Production .................... 66 7.2.2 Restricted/Ineligible Participation .......................................................................... 67 7.2.3 Fair Housing and Fair Lending .................................................................................. 67 7.2.4 Rejected Applications ................................................................................................... 68 7.2.5 Fair Housing Logo .......................................................................................................... 68 7.2.6 Home Mortgage Disclosure Act ................................................................................. 68 7.2.7 Real Estate Settlement Procedures Act ................................................................... 69 7.2.8 Escrow Funds .................................................................................................................. 69 7.2.9 Mortgage Insurance Premiums ................................................................................. 69 7.2.10 Timely and Accurate Insurance ........................................................................... 69 7.2.11 Underwriting Reports ............................................................................................. 69 7.2.12 Advertising ................................................................................................................. 69 7.2.13 Identify Patterns ...................................................................................................... 70 7.2.14 Requirements for Reporting Fraud and Material Deficiencies ................... 70

7.3 LOAN LEVEL QUALITY CONTROL REQUIREMENTS ..................................... 71

7.3.1 Time Frames .................................................................................................................... 71 7.3.2 Sample Size Standards ................................................................................................. 72 7.3.3 Sample Size Composition ............................................................................................ 72 7.3.4 Loan Sample Risk Assessment ................................................................................... 73 7.3.5 Documentation Review and Verification ................................................................ 74

7.4 DATA INTEGRITY ................................................................................................ 78

7.4.1 Referred Applications .................................................................................................. 78 7.4.2 Overrides .......................................................................................................................... 78

7.5 SALE AND TRANSFER OF LOANS ..................................................................... 79 7.6 SUMMARY OF QUALITY CONTROL REQUIRED ELEMENTS ........................ 79

Sample

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Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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CHAPTER 8 VA REQUIREMENTS ............................................................................................................. 81

8.1 REQUIREMENTS FOR VA AUTOMATIC LENDER AUTHORITY ................... 81

8.1.1 VA Quality Control Audit Program ........................................................................... 81 8.1.2 VA Quality Control Plan Elements ............................................................................ 81 8.1.3 Procedures and Access to Regulations .................................................................... 81

8.2 SITE REVIEW REQUIREMENTS ........................................................................ 82 8.3 REPORTING AND CORRECTIVE ACTION ........................................................ 82 8.4 REQUIREMENTS FOR ADEQUATE QUALITY CONTROL SCOPE ................. 82 8.5 RULES FOR REVIEWING THE LOAN FILE ....................................................... 83

CHAPTER 9 MORTGAGE PARTNERSHIP FINANCE PROGRAM REQUIREMENTS .................... 85

9.1 QUALITY CONTROL PROGRAM REQUIREMENTS ......................................... 85 9.2 USE OF THIRD-PARTY QUALITY CONTROL SERVICES ............................... 87 9.3 QUALITY STANDARDS AND MEASURES ......................................................... 87 9.4 SAMPLE SELECTION ........................................................................................... 88

9.4.1 Pre-Closing Quality Control Sample ......................................................................... 89 9.4.2 Post-Closing Quality Control Sample ....................................................................... 90

9.5 EARLY PAYMENT DEFAULT MORTGAGES ..................................................... 91 9.6 ORIGINATION DOCUMENTS TO REVIEW ....................................................... 91

9.6.1 Reverifications Made by Vendor ............................................................................... 92 9.6.2 Verifications of Employment and Income .............................................................. 92 9.6.3 Source of Funds .............................................................................................................. 93 9.6.4 Credit Reports ................................................................................................................ 94 9.6.5 Owner Occupancy .......................................................................................................... 94 9.6.6 Review Appraisals ......................................................................................................... 94 9.6.7 Verification of Excluded Parties ................................................................................ 95

9.7 PRE-CLOSING DATA VERIFICATION ............................................................... 96 9.8 POST-CLOSING VERIFICATION ........................................................................ 96 9.9 CLOSING DOCUMENTS REVIEW ....................................................................... 97 9.10 REPORTING REQUIREMENTS .............................................................................. 98 9.11 RETENTION OF QUALITY CONTROL RECORDS ................................................ 99

CHAPTER 10 USDA RURAL DEVELOPMENT PLAN REQUIREMENTS .......................................... 100

10.1 BASICS OF USDA QUALITY CONTROL PLAN .................................................. 100 10.2 FRAUD DETECTION AND PREVENTION .......................................................... 100

CHAPTER 11 BEST PRACTICES—POST-FUNDING QUALITY CONTROL GENERAL PROCEDURES ...................................................................................................................... 102

11.1 UNIFORM RESIDENTIAL LOAN APPLICATION SIGNATURES AND COMPLETION .................................................................................................... 102

Sample

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Quality Control for Mortgage Origination Policy Manual Table of Contents

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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11.2 VERIFICATIONS AND OTHER SIGNATURE FORMS ....................................... 102 11.3 COMPLIANCE FORMS .......................................................................................... 103 11.4 CLOSING DISCLOSURE ........................................................................................ 103 11.5 REVIEW OF LOAN DOCUMENTS........................................................................ 104 11.6 TITLE CERTIFICATION AND REPORT ............................................................. 106 11.7 HAZARD INSURANCE .......................................................................................... 106 11.8 PROPERTY APPRAISALS: DESK REVIEW ........................................................ 107 11.9 ANALYSIS OF THE FIELD REVIEW APPRAISAL ............................................. 108 11.10 PLOT PLAN OR SURVEY ...................................................................................... 108 11.11 FLOOD AND ENVIRONMENT.............................................................................. 108 11.12 REVIEW AND REVERIFICATION OF BORROWER FUNDS ............................ 109 11.13 REVIEW AND REVERIFICATION OF BORROWER CREDIT/OBLIGATIONS109 11.14 REVERIFICATION OF BORROWER INCOME ................................................... 110 11.15 RISK RATINGS OF QUALITY CONTROL EXCEPTION ITEMS ........................ 111 11.16 DOCUMENTING EXCEPTION ITEMS ................................................................. 112 11.17 REMEDIATION OF EXCEPTION ITEMS ............................................................ 112 11.18 TRENDING REPORTS BY ORIGINATOR OR TPO ........................................... 113 11.19 TRENDING REPORTS BY SETTLEMENT AGENT ............................................ 113 11.20 TRENDING REPORTS BY PROPERTY APPRAISER ........................................ 113 11.21 AGENCY/INVESTOR PENALTIES ....................................................................... 113

CHAPTER 12 BEST PRACTICES FOR EXPANDED QUALITY CONTROL ....................................... 115

12.1 CONTROL POINT #1—QUALITY CONTROL PLAN ELEMENTS ................... 115 12.2 CONTROL POINT #2—INTERNAL AND THIRD-PARTY DATA AND FRAUD

TOOLS ................................................................................................................. 115 12.3 CONTROL POINT #3—UNDERWRITING AND ELIGIBILITY ........................ 116 12.4 CONTROL POINT #4—PRE-FUNDING QUALITY CONTROL ........................ 117 12.5 CONTROL POINT #5—PRE-CLOSING DOCUMENT REVIEW ........................ 118 12.6 CONTROL POINT #6—REPORTING ................................................................. 119 12.7 CONTROL POINT #7—ACTION PLAN FOR REMEDIATION/CORRECTION

OF ERRORS ........................................................................................................ 119 12.8 CONTROL POINT #8—RECORD RETENTION ................................................. 120

CHAPTER 13 BEST PRACTICES—QUALITY CONTROL REPORTS ................................................. 122 CHAPTER 14 APPENDIX ............................................................................................................................. 124

14.1 COVER PAGE ......................................................................................................... 125 14.2 PRE-FUNDING CHECKLIST ................................................................................. 126 14.3 POST-FUNDING CHECKLIST .............................................................................. 130

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Quality Control for Mortgage Origination Policy Manual Introduction Goals and Objectives

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Chapter 1 Introduction

[Sample Client] is committed to the highest standards of federal consumer compliance and requires all

management, employees, and third-party vendors to follow these policies and adhere to these

standards.

1.1 Goals and Objectives

The standards set out in this policy represent minimum requirements based on applicable legal and

regulatory guidance and apply throughout [Sample Client] ’s operations. These requirements are

intended to prevent [Sample Client], its employees, and third-party vendors from violating federal

regulations related to mortgage banking and consumer compliance by performing quality control

oversight of mortgage origination practices.

1.2 Corporate Mission Statement for Quality Control Standards

1.2.1 Quality Control Policy

[Sample Client] developed this quality control (QC) policy in accordance with the institution’s

Enterprise Risk Management Plan and its Compliance Management System, as guidance and reference

for developing the operational quality control plan. This quality control policy and any updates to this

policy must be formally approved by the company’s executives and managers.

1.2.2 Quality Control Plan

The development and ongoing maintenance of the quality control p lan is guided by this policy.

[Sample Client]’s quality control plan is designed to establish, monitor, and reevaluate various internal

components of the organization to ensure the highest level of business practices. The plan also sets

forth the steps and procedures for dealing with external components of the organization, including

third-party originators (TPOs) and third-party service providers. Various components of the quality

control plan function as an early detection warning system to identify documentation errors,

compliance violations, fraud, or misrepresentation on the part of internal or external representatives

of the company.

The organization’s operational plan is developed and implemented to comply with specific

requirements stipulated by the organization’s internal credit policies, warehouse and correspondent

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Quality Control for Mortgage Origination Policy Manual Pre-Funding Quality Control General Requirements of Pre-Funding Review

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Chapter 4 Pre-Funding Quality Control

4.1 General Requirements of Pre-Funding Review

[Sample Client] will complete its pre-funding quality control requirement in accordance with the

specific practices required by the secondary market agency. The reviews are to be performed after

approval, but prior to closing, allowing adequate time for review and suspension if significant findings

are discovered. Pre-funding quality control reviews should include an assessment of the underwriting

for each loan in accordance with [Sample Client] ’s guidelines, and GSE, agency, and investor overlays,

as applicable. This section describes the steps generally acceptable to institutional investors.

4.2 Social Security Number Verification

The pre-funding quality control review will determine if the Social Security numbers of all borrowers

were validated. File documentation should address identified discrepancies or include explanations.

Supporting documentation provided by fax or printed e-mail communication by the borrower should be

noted by quality control. Any borrower name or Social Security number listed on the Office of Foreign

Asset Control (OFAC) list, HUD’s Limited Denial of Participation (LDP) list, or other security list is a red

flag that must be investigated and cleared before the loan can be closed. All Social Security number

verification and documents must comply with [Sample Client]’s USA PATRIOT Act and FACTA Red Flags

Identity Theft policies and procedures.

4.3 Red Flag Detection

[Sample Client]’s pre-funding quality control file reviews must include a step to determine if the

requirements of the FACTA Red Flags Identity Theft policies and procedures were met by the

underwriting and loan processing departments. Each mortgage application must be examined to

ensure that any noted red flags were properly mitigated. If red flags are discovered during the pre-

funding review and cannot be mitigated, quality control staff must follow established procedures in the

quality control plan for the postponement or cancellation of settlement or escalation to senior

management for additional review.

For outsourced quality control, the compliance officer is responsible to ensure the company’s quality

control administrator monitors the quality control efforts of the service provider and that the red flag

monitoring is included in management reports. Any exceptions noted in the quality control findings

Sample

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Quality Control for Mortgage Origination Policy Manual Fannie Mae Requirements Lender Quality Control Requirements

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Chapter 5 Fannie Mae Requirements

[Sample Client] is responsible for ensuring that the mortgage loans it sells to Fannie Mae meet Fannie

Mae’s eligibility and underwriting requirements.

The following topics set forth [Sample Client]’s policies to ensure that it is meeting Fannie Mae’s

requirements for establishing a quality control plan, including documenting the quality control plan,

staffing and/or outsourcing the quality control process, selecting and reviewing the mortgage loan

files, reporting results, and retaining records.

To assist in compliance with its quality control requirements, Fannie Mae makes available on the Loan

Quality page of its website several tools for ensuring loan quality.

• Beyond the Guide is a Fannie Mae publication, separate from its Selling Guide, that provides tips

to ensure effective quality control and a framework for ensuring quality through the life of a loan.

• Quality Control Self-Assessment Worksheet is a Fannie Mae tool that helps lenders adhere to the

Selling Guide requirements and includes best practices for quality control.

Additional tools on this website include best practice samples for file reviews, loan defect categories,

and guidance for compliance and performance reviews.

[Sample Client] will incorporate relevant Fannie Mae guidance in its quality control plan.

5.1 Lender Quality Control Requirements

[Sample Client] will comply with Fannie Mae’s Lender Quality Control Requirements as outlined in the

Fannie Mae Selling Guide, Part D: Ensuring Quality Control (QC) and will make use of tools and

guidance offered by Fannie Mae on their website or as otherwise may be made available from time to

time. [Sample Client] will establish a quality control program with specific standards for loan quality

and will maintain the quality control program that establishes processes to achieve those standards.

In accordance with Fannie Mae requirements, the quality control program will include

• quality control plan contents;

• quality standards and measures;

• quality control file reviews;

• selection of loans for quality control review;

• reporting and remediation;

• pre-funding quality control reviews; and

• post-closing quality control reviews.

Sample

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Quality Control for Mortgage Origination Policy Manual Best Practices for Expanded Quality Control Control Point #1—Quality Control Plan Elements

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Chapter 12 Best Practices for Expanded Quality Control

This chapter outlines best practices that [Sample Client] should consider for implementation that are

beyond the GSE, agency, or investor guidelines.

12.1 Control Point #1—Quality Control Plan Elements

Management should first make sure the company and staff are clear on why quality control is

necessary, and that they have the experience to identify issues. Effective quality control

• tells [Sample Client] that it correctly originated a specific loan and ensures all mistakes are

captured (severity and accountability should not be debated at this stage);

• determines if the credit decision was correct and monitors the loan quality of the company’s

entire book of business and exposure to repurchase risk;

• is one of the primary tools to drive improvement in the loan origination process and effective

management of third-party originations;

• alerts management as to whether the company’s policies and procedures are being followed, if its

staff needs training, and if pre-funding controls are working;

• confirms the effectiveness of any previous remediation efforts; and

• distinguishes random sampling from discretionary or targeted sampling, according to the

following:

o Random sampling provides statements about entire populations of loans.

o Discretionary or targeted sampling is used to test suspected high-risk or adverse populations.

It should almost always include first and early payment defaults and will likely have higher

finding rates than random samples.

12.2 Control Point #2—Internal and Third-Party Data and Fraud Tools

[Sample Client] should utilize data and fraud tools to ensure that loan application data is validated as

early as possible in the origination process to catch errors and/or identify intentionally misrepresented

information:

• By using third-party or internal tools, [Sample Client] can spot bad data beginning at the point of

application.

Sample

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Quality Control for Mortgage Origination Policy Manual Best Practices—Quality Control Reports Control Point #8—Record Retention

[Sample Client]

Copyright © 2012 – 2019 Ellie Mae, Inc. AllRegs by Ellie Mae. Ellie Mae, Inc. ALL RIGHTS RESERVED. Without the prior written permission of Ellie Mae, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of [Sample Client].

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Chapter 13 Best Practices—Quality Control Reports

Listed below are various reports that may be utilized by [Sample Client]:

Mortgage sample selection documentation

This report shows which mortgage files were selected for quality control review and how they

were selected. Including a breakdown of branch or loan program selections rather than just a

summary of the number of selected loans allows for additional trending analysis.

Individual mortgage file report

This report is written by the quality control reviewer and contains the findings of the quality

control review of a specific mortgage file.

Summary report of individual findings

This report, prepared on a regular basis, weekly or monthly, summarizes the findings of the

individual mortgage file reports, helping to identify trends, fraud, or other problem areas.

Reporting of quality control findings to affected areas

This report is provided to the department heads of those areas directly concerned with the

individual findings. The department heads should be asked to provide comments,

recommendations, or explanations.

Regular report of quality control findings to senior management

Presented to management on a regular basis, monthly or quarterly; the report contains the

summary report of individual findings plus the responses from the affected department

managers.

Management’s response to quality control findings

This report includes recommendations and explanations of the steps the company intends to take

to resolve any problems.

Special problems report

This report is prepared and given to management immediately when fraud, willful

misrepresentation, or other serious origination problems are discovered during the quality

control review. The report states the facts of the special problem and includes copies of any

evidence that will assist management’s understanding of the problem.

Corrective actions status report

This report tracks the company’s progress in implementing management’s plans for corrective

actions.

Reports to investors, mortgage insurers, or government agencies

Sample

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