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We want to thank everyone who attended our webinar “We have a QC Plan… Now what?”. As promised, below you will find answers to the questions asked during the webinar. You can also download the slides from the webinar.


Question 1 – We are a lender who funds our own loans and sells them to investors after closing.  Should the Pre funding audit take place PRIOR to closing and us funding the loan at the closing table or should that take place after closing prior to shipping to an investor?

• Answer – The pre-funding audit can really occur at any time in the process. However, pre-funding is the best time, as you will have all the signed final documents to review. If you were to review the file prior to closing, you would be missing critical documents to review. While there are no rules against pre-closing audits, we do not recommend it.

Question 2 – Are SSA-89 the SSN validation required by FNMA or only if there are inconsistencies and flags?

• Answer – I was incorrect in my statement regarding Fannie Mae’s requirement about SSN verification. You only need to verify with the SSA if the borrowers SSN is not validated by DU. Please reference Fannie Mae Announcement SEL-2010-01.  https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1001.pdf.

Question 3 – We utilize a Mortgage Lock in Agreement as our intent to proceed.  Does this seem sufficient to you, or do you recommend some other means of intent?

• Answer – HUD/RESPA does not give specific guidance on how to comply with this rule. However, MCA recommends a separate specific disclosure to make sure there are no questions regarding your borrower’s intentions.

Question 4 – The notice to rescind includes all funds – does this include the appraisal fee, and if so, how does the appraiser get paid?

• Answer – Yes, this would include the appraisal fee. The lender or broker would be responsible to pay the borrower for the cost of the appraisal.

Question 5 – Who will be responsible for your QC after this year?

• Answer – I will assume you are referring to brokers after the FHA Sponsorship ends on December 31. If so, then brokers will only be required to do QC audits if their sponsor/investor requires it.

Question 6 – What do you consider a Cancelled file in contrast to a Denied file?

• Answer – A cancelled file is a file that did not close but was not declined. An example of this would be a borrower withdrawn file.

Question 7 – How do you handle a situation where an approval letter has been issued by underwriting, but the pre-funding QC audit discovers something that would cause that approval to change to a denial?

• Answer – A finding such as this is why pre-funding is so important. If you find something that would change the approval to a denial, then do not fund the loan. I would have a discussion with the borrower as to why they do not qualify and issue the required adverse action notice in writing.

Question 8 – How does FHA look upon home offices as branches?

• Answer – FHA does not accept an office in a residence.

Question 9 – My FHA renewal fee to HUD is required by end of September 2010. Has HUD given any guidance on the need to pay the renewal fee since the current system is coming to an end? What is the downside to not renewing to HUD for the last three months of this year? Has HUD discussed what the penalty is to not renew?

• Answer – Please refer to FHA Mortgagee Letter 2010-20, http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-20ml.pdf. The following is an excerpt from the letter. “Loan correspondents approved and in good standing will be permitted to retain their approval through December 31, 2010. All loan correspondents that were required to renew their FHA approval on or after March 31, 2010, and prior to May 20, 2010, and that have not yet renewed their approval, must complete their online annual certification and submit their renewal fee via FHA Connection. Failure to complete these items in accordance with existing FHA requirements (i.e., within 90 days of a loan correspondent’s fiscal year end) will result in administrative action.”

Question 10 – I just reviewed our most recent MCA audit and there was no Trend Tracking.  Can you tell me how to obtain this or add to the audits?

• Answer – MCA has just implemented its loan score and loan risk numbers beginning with its August management reports. MCA will begin to integrate trend tracking as this information compiles over a period of time. If you would like trend tracking based on findings you have had in the past, please contact us.

Question 11 – How detailed do we need to be on our QC manual for Post-Closing Audits?  We utilize MCA as our outsourcing.  Is that all that needs to be stated, or do we need to attach MCA procedures to our QC manual?

• Answer – Your QC plan should specifically list what you will be looking for in your Post Close file audits. You can submit your QC plan to MCA and we will review your plan to ensure it meets all necessary guidelines.

Question 12 – We identified a GFE / HUD-1 variance relating to Escrow amounts.  We had disclosed the escrow deposit but it was left off the HUD-1 on page 3 comparative.  The page 3 table showed the initial GFE $0 and then the final amount from the HUD-1.  Is this type of error considered serious and is any corrective action needed?  We are outside our correction period from RESPA.

• Answer – The initial escrow deposit section of the GFE can change without the need of a changed circumstance. Therefore a change to the initial escrow amount at any time would not be considered a finding.

Mortgage Compliance Advisors offers a free webinar every month. Visit www.MortgageComplianceAdvisors.com to register for next month’s webinar or to learn more about how MCA can serve all your compliance needs.

We want to thank everyone who attended our webinar “Understanding How the LQI Affects You.” As promised, below you will find answers to the questions asked during the webinar. You can also download the slides from the webinar.


Question 1 - Is it the TPO that runs the LDP for all parties at the origination level?

• Answer – This would be a decision your investor would make. However, we recommend you run these checks prior to underwriting to ensure there are no problems prior to underwriting. These are also free to run, so cost should not be an issue.

Question 2 – Are company names required to be checked against the LDP/GSA lists? This information indicates “individuals” only.

• Answer – Fannie Mae states all “parties to a mortgage transaction include companies or individuals that are involved in the origination, underwriting, or servicing of a mortgage.”

Question 3 – Are underwriters to be listed on the GSA/LDP lists?

• Answer – Yes. See answer above.

Question 4 – Do we have to check the exclusionary lists post-close QC or is prior to close enough?

• Answer – You will only need to check the exclusionary list prior to closing. A review during post closing is not required.

Question 5 – Is the Prefunding QC required for lenders who do not service loans?

• Answer – Yes. Prefunding is now required for all Fannie Mae approved lenders.

Mortgage Compliance Advisors offers a free webinar every month. Visit www.MortgageComplianceAdvisors.com to register for next month’s webinar or to learn more about how MCA can serve all your compliance needs.

On June 30, Fannie Mae published several updates to its appraisal-related policies with Announcement SEL-2010-09. To help you understand all the changes, we have included our summary of the announcement below.


If you have any compliance questions or needs, feel free to contact us at 877-250-5243 or info@mortgagecomplianceadvisors.com.


Inclusion of Interior Photos


All appraisals must have photos of kitchen, bathrooms, main living area, and of improvements or deterioration.


Effective: Applications taken after September 1, 2010


Lender Changes to the Appraised Value


Lenders can no longer reduce the property value listed on the appraisal report. Lenders can only change the value in the following three ways:

• Contacting the appraiser to address deficiencies contained in the appraisal report,

• Obtaining a desk review or a field review of the original appraisal, or

• Obtaining a new appraisal of the subject property

When a review appraisal or new appraisal is obtained, the lender must use the opinion of market value as stated in the review or new appraisal because the lender has, at that point time, rejected the original appraisal.


Effective: Applications taken after September 1, 2010


Appraiser Selection Criteria


Fannie Mae requires that lenders only use appraisers who have the appropriate knowledge and experience. Lenders must use appraisers who have knowledge of specific geographical markets, access to appropriate data sources, and experience in appraising specific property types in those markets. Lenders should review the appraiser’s education and experience, sample appraisals, professional affiliations, and references from clients and employers. Fannie Mae also clarifies the use of AMC’s:

• Neither the Home Valuation Code of Conduct (HVCC) nor Fannie Mae requires the use of a third-party vendor;

• Lenders are ultimately responsible for representations and warranties related to the value, condition, and marketability of the subject property; and

• Lenders must hold the AMC responsible for complying with Fannie Mae’s requirements.

Effective: Immediately


Selection and Use of Comparable Sales

The appraiser must list both data sources and verification with respect to comparable sales selected by the appraiser.


Effective: Immediately


Miscellaneous Appraisal –Related Guidance


Communication under the HVCC

Fannie Mae has determined that appropriate communication under HVCC is permitted, and HVCC does not prohibit any employee of the lender (except for anyone in loan production) from requesting that an appraiser provide additional information or explanation about the basis for valuation or from correction objective factual errors in an appraisal report.


Seller Concessions

Fannie Mae reminds lenders not to allow excessive sales concessions.


Treatment of Personal Property

Fannie Mae reminds lenders that personal property cannot be included in any mortgage.


Market conditions addendum to the appraisal report (Form 1004MC)

In Form 1004MC, in order to provide the most accurate depiction of the “Months of Housing Supply” as of the effective date of the appraisal, the “Total # of Comparable Active Listings” should be based on a specific point in time.


Effective: Immediately. Except for form 1004MC: effective date is application taken after September 10.



To view the actual Fannie Mae Announcement SEL-2010-09, click the link below:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1009.pdf


*Join our free webinar on July 22 about Fannie Mae’s LQI: “Understanding How The LQI Affects You.”

We want to thank everyone who attended our webinar “Common Compliance Findings and How to Prevent Them.” As promised, below you will find answers to the questions asked during the webinar. You can also download the slides from the webinar.

We look forward to serving all your compliance needs. Feel free to contact us with any requests or questions. Click an icon under “Contact Us” at the top right.

Question 1 – If we purchased a QC manual from MCA, are updates available for new laws?

• Answer - Yes, MCA does offer updates to your Quality Control Plan. You can contact us at your convenience so that we can discuss the specifics of your plan.

Question 2 – Do you have a suggestion on how much time before closing we should pull the FNMA comparison report?

• Answer – If you are referring to the re-pulling of credit to check for undisclosed liabilities, we suggest you pull this as close to closing as possible.

Question 3 – What is an example of proof of receipt?

• Answer – An example of proof of receipt would be a confirmation email, delivery receipt, fax confirmation, etc. (See slide 32)

Question 4 – How do you address a GFE issued as a lender and a subsequent submission as a broker?  One will have YSP and one will not, and investors fees are different.  Can you give guidance on this when we are submitting to 2 different avenues?

• Answer – Once you provide the GFE, you cannot change the amount in block 1. This includes your investor fees. However, when you lock the loan, you will then be required to state the credit (YSP) to the borrower.

Question 5 – If the origination fee on the initial good faith estimate is less than the actual origination charge on the final HUD, is any corrective action required?

• Answer – No corrective action is needed. However, some investors will require your most recently disclosed GFE figures match the final figures on your HUD1.

Question 6 – Are we required to provide evidence that the disclosures were provided to the borrowers within 3 days of the application date and/or the disclosures are required to be signed and dated within 3 days of the application date?

• Answer – Yes, you are required to provide evidence you sent disclosures within three days of application. Borrowers are not required to sign the initial disclosures. However, some states do require their disclosures be signed.

Question 7 – Is redisclosure of TILA required if it increases .125%? We are interpreting if this increases or decreases.

• Answer – TILA does state you need to redisclose if the APR increases or decreases by more than .125%

Question 8 – Do you have a list of what is considered “prepaid finance charge”? I am finding a great disparity of what is considered a PPF.

• Answer – We recommend you visit Doc Magic’s site for their Fees & Charges List Matrix.

Question 9 – When a loan goes from a “float” to a lock and nothing else will change, is the GFE required to be redisclosed?

• Answer – Yes, you will need to redisclose and update the important dates section on the GFE.

Question 10 – What is considered an early default, and if we do not service, how would we know?

• Answer – Early Payment Default (EPD) is defined as 60 days late in the first 6 months by FHA and Fannie Mae defines EPD as 90 days past due in the past 24 months. For FHA, you can get this info in FHA Connection. For Fannie Mae you will need to be the servicer for this info.

Question 11 - How do you determine the application date while auditing to know that the initial disclosures were provided within 3 business days?

• Answer – We generally use the earliest date located on the application. Generally the day the LO signed the application.

Question 12 – Must we issue a new TIL to customer within 3 days of discovering a change of interest rate or is it okay if mailed 6 days before closing?

• Answer – A borrower must receive the new TIL 3 days prior to closing. If you mail the redisclosed TIL, you can close on the 7th day after mailing.

Question 13 – If you are a wholesale lender, does the 7 days start when you get the application or when the broker took the initial application?

• Answer – According to TILA, a broker cannot issue a TIL (unless table funded). The 7 day waiting period does not start until the lender issues the initial TIL.

Question 14 – Does the 10 business days include Saturdays? I’ve heard yes and no.

• Answer – Yes, you can count Saturday as a business day. (See slide 33)

Question 15 – What is a best practice correction, if a GFE does not have the important dates filled in correctly?  Is it okay to send a revised one to the borrower and put a processor cert explaining why in the file?

• Answer – Yes. You are required to redisclose the GFE if there are changes to the important dates. Your Changed Circumstances form should state the reason for the change.

Question 16 – Do we need to include the TIL verbiage on all Truth in Lending disclosures? We have heard it is not required on the final TIL.

• Answer – When reviewing the file for an audit, we follow the instructions per MDIA in that we look to see the verbiage has been included on the initial and any subsequent TIL disclosures, as well as the final TIL. What you are referring to is that some lenders are allowing the omission of the verbiage if the final TIL is within .125% tolerance of initial TIL. If the final is over the .125% tolerance, technically it is a re-disclosure of the TIL and is required to be provided to your borrower within 3 business days of closing. You will then have three disclosures, the first two which will be required to have the verbiage, and the Final, which your lender may not require the verbiage to be printed on.

Question 17 – What can I do to remedy findings in my QC audit report?

Answer – We suggest you review all the findings you receive in your Quality Control report. If you find that the issue was incorrect, copy the documents and attach them to your Quality Control report and make note of the corrections.

We received the following compliance question and wanted to share the answer with you, along with our advice. We hope you find the information useful, and we welcome your questions and comments. (To leave a comment, scroll to the bottom of the page, type your comment in the box, and click Submit Comment.)

Question: Can Brokers Provide the Initial TIL Statement? Does “Creditor” mean Broker?

Answer: According to Federal Reserve Board staff, the answer is NO except for table-funding.

• “Creditor,” as defined in Regulation Z Section 226.2(17), means the lender whose name appears on the mortgage note and to whom initial loan payments are owed. Therefore, the seven-business day waiting period does not commence until delivery of the Initial Truth In Lending Statement bearing the name of the lender on the note. Early disclosures given in the name of the broker (or a pre-existing creditor who cannot complete the loan transaction) do not satisfy MDIA requirements. Moreover, under new Regulation Z rules, no advance fee may be collected from the consumer other than a credit report fee by either the lender or any third party until after the creditor has delivered the Initial Truth In Lending Statement or three business days after it has been mailed. 12 CFR 226.19(a)(1)(ii).

• Reg Z. TILA 226-17(a)

• Form of disclosures. (1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The disclosures required by §§ 226.17(g), 226.19(b), and 226.24 may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act in the circumstances set forth in those sections. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related³⁷ to the disclosures required under § 226.18 or § 226.47.³⁸ The itemization of the amount financed under § 226.18(c)(1) must be separate from the other disclosures under § 226.18, except for private education loan disclosures made in compliance with § 226.47.

• Reg Z. TILA 226.2 17(i)

• Creditor means: (i) A person (A) who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.

Our advice: MCA advises all lenders working with broker/TPO partners to issue a TIL when the application is received by the lender. Issue a TIL within 3 days of receiving the application and clearly indicate when and how the TIL was sent to the borrower. MCA also advises lenders to start the 7 day waiting period as required by MDIA the day the lender issues the TIL. Any fees collected by the broker/TPO or lender received prior to the issuance of the TIL by the lender is a violation of TILA.

We welcome your comments below.

Fannie Mae recently published its Loan Quality Initiative (LQI), impacting several requirements. Below is MCA’s brief summary of Fannie Mae’s LQI, including effective dates. We hope you find the information informative and useful.

If you aren’t sure whether your current Quality Control Plan meets Fannie Mae’s new requirements, MCA can help. Call 877-250-5243 or email info@mortgagecomplianceadvisors.com for more information.

You can also find more detailed information about Fannie Mae’s LQI at www.efanniemae.com/sf/lqi/index.jsp.

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Fannie Mae Loan Quality Initiative (LQI)

Borrower Identity Verification

Lenders will be required to confirm the identity of each borrower prior to the extension of credit.

Effective: June 1, 2010

SSN and ITIN Verification

All borrowers must have a valid SSN or ITIN. Lenders must validate the SSN with the Social Security Administration.

Effective: June 1, 2010

Borrower Occupancy

Under certain circumstances (as addressed by the DU findings), the borrower must provide additional documentation (gas bill, phone bill, etc.) confirming the borrowers intent to occupy.

Effective: April 17, 2010

Validation of Qualified Parties

Lenders are required to run GSA and LDP on any company or individual involved in originating, underwriting, or servicing.

Effective: June 1, 2010

Undisclosed Liabilities

Lenders must determine all borrower liabilities incurred prior to and during the loan process. Fannie Mae recommends a new or updated credit report prior to closing. If additional liabilities are discovered they must be listed on the final 1003 (and be re-run with DU if needed)

Effective: June 1, 2010

Minimum Credit Score

Loans will be rejected for credit score less than 620.

Effective: July 26, 2010

Property Unit Number

If the subject property is a property type identified by a unit number, the unit number must be included in the property address on the note.

Effective: June 1, 2010

Calculating LTV Ratio

LTV ratios will be shortened to a two decimal places, then rounded up to the next whole percent.

Example:

• 96.01%  is now 97%

• 96.001% is now 96%

Effective:  January 3, 2011

Manual Underwriting of DU Refer with Caution Loans

Lenders must deliver  all RWIC  manually underwritten loans as manually underwritten and not a DU underwritten loan.

Effective:  March 2, 2010

Lender Quality Control Updates (Part of the LQI)

All effective July 1, 2010

Lender Accountability for TPO

Must have written procedures for the approval of TPO and include the review of specific documents. Lenders must also conduct quarterly loan performance reviews.

Lender QC Process and QC Plan Contents

Lenders are expected to develop and maintain a QC program that meets Fannie Mae updated requirements.

Outsourcing of the QC Process

Lenders must establish a process to review the Outsourcing company’s work. Lenders must also address the findings identified in the QC contractor’s loan reviews.

Lender Prefunding QC Review Process

Lenders’ QC plans are required to include a prefunding review process.

Post-Closing QC Timing and Loan Sampling

QC loan selections must be made within 30 days of closing, and review must be completed within 60 days of selection (previously 90 days). Lenders must notify Fannie Mae if their QC cycle is behind by more than 30 days.

Lender Post-Closing QC Review Process and Data Integrity

Lenders are required to establish a policy to attempt to verify owner-occupancy. (Discussed earlier.)

Reporting QC Review and Audit Review of the QC Process

Results from the Lender’s QC audits/reviews must be reported to Senior Management within 30 days after the completed review/audit.

More detailed information can be found at www.efanniemae.com/sf/lqi/index.jsp.

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