For example, Fannie Mae and Freddie Mac each require the auditing of at least 10 percent of all mortgage loans. These agencies require lenders to have a quality control plan in place. Though the specifics vary from one agency to the next, the requirements are quite similar. If you are closing less than 15 loans per month, monthly (or quarterly in the case of FHA loans) quality control audits are generally considered appropriate.
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Welcome to my blog The agencies require that the person conducting the audit be independent of the process that they are auditing. For example, if a staff member is involved in the closing of the loan, that person should not conduct the pre-closing audit. Many lenders who conduct in-house loan audits create a separate department specifically for auditing loans to ensure compliance with this requirement.
Each agency has specific requirements covering various quality assurance checkpoints including early in the loan, just before closing the loan, and after closing the loan. Several checklists, including a pre-closing audit checklist, should be a part of your quality control plan. If you prefer, you can use a spreadsheet or specialized loan quality assurance software.
Early in the loan, the list is fairly short. However, just before closing the loan, the pre-closing audit checklist becomes quite extensive. Lenders must make sure all transcripts match documents; double check that self-employment analysis (if applicable) is present; verify the presence of complete tax returns for self-employed borrowers; verify that there's no undisclosed debt, average overtime, bonuses and commissions; check to ensure that a pay stub dated within 30 days before settlement is included; and much more.
Pre-closing audits require re-verifying documentation such as the credit report, borrower's income, employment, and assets, an important step to ensure that all documentation has been received and reviewed and that the information provided supports the underwriting decision.
Using a pre-closing audit checklist, spreadsheet, or quality assurance program specific to the requirements of the agency ensures that you know exactly what needs to be re-verified. Because each agency has its own requirements, and because these agencies periodically update their pre- and post-closing audit guidelines, it's wise to periodically review your quality control plans to ensure that your checklists remain in compliance. With loan quality assurance software, updates are generally issued by the software developer which ensures that your pre-closing audit checklists are current. In fact, software can automate many of the tasks by highlighting missing documentation or verifying pay stub dates.
Whether you develop your own internal pre-closing audit checklist, use one issued by an agency, or use software to guide you, conducting regular pre-closing audits is a must. While you may only be required to do so on just ten percent of your loans, you may want to run each loan through a pre-closing audit. With software, this becomes much easier. Doing so can alert you to potential risks and improve the overall quality of your loan portfolio.
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