My lender/investor is asking for our post-closing quality control plan and 10% audits... We are a non-delegated correspondent or broker. What now?
With the propagation of categories and levels of correspondent, including mini-correspondent, non-delegated mini-correspondent, funding non-delegated correspondent, and wholesale/broker, we see many wholesalers request quality control plan elements that do not apply to a specific business model. Specifically, lenders are asking brokers or non-delegated correspondents for agency level post closing reviews, including 10% random sampling, re-verification of all loan file exhibits, appraisal reviews, closing document reviews and re-underwriting.
If you are not delegated underwriting and closing this should not apply to you.
The requirement for random sampling and post-closing reviews of loans doesn't apply if you aren't underwriting or drawing closing documents yourself. We have found that this is usually the result of a mis-categorization of the originator as a lender. Explaining that this requirement is like asking the broker or correspondent to underwrite and evaluate the lender's credit decision - something the broker/correspondent had NOTHING to do with in the first place - clears this requirement.
Some wholesalers will not budge, though. This is the golden rule: He who has the gold makes the rules. In this case, evaluate how important the wholesaler is to your business. If it's a critical product or service, you may have to start conducting these reviews in order to maintain the investor. But DO NOT simply capitulate to the requirement and start a post-closing review process without ensuring that the requirement is absolute. Beyond being redundant for loans underwritten by someone else, post-closing reviews are expensive.
"Do they even review this stuff?.."
Wholesalers have been reviewing our quality control plans for years. It is important to note that many of these reviewers don't actually read an entire plan, so that if something doesn't jump off the page at them, they may mark your plan as deficient. That doesn't mean it isn't in the plan. 99.9% of the time we draft a rebuttal, we are simply citing the page numbers where the reviewer can locate the information he or she couldn't find (or didn't look for) the first time.
This also doesn't mean that we don't value the feedback. We always want to know if we have missed something, so we can include it for any of our clients who might get similar feedback. That's one of the ways our products have evolved since 1996. It's also why we can guarantee our products' acceptability.
It's a PROCEDURE, not a POLICY
The most important thing to remember is that you want your plan to reflect PROCEDURES about how you work to catch ANY possible error. This is completely different from writing a POLICY, which simply states that you will look for various elements. For instance, a recent communication showed:
The Pre-Funding Quality Control Requirements (and where they are located in your Broker Plan):
- Quality Control is Conducted by someone other than party to loan origination (Page 22)
- The Borrower Social Security number is re-verified on all loans (Page 14)
- The Income calculations and supporting documentation is reviewed. (Page 13)
- Verbal verifications of employment are conducted (Page 20)
- Assets needed to close or meet reserve requirements are reviewed (Page 15)
- Appraisal or other property valuation is reviewed (Page 16)
- Documentation is reviewed to assure adequate mortgage insurance coverage (Page 12)
- Review loan to determine automated underwriting info is accurate (Page 18)
- Liabilities between 1003 and credit report are reconciled (Page 12)
The page numbers show where you can locate the requirement as it is addressed as part of the much more extensive documentation review. This is the key. You can get a repurchase request or denial for an item which is not a requirement for the quality control plan. To combat this - WHILE YOU ALSO COMPLY WITH THE QC REQUIREMENT - you need a thorough system, using checklists and peer reviews.
DO NOT write a policy that states that you will simply check for these items, as it opens you up for liability for missing other elements associated with the items requested, that have not been requested to be stated in policy in writing.