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QUALITY CONTROL PLAN CHECKLIST FOR LOAN ORIGINATIONReference HUD

By Thelma Hunt,2014-05-19 12:21
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Quality Control must be a prescribed & routine function of each mortgagee's Ineligible Participants ? The Quality Control Program must verify that the

    QUALITY CONTROL PLAN CHECKLIST FOR LOAN ORIGINATION

    (Reference: HUD Handbook 4060.1 REV-1 Chapter 6 Revised 11/26/03)

All approved mortgages, including correspondents, must implement and continuously have in place a QC plan for the

    origination and/or servicing of insured mortgages as a condition of receiving and maintaining FHA approval.

Quality Control must be a prescribed & routine function of each mortgagee’s operations. Whether performed by mortgage

    staff or outsourced.

     Yes / No

    1. Independence / Qualified Staff Personnel must be properly trained & qualified to conduct the QC reviews and have no direct loan processing, origination, or underwriting responsibilities? (7-3B, 7-3C)

    If mortgagee uses an outside source to perform the QC function, including its sponsor, the agreement must be

    in writing, state the roles and responsibilities of each party and be available for HUD staff review. 2. Review System / Scope and Sampling QC Program must be performed on a representative sample of mortgagees loans. Procedures exist for expanding the scope of the QC review when fraud or patterns of

    deficiencies are uncovered (7-3E,F)

    3. Site Review - The mortgagee must conduct an annual site review, including traditional and non-traditional branches, to determine that they are in compliance with HUD’s requirements. (7-3G)

    The review must include, but not necessarily be limited to, confirmation of the following items:

     The office is properly registered with HUD and the address is current.

     Operations are conducted in a professional, business-like environment.

     Office is clearly and properly identified for walk-in customers. Has adequate space and equipment,

    is in a conducive location and is separated by walls or partitions.

     For servicers, a toll-free line should be available.

     Sufficiently staffed.

     Access to relevant statutes, regulations and HUD handbooks.

     Procedures are revised for changing HUD requirements.

     Personnel at the office are all employees or contract employees performing functions that HUD

    allows to be outsourced.

     Office does not employ or contract with anyone under debarment or suspension or a limited denial of

    participation. (7-7S)

4. Affiliate Review HUD requires mortgagees to ensure that their loan correspondents are acceptable to FHA and operate in compliance with FHA requirements. (7-3H)

    5. Reporting & Corrective Action - Periodic reports that identify deficiencies are provided to senior management within one month of completion of the initial report. Prompt, effective corrective measures are

    taken by senior management and documented when deficiencies are identified. (7-3I & 7-4) 6. Notification to HUD - The mortgagee reports any violation of law or regulation, false statement of program abuse to HUD HOC or OIG within 60 days of discovery (7-3J)

    7. File Retention - The QC Review report including findings, actions taken, procedural information, basis for loans & reviewer name must be retained for two years from the date of endorsement. (7-3K) ? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     1

    Quality Control for Single Family Origination:

     Yes / No

    8. Identify Patterns - Mortgagees must identify patterns of early defaults by location, program, loan characteristic, Loan Correspondent or Sponsor. (7-5C)

    9. Timeliness - The reviews will be performed within 90 days of loan closing (7-3D & 7-6A&B)

    10. Frequency - Mortgagees closing more than 15 loans per month must conduct monthly reviews and address one-month’s activities. Mortgagees closing 15 or fewer may perform quarterly reviews. (7-6B)

    11. Sample Size - The mortgagee reviews EITHER: 1) 10% of all loans closed on a monthly basis; OR

    2) a random sample that provides 95% confidence level with 2% precision? (7-6C)

     Additional Sampling Considerations (7-6C-1):

    12. The selection includes loans from all branches?

    13. The selection includes loans from all authorized agents, loan correspondents

    14. The selection includes loans from all loan officers, underwriters, loan processors.

    15. The selection includes loans from all FHA programs

    16. The selection includes loans from appraisers, real estate companies and builders with whom you do a significant amount of business

    17. Each Q.C. review documents how the sample size and selections were determined (7-6C-1)

    Additional Selection criteria that may be useful can include: (7-6C-2)

     2-4 unit properties

     New construction or rehab loans

     Properties transferred within the past year

     Substantial seller concessions

     Non-occupying co-mortgagors or multiple mortgagors

     Housing expenses increasing by 1.5 times or more

     Large or multiple earnest money deposits (money orders)

     Large increase in bank account balance

     Sale of personal property for funds to close

     Gifts or loans of funds to close

     Self-employed

     Loans risk assessed as “refers” by automated underwriting systems.

18. Early Defaults - Loans which go into default within the first 6 months are reviewed (7-6D)

    ? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     2

     Yes / No

    19. Credit Report - A new credit report is obtained on all loans in the QC sample (using a RMCR, 3-repository merged in-file report, or a business credit report when appropriate)(7-6E-1) 20. Credit Document Reverification Documents contained in the loan file should be checked for sufficiency and subjected to reverification. Examples of items that MUST be verified include:

     Mortgagor’s employment or other income

     Deposits

     Gift letters

     Alternate credit sources

     Other sources of funds

    Other suggested reverification items include mortgage or rent payments. If the written reverification is not

    returned to the mortgagee, a documented attempt must be made to conduct a telephone reverification. If the

    original information was obtained electronically or involved alternative documents, a written reverification

    must still be attempted. All discrepancies must be explored to ensure that the original documents were

    completed before being signed, were as represented, were not handled by interested third parties and that all

    corrections were proper and initialed. (7-6E2)

21. Appraisals A desk review of the appraisal is conducted on all loans in the QC sampling (7-6E3 & 7-7B).

    Determine that the appraised value was established using reasonable comparables, adjustments, expectation

    of repairs, and soundness requirements. Determine whether a field review was performed if the value of the

    property increased 20% or more in the 12 months prior to the sale.

    Specific Element for the Production Portion of the QC Program 22. The preliminary loan application, final application and all credit documents are consistent or reconciled (7- 7A)

    23. Documents requiring signature (other than blanket verification releases) were signed by the mortgagor or employee(s) of mortgagee only after completion; and that all corrections are initialed by mortgagor and the

    employee (7-7C)

    24. That VOEs, VODs or credit reports are not mishandled by any interested 3rd party or the mortgagor (7-7D)

    25. If mortgagor is self-employed, the file has a financial statement, tax returns and business credit report (7-7E)

    26. If more than 1 credit report was ordered for a loan file; that all are submitted with the loan package to HUD or the D.E. Underwriter (7-7F)

    27. Any outstanding judgments found on the Credit Report is on the HUD 92900 with an explanation (7-7G)

    28. The file has documentation on source of funds and if other than deposits, the source is verified (7-7H)

    29. All conflicting information is resolved prior to submission to underwriting (7-7I)

    30. There are sufficient compensating factors if debt ratios exceed FHA limits (7-7J)

    ? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     3

     Yes / No

    31. Underwriting Decisions - There is accurate & complete underwriting (7-6F & 7-7K)

    32. Condition Clearance - All conditions are cleared prior to closing. The seller was the owner of record or was exempt from that requirement. The loan was closed and funds dispersed in accordance with mortgagee’s

    underwriting. Closing and legal documents are complete and accurate. (7-7L, 7-6G) 33. The HUD-1 is accurate and certified (7-7M)

    34. The loan file contains all the required loan processing, underwriting, and legal documents (7-7N & 7-7R)

    35. The loan was current when it is submitted for endorsement (7-7O & 7-8G)

    36. That the seller did not acquire the property at the time of or soon before closing, indicating a possible property "flip" (7-7P)

    37. Occupancy Reverification - Determine whether the mortgagor transferred the property at the time of closing or soon after closing, indicating the possible use of a "strawbuyer" (7-6E4 & 7-7Q)

    Procedural Compliance in Production

    38. Fair Lending - That the mortgagee is in compliance with Fair Lending Laws (7-8A)

    Additional Fair Lending matters are discussed below. Possible violations or discrimination must be reported

    in a timely manner. Additional matters may include:

     Mortgagee Practices - Ensure that the mortgagee is in compliance with the Department’s

    requirements concerning Tiered Pricing, Overages and Premium Pricing. (7-8A2)

     Minimum Loan Amounts Mortgagees are prohibited from setting minimum loan amounts. (7-

    8A3)

     Credit Counseling Determine if referral to a credit counseling agency may be appropriate for

    rejected minority applicants. (7-8A4)

     Underserved Geographic Areas Review lending programs to determine if outreach to a

    particular geographic area is appropriate (7-8A5)

     Fair Housing Logo Verify that fair housing and equal opportunity signs and logos are displayed

    in offices and on stationery and documents (7-8A6)

     Advertising Ensure that branch offices or employees are not engaging in false or misleading

    advertising practices. (7-8A7)

     Training Review the type of training and instruction given regarding fair housing practices (7-

    8A8)

     Outreach Consider establishing a marketing plan to serve underserved and minority populations.

39. Rejected Applications - A minimum of 10% of all rejected loans are reviewed and that senior staff concurred with the rejection (7-8A1)

    40. HMDA QC program must verify that mortgagee is in compliance with the Home Mortgage Disclosure Act reporting requirements. Should include timely filing, accurate information, and reported correctly. (7-8B) ? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     4

     Yes / No

    41. Ineligible Participants The Quality Control Program must verify that the mortgagee is ensuring that none of the participants is debarred, suspended, or under an LDP. Check employee list semi-annually. (7-8C)

    42. RESPA - The mortgagee is in compliance with RESPA. This should include: Distributing the Special Information Booklet to mortgage applicants

     Providing applicants with Good Faith Estimates of the settlement costs relating to obtaining a

    mortgage not later than 3 business days after the application is received or prepared

     Providing applicants with Form HUD-1 Settlement Statement

     Disclosing transfer of servicing

     Disclosing business relationships with affiliated entities (7-8D) 43. Escrow Funds - That escrow funds are used appropriately (7-8E)

    44. Mortgage Insurance Premiums - MIPs are remitted within 15 days from closing (7-3H3 & 7-8F)

    45. Timely and Accurate Insurance The QC Program must determine whether mortgage are being submitted to HUD for insurance within 60 calendar days of closing. (7-8G) 46. Underwriting Reports - HUD issued reports including underwriting reports and notices of return (regarding cases rejected for insurance due to errors or omissions) are reviewed (7-8H)

    Other Quality control Issues Regarding Single Family Production 48. Automated Underwriting - Automated underwriting guidelines are followed (7-9A)

     Sample QC Samples must include loans underwritten in this manner

     Special Requirements Must verify that correct information has been provided to the underwriting

    system. Copies of the assessment by the automated system must be included in the loan file. If the

    automated system cannot approve the application the basis of the underwriter’s decision on the loan

    must be documented.

     Referred Application The QC Program must verify that applications receiving a “refer” are

    reviewed by an underwriter before a final decision is made on the application.

     Exemptions to Individual Quality Control Program Requirements A new credit report is not

    required.

     Overrides The QC Program must verify that if manual downgrades or overrides are applied, that

    no patterns of illegal discrimination against loan applicants are revealed and that the downgrade or

    override was proper.

49. Streamline Refinances - Streamline refinances are included in the QC reviews (7-9B)

    50. Specific Programs Mortgages originated under specific FHA programs warrant special attention. Section 203(k) loans The QC Program of mortgagees originating or purchasing 203(k) loans must

    provide for reviews of the handling of rehabilitation escrows and disbursements, the rehabilitation

    loan agreements, the scope of the repairs, the timeliness of their completion, and borrower

    complaints about quality. Also, mortgagees should conduct physical inspections on a sampling of

    203(k) loans.

     HECMs The QC Program of mortgagees originating HECMs should provide for reviews to ensure

    that the homeowners received the appropriate counseling and that any referral fees paid are

    reasonable for the service provided and disclosed in the loan file. ? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     5

? AHACPA 12/2006

    Disclaimer: This checklist is a summary of the requirements contained in the revised Chapter 7 of Handbook

    4060.1. The user is encouraged to refer to the actual handbook for additional details and to ensure the sufficiency

    of the procedures in each individual circumstance.

     6

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