ICYMI- Fannie Mae Implements Changes to Prefunding and Post-Funding QC Requirements
In March 2023, Fannie Mae released a Seller Guide Announcement introducing upcoming policy enhancements to the prefunding and post-closing quality control review process. These changes include accelerating the post-closing QC review cycle timeline and establishing minimum prefunding volume requirements. Though lenders were encouraged to adopt the new guidelines immediately, the changes became mandatory on September 1, 2023.
Quality Control Review Timeline
Traditionally, the timeline for reviewing QC files has been 120 days from the end of the sampling month to the delivery of final reports to senior management. Fannie Mae has accelerated the timeline to 90 days in an effort to catch post-closing errors more quickly and to allow time for any post-closing remediation, as well as to allow time to make corrections on loans that have not yet closed but present the same issues.
Prefunding Volume
Fannie Mae has established that the minimum prefunding volume for a given month will be 10% of the closed loan volume from the previous month, or 750 files, whichever is fewer. Vendors are prohibited from substituting this requirement with a statistically valid sample, though they are permitted to use a statistically valid sample as long as the minimum requirement is also met. Both conventional and government loans, as well as loans spanning multiple channels, count towards the minimum requirement.
Collateral Risk Assessment
Fannie Mae guidelines prior to May 2021 required a lender to obtain a field review appraisal on 10% of loans selected for quality control review in the random sample. The remaining 90% of files were subject to a desk review. Fannie Mae released a Selling Guide Announcement in May 2021 requiring lenders to conduct a collateral underwriting review using Fannie Mae’s Collateral Underwriter® tool on 100% of loans selected for quality control review. While the guidelines changes were still underway, Fannie Mae made available for lenders an optional Post-Closing QC Collateral Risk Assessment Analysis review framework and checklist.
On September 13, 2023, Fannie Mae began offering its Collateral Underwriter® tool to QC vendors as an enhancement to their collateral risk assessment. Collateral Underwriter® is able to identify appraisals with heightened risks, including property eligibility, overvaluation, and appraisal quality issues. QC vendors who are found to be eligible for CU use after a formal intake process will be required to complete a Fannie Mae training session.
The changes implemented by Fannie Mae are aimed at improving overall loan quality, reducing the need for remediation by lenders, and reducing credit risk. To comply with Fannie’s Mae’s enhancements, lenders should re-evaluate their current QC policies and procedures to ensure compliance with the changes and work closely with their vendors to meet the new review cycle timeline.
How can we help?
CLA is prepared to assist your institution. Our mortgage professionals can help you evaluate the impact this new rule has on your operations. We are here to know you and help you. Contact Us with any questions or to learn how we can assist your mortgage operations.
Elizabeth Dailey, JD, is a Regulatory Compliance Director with CLA. She is a graduate of the University of New Hampshire and earned her juris doctor at New England Law. She is admitted to the Massachusetts Bar.
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