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When was the last time someone from your company reviewed your Quality Control Plan?   Was it last year?  Or was it the year before?   Does it still reference the GFE or HUD-1?  Is there a method for the not so random loan selection process?

We often hear from lenders wanting to update their quality control plan right away because they have received notice of an upcoming audit.   We have put together a top ten list of the most common Quality Control errors that we often encounter when updating the present plan:

  1. The Quality Control Plan is more than one year old. Quality Control plans need to be updated yearly or more often if necessary.  It should not reference obsolete documents, reporting addresses or guidelines.  Remember:  The GFE and HUD-1 still apply to HELOC and Reverse Mortgages. Be sure to include a history tracker as the last page of your plan and note the date of the update with a brief summary of what was changed.
  2. The plan is missing net and gross target defect rates. The agencies require that net and gross defect rates be included.  And NO, the target defect rates do not have to be 0!
  3. The selection process is not defined. Each QC selection type (random, targeted and discretionary) needs to have a written metric for the selection process.  Basing the selections on the loans with the highest risk (such as: self-employed, high LTV, 2-4 family, investment property, all funds from gift, etc.) is recommended along with products and program types, branches, loan officers, processors, underwriters and closers.
  4. The lender originates VA loans and the plan is missing VA LAPP (Lender Appraisal Program) requirements. QC requirements for a SAR (Staff Appraisal Reviewer) approved under VA’s LAPP can be found in the VA Handbook, Chapter 15.02.
  5. The lender originates RHS loans and the plan is missing Rural Housing Service QC requirements. Chapter 3.3-4. Attachment 3-C and Chapter 4.10 in the HB-3555 contain the requirements for QC on RHS loans.
  6. The plan is missing Pre-Funding requirements. Fannie Mae, Freddie Mac, FHA and RHS require pre-funding QC be completed.
  7. The plan is missing Early Payment Default requirements for Fannie Mae (included in discretionary review), Freddie Mac and RHS (included in targeted review) and FHA loans.
  8. The plan is missing Denied loan requirements for FHA loans.
  9. The plan is missing a statement that the report to Fannie Mae or Freddie Mac with any findings affecting eligibility will include copies of relevant supporting documentation.
  10. The lender outsources their QC and the plan is missing the requirement that the lender must perform a 10% random review of the outsourced loans. The selection includes loans with and without defects and provides a cross section of all products and programs, high risk loans (such as: self-employed, high LTV, cash out refinance, etc.), automated and manual underwriting, loan officers, branches, processors, underwriting, closers, third party originators, appraisers, real estate companies and builders

No detail is too small!  It seems all auditors want to find some type of error in your plan. They focus on the items noted above as well as the most recent set of memos from the big agencies, since the time your plan was updated. An outdated QC plan is not just a problem with the document, it leads an auditor to have overall concerns about your compliance management system. The QC plan is top of the food chain in communicating company policies. If it’s not accurate then every policy and procedure document, as well as the day to day activities of the team, could have gaps.