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Thursday, May 26, 2016

Pre-closing Quality Control Plan

QUESTION         
What are elements of a Pre-Closing Quality Control Plan? Also, how should these audits fit into the process flow?

ANSWER             
Fannie Mae, Freddie Mac and FHA all require mortgage lenders to perform pre-closing, or pre-funding, reviews prior to loan consummation. The quality control plan should encompass the following elements:          

How and when the loan selected will be audited
The loan selection process for pre-closing reviews should meet the company’s need and focus on areas that pose the most potential for misrepresentation and fraud.

The audit must be conducted when there is sufficient documentation in the file and prior to loan consummation. Ideally, it should be early enough to allow the review and any corrections and/or revisions to be made and at Clear to Close. Keep in mind the TRID timing schedule with respect to rate lock and contract expiration, in order to ensure the pre-closing audit is performed with enough time to cure any defects without a delay in closing. Establish realistic turn times for the selection and review.

Who performs the audit
Although the written guidelines for who performs the pre-closing audits are not as clear as the post-closing audit, it is suggested the same criteria be applied. A department that is separate from Operations (Processing and Underwriting) should perform the review.

Identify the components of the review
  • Loan Origination System data entry review
  • Social security and borrower identification review
  • Income calculation
  • Asset verification
  • Collateral review
  • Fraud detection

Mortgage lenders can create their own Pre-Closing Quality Control Plan or retain a third party to write the policy and perform the reviews. In either case, agencies will look for these audit results when the company is reviewed or subject to an annual audit.

Brandy George
Executive Director/LCG Quality Control
Director/Underwriting Operations Compliance