Question
Our firm has recently been informed that we need to
perform discretionary reviews on conventional loans. What is the criteria for
review and do we include government loans in the selection?
Answer
The purpose of a discretionary review – not to be
confused with a “targeted review” – is to focus on areas that may pose an
elevated risk for errors, misrepresentation and fraud. There are no volume
requirements and there is no minimum or percentage of production.
It is at the lender’s discretion as to how many
loans will be included in any audit period. For instance, selected loan files
could be one loan or ten loans or more, depending on the need of the lender and
based on the suggested criteria below.
A targeted review is directed more in the vein of
specific employees’ performance, new branch offices, new processors or underwriters,
new processes and/or reviews of findings derived from pre-closing and
post-closing reports.
Example of
discretionary selections include:
- LTV ratios over 90%
- Investment properties
- High risk credit scores
- Cash-out refinances
- 10% of new loan originators
- All high LTV loans
- Low FICO scores
- Manufactured homes
Discretionary reviews are required for FNMA and
FHLMC products, although at this time FHA only suggests discretionary
audits. Depending on your own reason for
the review, it would seem prudent and necessary to include the entire portfolio
of loan products in the selection process.
If you would like to know more about discretionary reviews, please contact me!
If you would like to know more about discretionary reviews, please contact me!
Brandy George
Director/Underwriting Operations Compliance
Executive Director/LCG Quality Control
