Mortgage Industry News

This article was contributed by TLC Partner Peak Performance Resources, Inc., a leading provider of mortgage industry consulting services. Learn more at www.PPRInc.biz.

Fannie’s LQI is underway: Will you be ready?

Remember when it was simple to deliver that generic, conforming loan and only the non-conforming product required meeting all the nuances of the investor?  Fannie Mae’s announcement of its Lender Quality Initiative (LQI) project has changed that for the immediate future, and the changes impact all brokers and lenders, as the requirements will be pushed down to the originator of the credit file.  Enhancements are significant and require changes in several areas, including technology, internal origination processes, quality control policy, and controls in place during delivery to Fannie Mae. Fannie Mae will provide reporting to assist lenders as the LQI plan progresses to different stages, and lenders should take advantage of these to locate the problem areas and address them before the warnings convert to fatal errors that result in undeliverable loans.

The focus areas during origination include several aspects of the borrower profile, expansion of the General Services Administration (GSA) Excluded Party List and HUD’s Limited Denial of Participation List (LDP) to include individuals in control or influencing origination or servicing, quality control policies and specificity of requirements, and delivery of the appraisal prior to loan delivery.  The Loan Delivery and Desktop Underwriter system is being revamped and will include enhancements for required delivery of additional data and changes from warnings to fatal edits for many fields. Fannie Mae will change to MISMO’s 3.0 XML delivery format. The LQI initiative also includes changes to the way Fannie Mae will deal with MI insurers and additional validations that the MI coverage is in place.

My company does not deliver loans to Fannie Mae, so are we really impacted? The Fannie Mae requirements are comprehensive and will require changes for all companies originating loans as wholesale lenders push these requirements down to their approved brokers and correspondents for all loans that will eventually be sold to Fannie Mae. Brokers and correspondents will see changes in the Sellers Guides as wholesale lenders implement their internal changes for deliveries to Fannie Mae. Not all wholesale lenders will implement changes the same way or on the same timetable, so brokers and correspondents delivering to investors will need to stay abreast of the notifications from those investors.

You have my attention!  Where do I begin?  Start at the beginning — with a plan.  Depending on the size of your organization, assign at least one person to review the requirements and determine how those areas will impact your organization’s processes.  For example, the LOS you use may require additional data fields and changes to interfaces.  The Quality Control plan will require revisions, so begin that review process. If your company delivers directly to Fannie Mae, give someone the responsibility for monitoring the new reports showing the deficiencies during the delivery process so they can be corrected before the warnings become fatal edits. The larger the organization, the more widespread the changes will be. It would be wise to inform all the staff members of the upcoming changes, the timetable for the phases, and how those changes will affect them.  Springing fatal edits on your origination sources without warning is not a way to increase loan production!

Consider all the checklists departments use, either online or printed forms for reviewing data.  Revise them accordingly to reflect the new data requirements.  Review procedures regarding processes to identify borrowers and their credit profiles.  Document existing pre-closing quality control and anti-fraud processes and work with the quality control plan to increase the steps to meet the new Fannie Mae specific requirements.  For areas where Fannie Mae will leave policies to the lender discretion, document the policy carefully to assure all employees follow the policy. Brokers or correspondents will need to decide whether to use each investor’s policies as loans are designated for sale or review all of them and develop a stringent generic policy that allows for variances only when loans are designated and locked with an investor.  Don’t forget the training for the new DU findings regarding specific requirements for documentation in new areas.

But there’s plenty of time? Fannie Mae has given lenders advance notice, and the enhancements are phased in with helpful reports to analyze your organization’s progress toward meeting the requirements. The overall complexity of these enhancements means organizations cannot take a wait- and- see attitude but should begin planning and reviewing what needs to be done within the organization.  Even those with very clean, efficient processes will see some requirements for change, and for those organizations that have been intending to do internal reviews, there’s no better time than the present!  As always, PPR is available to assist you to meet the goals you’ve set to comply with the LQI.