US Mortgage Lenders Quality Control Plan

QUALITY CONTROL PLAN

ORIGINATION STANDARDS AND PROCEDURES
Quality Control in loan organization begins with USML controlling the gathering of credit information about a potential borrower. We must make sure that the information assembled to support a loan application and as a basis, the underwriter’s loan approval is as reliable as possible. We establish procedures and standards for our employees that, if followed, will avoid errors, omissions, and fraud. It is the company’s intent to maintain compliance with all HUD/FHA requirements and prompt, effective corrective measures will immediately be taken by senior management and documented when deficiencies are identified. Furthermore, it is the company’s policy to report any violation of law or regulation, false statement or program abuse to the HUD regional office, area office or OIG will monitor and supervise any overage activities to prevent illegal discrimination or violation of tiered pricing violations.

1. LOAN CORRESPONDENTS QC REVIEW
Will periodically conduct an onsite quality control review of all of our loan correspondents, in order to ensure that the correspondents are in compliance with the department’s loan origination requirements and prudent lending practices.

2. SPECIAL ORIGINATIONS
Some areas of mortgage origination call for special attention in the Quality Control Plan. Refinancing of existing loans presents a unique situation because of the streamlined processing requirements. The other areas are of concern because they raise possibilities of fraud on the part of the borrower, an employee of a lender, a third party such as a real estate broker or any combination of the above parties. Violations of government or investor requirements can lead to heavy fines, loss of approved status, and even criminal prosecution. Because of the high price of fraud, management will treat any violations of the company policy against fraud with great seriousness and consider it cause for immediate dismissal.

Some special areas of concern are: Kickbacks, signing credit documents in blank, hand-carrying verifications, intentional discrepancies in credit information, straw buyer transactions, and occupancy issues.

3. LOAN APPLICATION AND INTERVIEW
Quality Control in loan origination begins with the first contract between the applicant and the loan officer of the company. Information is hereby obtained to evaluate the applicant’s creditworthiness. The initial interview gives the company the opportunity to set the proper tone. The interviewer should impress upon the applicant the need for complete and accurate information. The following items will provide instructions regarding the various disclosures that must be given to a potential borrower and how the company proceeds to request credit information from sources other than the borrower.

a. Borrowers Interview

  1. Prior to the interview ask each applicant to bring necessary documents and other information to the facility to facilitate the processing of the application.
  2. Be sure no employee offers encouragement or discouragement because of an applicant’s race, religion, national origin, sex, disability, family status, marital status or age.

iii.    The URLA form 1003 is completed by each applicant and retained by the lender as part of the original loan file.

  1. iv. If a telephone interview is permitted for the loan and is used as part of the application process, employees are urged to use the certification of a telephone interview for
  2. v. Obtain the borrower’s signature on the request to the IRS for copies of the borrowers’ tax returns at

the time of the initial interview.

  1. v Obtain bank statements and addresses for all depositories from which funds will be used to close.

vii.    Obtain names and addresses for all employers for each of the borrowers for the past two-year period.

Obtain recent paycheck stubs for each of the borrowers.

viii.    Obtain copies of picture ID and the social security card for each borrower.

  1. ix. Obtain a signature on authorization for verifications and do not allow the borrowers to sign any form in blank.
  2. x. If you detect any relationship between the buyer and seller, you must fully investigate the relationship xi.    Obtain the  information  required  for  the  government  monitoring  on  the  initial  appearance if  not provided by the borrower.
  3. Application Disclosures
  4. The LE/CD must provide loan charges and HUD booklet “Settlement Costs and You” must be

delivered or mailed to the applicant within three days of receiving the loan application.

  1. If the loan is subject to RESPA, you must deliver or mail the Truth in Lending disclosures within three days of receiving the loan application.

iii.    Obtain a statement from the borrower as to their understanding of their right to receive a copy of the appraisal.

  1. iv. If  the  loan  applied  for  is  an  adjustable  rate  loan,  the  applicant must  be  given  the  “Consumer Handbook on Adjustable Rate Mortgages” at the time and ARM disclosures at the time the loan application is presented to the applicant or before the borrower pays any non-refundable fees.
  2. v. Inform the applicant that other ARM programs exist and the disclosures for those programs will be

provided upon request.

  1. v Give to the borrower at the time of application a servicing transfer disclosures and obtain a signed acknowledgement of the form.

vii.    Give the borrower a copy of the HUD energy efficiency mortgage program. Have the borrower sign and date a receipt for the form.

viii.    If a rate lock is requested by the borrower, make sure the complete agreement is in writing and

signed by the applicant and the loan officer.

  1. c. Collecting Information
  2. Complete the appraisal request and send it to appraiser company or other lenders service.
  3. If the flood zone determination will be made by someone other than the appraiser, request that information.

iii.    Make request for each required report.

  1. iv. Send all necessary VOID and VOE forms to each of the depositories and employers.
  2. v. Send a request for a verification of mortgage for any mortgage debts listed in the payment history.

These must be sent to the mortgage lender directly. Obtain a rental history for the previous 12 months if applicable.

  1. v If the loan application is for a government loan, obtain the certificates of eligibility or the certificates of veteran status from the borrower or from VA.

vii.    If the loan application is for VA or FHA loan, obtain a Credit Alert Interactive Voice Response System

(CAIVRS) for credit history on borrower with federal government.

viii.    For  an  FHA  loan,  check  the  name  of  parties  on  the  loan  against  the  list  of  limited  denial  of participation for exclusion to government programs.

  1. ix. Make any and all other necessary requests for information including termite inspection.
  2. x. Disclose the presence of the possibility of lead-based paint as soon as possible to the applicant.
  3. Liabilities and Credit Report
  4. Order a residential mortgage credit report from a consumer-reporting agency for each applicant.
  5. Submit  all  documents  received  to  the  company  underwriting  department  for  consideration  in

evaluating the applicant’s creditworthiness, to the insuring agency and to the investor.

iii.    Be sure the credit report includes all available public records and legal information from at least two sources and the required information for each debt that is shown.

  1. iv. Be sure the credit report verifies the borrowers’ employment or where employment cannot be verified,

provide an explanation.

  1. v. Be sure the information has been verified from sources other than the applicant.
  2. v The credit report must identify the ordering source and who was billed for the report.

vii.    The credit report must list all companies who made inquiries to the borrowers’ credit history.

viii.    If there are items that are incomplete or not verified, the processor or underwriter must contact the credit reporting agency to obtain information as to the status of each unrated or incomplete account.

  1. ix. If needed, obtain an explanation from the borrower for each derogatory item noted on the credit

report.

  1. x. If the applicant lacks established credit accounts, clearly document other situations in which the applicant made regular payments over the past two years.
  2. x If other lenders made inquiries during the past ninety days, find out whether the applicant received other financing.

xii.    The information obtained in the credit report is confidential and may not be disclosed to any other

party other than authorized employers of our company, the insuring agency and investor with another agency or another mortgage in the course of a commitment for a mortgage. You may discuss items on the report with the applicant. However, do not give them a copy.

xiii.    If more than 1 credit report is ordered, then all the credit reports will be submitted with the package to

HUD.

xiv.    Ensure that all outstanding judgments n the credit report are reported on the HUD 92900 with an explanation.

  1. 4. BORROWER’S INVESTMENT AND ASSETS TO CLOSE

The borrower’s stake in the property has a major impact on the quality of the mortgage. This is particularly true when the borrower makes a small cash investment, due to mortgage insurance or guaranty of the loan. The borrower should have enough liquid assets to cover the amount of the down payment that must come from his own funds or from an authorized gift situation. Good quality control requires verification that an applicant has sufficient assets available to close the loan transaction. Borrowers who cannot make that investment or who have no equity present a high degree of risk to the investor and insurer. The lender must verify the source of all funds to close.

  1. a. Normal Sources of Funds
  2. The investment should come from the borrower’s own funds rather than from some other source such as from the seller as an inducement to buy the property. The lender must treat seller buy down as a lowering of the sales price. The underwriter may sometimes consider gifts, cash equivalents and borrowed funds as the borrower’s investment in the property.
  3. The verification of deposit or three month’s full bank statements may be used to verify each bank

account that will be used as funds to close.

iii.    Any new deposits must be verified as to source and seasoning requirements must be met.

  1. Gifts and Grants
  2. If any of the funds to close are to be obtained from a gift, obtain and place in the file a gift letter from the donor. The relationship of the donor must be stated on the form. The gift letter must state that no repayment is required and must be signed, dated and show the name and address of the donor party.
  3. Obtain verification of the donor’s ability to give the gift funds.

iii.    Obtain verification of the actual transfer of the gift funds to the borrower through an actual deposit of

the funds into the borrower’s account or a deposit to escrow.

  1. c. Other Sources of Funds
  2. The source of funds may be a secured loan against another asset owned. Be sure the payment on the new loan is included in the qualifying ratios.
  3. If funds are received from the sale of an asset, obtain evidence of the conveyance and transfer of funds.

iii.    In some cases a net trade of equity will be allowed as funds to close.

  1. iv. If the source of funds to close is a portion of the previous rental payment, obtain a copy of the rental/purchase agreement and evidence of payment of the rental amount. The amount credited to the rental portion must meet market rent for the area.
  2. v. If the source of funds to close is the sale of the borrower’s previous residence, a final copy of the

closing statement must be obtained.

  1. v If funds to close are coming from an IRA account or the sale of stock, the verification of the liquidation of funds must be verified.

 

  1. 5. BORROWERS’ INCOME

Since the borrower’s income is the source of the repayment of the loan, the standards and procedures governing the processing of documents verifying this income is an important part of quality control. There are many issues that can arise in this phase of loan processing, but the important overall considerations are whether the borrower can demonstrate an ability to repay the debt based on the history and stability of his income. The underwriter cannot consider unverified income when analyzing a loan.

  1. a. Wage Earners
  2. All income from salary or commission must be verified for each individual applicant.
  3. The income stated on the VOE must be supported by the year-to-date amounts shown on the VOE or the paycheck stubs.

iii.    All discrepancies in this information must be resolved and documented.

  1. iv. Verify all earnings including overtime and part-time earnings with the VOE in order to include them on the application for federal mortgage insurance or to consider them in support of the loan application. If overtime is to be considered, there must be history of it being received and a likelihood that it will continue.
  2. v. If alternative documentation is used for employment verification, obtain the most recent pay check stubs for  one  full  month,  two  years  previous  W-2’s  and  perform  a  verbal  VOE  to  obtain  the information that would be included on the VOE form.
  3. Self-Employed Applicant
  4. When the applicant is self-employed, obtain financial statement covering the previous two-year period that includes a balance sheet and a statement of income and expenses. In addition, tax returns for the most recent two years must be obtained with all schedules for al self-employed borrowers.
  5. If the business is a corporation or partnership, also obtain business tax returns for the most recent two years with all schedules.

iii.    A self-employed cash flow should be completed to analyse the tax returns to determine if sufficient

income can be determined to qualify for the loan

  1. c. Other Income
  2. Other income such as: social security, pension benefits, disability benefits, alimony, child support, welfare and trust or annuity payments can be considered as income under circumstances where the durability of the income can be established. The regular payment and the ongoing aspect of to the source must be considered before the income can used to qualify.
  3. Rental income can be used as income if appropriate verification of the rents received are obtained.

iii.    If the property is units, the rents of the additional units can be used to a percentage depending on the investor for the loan.

  1. 6. APPRAISAL

The purpose of the appraisal is to make an accurate determination of the property’s fair market value to assure that there is adequate security for the loan. Different agencies and investor have different requirements for how the appraisal is to be prepared and who is held responsible for the accuracy; however, the lender is always the final source of responsibility for accuracy of the appraisal.

Both the loan processor and the underwriter must carefully review the appraisal report to make sure it is complete and consistent. Some areas to review are;

  1. a. Review of Appraiser
  2. The appraiser must be licensed and the lender must obtain certification of that information. ii.    Be sure the appraiser has no conflict of interest in the property to be appraised.
  3. Review of Appraisal
  4. All appraisals must be on the uniform residential appraisal form, which may be computer generated. ii.    They are still inside the acceptable age (time from appraisal to funding).

iii.    The appraisal must be prepared for the originating lender.

  1. iv. Follow the instructions for the loan program you are working with as to ordering instructions for the appraisa
  2. v. Give the appraiser complete information for the transaction including any seller concessions and financing data.
  3. v Be sure the required photos of the property, all comparables and the street view are included along with all other required attachments.

vii.    Be sure the appraiser states the zoning and flood zone determination.

viii.    If the construction of the property is not complete, the appraiser must give an “after completion” value

and make the appraisal subject-to completion, which must be verified before closing the loan.

  1. 7. FILE REVIEW

Careful review of the file after gathering all exhibits form the applicant and other sources is crucial to the quality control plan. All information necessary for underwriting should be assembled and reviewed at this point.

  1. a. Using the document checklist, make sure that we have received all required documents and they are in the file.
  2. Review the loan application, credit report, VOE, pay stubs, VOD, bank statements, financial statements, tax returns and gift letters for completeness and accuracy.
  3. c. Check the age of documents and order new if they are too o
  4. Compare the borrower’s social security number to all other documents in the file for discrepancies.
  5. e. Complete the mortgage credit analysis form or the transmittal for
  6. f. When the file is complete, send it to the underwriter for review.
  1. 8. FINAL FACE-TO-FACE INTERVIEW
  2. a. The final face-to-face interview with the loan applicant is to be performed in processing a HUD loan if no initial face-to-face interview was taken.
  3. Review the application with the borrower to determine the accuracy of all information.
  4. c. Discuss the requirement for the borrower to occupy the property within 30 days after the loan is granted and discuss the financial position of the borrower and the source of all funds to close.
  1. Transmit the signed insurance application to the underwriter with the loan file.
  1. 9. UNDERWRITING
a. Complete the underwriting within 30 days of receiving the loan application.
b. Review the appraisal to determine if the appraiser’s conclusions are acceptable.
c. Review the mortgage loan documents to assure that they comply with agency and/or investor requirements. Be
sure all discrepancies have been resolved.
d. Review the credit history of each applicant to determine if there is a satisfactory repayment history for other
credit.
e. Be sure all documents are within the age requirement for the specific investor.
f. Review the borrower’s income to determine whether the income can be used to qualify for the loan, and
whether the income is stable.
g. Determine all debts that will be used in the qualifying ratios.
h. Calculate the ratios  of  housing expense to income and all  debts  to income.  Determine if  the ratios  are
acceptable to the agency or investor for the loan program.
i. Documents and state any and all offsetting factors to high ratios.
j. Determine if mortgage insurance is necessary for a conventional loan.
k. If the loan does not meet agency or investor requirements, disapprove the loan and forward to management.
l. An ECOA notice must be sent to the borrower for each rejected loan.
10. HIRING

USML hiring procedures scrubbing all employees and contractors involved in the origination of loans (including application through closing) against:

          FHFA Suspended Counterparty Program list

          LDP – HUD Limited Denial of Participation List

          GSA – US General Services Administration Excluded Party-list