Recent Fannie Mae update has mortgage industry evaluating operational decisions: the information you need

On March 1, the Federal National Mortgage Association (aka Fannie Mae) released its Selling Notice (SEL-2023-02), which features several pivotal updates for the mortgage industry. Most notably, it introduces updated quality control (QC) requirements in an effort to improve overall loan quality and reduce the number of loans requiring post-close remediation by lenders. Fannie Mae also enhanced both prefunding and post-closing QC policies and is encouraging lenders to implement them immediately.

Lender quality control key updates

• Reporting requirements were enhanced in order to ensure lenders are delivering the proper data and information derived from their QC results.
• Lenders must now complete a minimum number of prefunding reviews monthly and the total number of loans to be reviewed must equal either 10% of the prior month’s total closings or 750 loans.
• The time frame for the post-closing QC cycle will now be 90 days instead of 120, and individual component time frames have been eliminated, thus allowing lenders to complete each part of the QC cycle as they see fit.
• Supplementary guidance has been provided for the key differences between full-file and component reviews to maximize lender efficiencies in meeting these numbers.

Fannie Mae stated that lenders must implement these changes no later than Sept. 1, 2023. The 10% prefunding loan population in the September 2023 cycle will be based on the total number of loans closed the month prior. The post-closing cycle that begins Sept. 1 must be completed by Nov. 30, 2023.

Full-file and component review supplementary guidance

As a long-standing practice, Fannie Mae encourages lenders to focus QC efforts on areas that have a higher potential for errors, misrepresentation or fraud, for example, loans with complex income calculations (rental, self-employed, etc.), loans with nonstandard guidelines or loans secured by properties experiencing rapid increases or declines of property values.

As part of the new guidance, Fannie Mae added two additional areas of focus: