Servicing Audit

My bank does not originate any consumer loans but we do service a small pool of residential loans. Does anyone have an audit program tailored to loan servicing (both residential and non-residential) that you'd be willing to share?

OK. Let me ask you this. If all we do is servicing do I need to perform an audit on the initial disclosures provided on the loans that we purcahsed? If not, the it would only be subsequent disclosures I would need to audit for, correct? We do not do refinances so that should not come into play as for as initial disclosures either.

So you are purchasing real estate loans and then providing the servicing on them, is that correct? Do you then keep those loans in house our are you selling them to fannie or freddie and retaining the servicing?

We keep them in house and service them but the initial disclosures have already been reviewed by examiners.

By examiners do you mean your regulatory agency or your underwriting staff?

We do not purchase loans but we do sell on the secondary market. I can tell you that the third parties we sell to both conduct a robust compliance audit BEFORE they agree to purchase the loan. The loan must also meet their underwriting standards. I would imagine as an auditor you would want to make sure both of those areas are being covered.

I guess one of my questions is, if I'm building an Audit Program, and I know something from the Exam Manual isn't applicable, like, for instance, credit cards, can I just leave that section out of my audit procedures or do I need to include it in my procedures and say that it's not applicable.

I would like to be able to leave out the initial disclosure section all together since we do not originate any consumer loans EVER, but I'm not 100% sure I can do that. thoughts?

If you know one whole section does not apply to your bank, I would leave it out of your audit program. I have done it both ways.

Since assignees now assume liability for disclosure issues, why would you exclude that review? Of course it really should be a big part of the due diligence process prior to purchasing the loan, but auditing the due diligence process should still happen.

As far as the rest of it. You start with a risk assessment and building your audit processes around that.

2 reasons maybe to consider including it (at least in the RA or scope), but stating it's N/A:

(1) the examiners will recognize that you recognized to include it in the audit scope; it just doesn't apply. Then it doesn't look like you "forgot" something.

(2) if the section ever becomes applicable to you - if you start originating consumer loans, then you'll have it there ready to go for the audit.

I guess it really will depend on how your workpapers are set up.

I would address it in the risk assessment. Why have papers that says "N/A" when you can point to the RA.

The loans have been on the books for awhile and have gone through an exam. I am building a new compliance audit program. My thought process is that the loans have been on the books for so long and have already been reviewed by examiners, would they really go back more than 18 months and ask to see initial disclosures again, especially since it was part of the last examination scope?

I really don't think consumer loans are in our future so I think I like the idea of risk assessing them as nil and leaving them out of my procedures.

Thanks everyone.

I retract this statement. I think I had a momentary lapse in sanity. I can see the need to check a sampling of these initial disclosures in today's regulatory climate.