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#2127166 - 04/19/17 11:15 PM new to QC - looking for information
JC (Darth HMDA) Offline
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JC (Darth HMDA)
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Hello everyone!

I have been assigned a project to review our QC processes and it is an entirely new subject I am learning about (not complaining, I enjoy expanding my world of knowledge). I have read through of the threads and I think we are going far beyond the requirements of the GSE's in our pre-closing QC reviews. I saw a thread where Randy said the pre-closing reviews should take no longer than 20-30 minutes. Is this accurate in everyone's experiences?

Also, is "Pre-closing" mean pre-consummation or pre-funding?

The Freddie guide just says "pre-closing" QC. In their glossary they define "closing" as:

"Closing (Closing Date): The completion of the real estate transaction between buyer and seller. The buyer signs the mortgage documents and the closing costs are paid. Also known as the settlement date."

So, does the pre-closing need to be completed (including corrections/responses) prior to signing the loan documents or can it be prior to funding the loan?

Any help would be greatly appreciated. Thank you!
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Lending Compliance
#2127242 - 04/20/17 02:57 PM Re: new to QC - looking for information JC (Darth HMDA)
Truffle Royale Offline

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By your own definition, closing is the signing of the docs. The definition you chose uses 'buyer' which means the bit about 'the closing costs are paid' happens on the same day as funding. Don't try to use this definition for a refi and split it apart.
The idea of a PRE-closing QC is to catch any errors BEFORE they are ground in stone.
Reviewing after closing, even if it was prior to funding, would be a POST closing QC review.

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#2127249 - 04/20/17 03:24 PM Re: new to QC - looking for information JC (Darth HMDA)
raitchjay Online
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OK
A pre-closing review of a TRID loan, with ATR included can be more like an hour or so for me. Maybe i'm slow.
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#2127250 - 04/20/17 03:25 PM Re: new to QC - looking for information JC (Darth HMDA)
raitchjay Online
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OK
(Of course, it also varies based on the quality of the work you're looking at. Ones with no mistakes go a lot quicker than ones with a lot of mistakes.)
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#2127269 - 04/20/17 03:58 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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JC (Darth HMDA)
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Thank you both. The program is designed as pre-closing (between time file added to doc draw que and before they are drawn).

The mortgage manager uses an "exception" to just draw docs in an effort to close faster so the QC review occurs between signing and funding (so after they are carved in stone). This landed in my arena because this just caused an ECOA violation because the QC identified an appraisal correction.

I went back and reviewed the "exceptions" used year to date.... it's not a pretty percentage of files where docs went out prior to QC being completed..

In any case, doesn't this violate the requirement for a "pre-closing" QC program?

Raitch - a TRID review of files takes me about an hour depending on how many disclosures are sent and how complicated the file is.

Im always a fan of more compliance review.. but compliance does not seem to be a requirement of pre-closing QC. Are you doing a full compliance review of the file at pre-closing or more of an underwriting review? It seems the goal would be to complete as quickly as possible so docs can be drawn. At least maybe in my organization it may result in less "exceptions" to draw docs. Our pre-closing QC can take 3-4 hours. We use the same question system as our post-closing which is hundreds of questions. Way too long in my opinion.

The FHLMC guide merely requires:

An effective preclosing quality control review process should include validation or
reverification of:
â–  Data entered into Loan Product AdvisorSM
â–  Social Security number provided by each Borrower, unless the Seller validated the
number during the loan origination process
â–  Income documentation and calculation
â–  Employment
â–  Assets required to close or meet reserves requirements
â–  Property valuation documentation or property valuation data
â–  Adequate mortgage insurance coverage
■ Whether additional credit was granted and considered in qualifying when the Borrower’s
credit report reveals inquiries within the previous 120-day period
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#2127277 - 04/20/17 04:28 PM Re: new to QC - looking for information JC (Darth HMDA)
raitchjay Online
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OK
I should have specified....i'm doing "QC", but i'm doing it for compliance, and i'm doing it because i want to (everything is relative.....i don't really "want" to.....but i want to find errors before the loans close...not afterwards). And my QC has nothing to do with Fannie or Freddie as we don't sell any loans on the secondary market.

I was talking to someone awhile back and they asked me to describe my compliance process...after a bit, she said "you're doing quality control"......so..i guess i am.
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#2127287 - 04/20/17 04:43 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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AH got it. Sorry, I should have specified. Asking about QC relating to GSE requirements for Pre-closing and Post-closing QC.

Right now it includes a full-blown compliance review (which again, I'm a fan of... but it takes a lot of time).

We do separate "monitoring" in the compliance department but it's post-closing. Our QC department is stand-alone.

Thank you Raitch!
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The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.

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#2127299 - 04/20/17 05:19 PM Re: new to QC - looking for information JC (Darth HMDA)
Truffle Royale Offline

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ok then, Darth, if you're talking GSE QC you're talking 10% of loan volume, not every loan.
Initially I was answering like raitch as far as reviewing every loan.

Here we do a general review after docs are drawn and prior to closing.
We do a second post closing review too.

But neither of these is an in-depth GSE QC audit.
Due to change in employees and job definitions, that is in the process of being reassigned here, likely to me.
So I too will be interested to see if anyone else chimes in here with their process.

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#2127409 - 04/20/17 11:19 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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JC (Darth HMDA)
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Thanks Truffle! Sorry for not being more clear in my initial post! (also sorry its going to fall in your lap!)

We outsource our post-closing QC but do our pre-funding QC in house. I just shadowed our QC person for a file review and they ask a LLLOOOTTTT of compliance questions.... and a lot of duplicate questions for some unknown reason. (this is a software provided by our post-close company for pre-close QC)

I would be very interested to hear others processes as well if anyone is interested in sharing! Thank you!
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#2127579 - 04/21/17 10:51 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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Any other lenders that perform QC care to share? (Sharing is caring) smile

Have a great weekend!
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#2127616 - 04/24/17 01:05 PM Re: new to QC - looking for information JC (Darth HMDA)
Dan Persfull Offline
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Bloomington, IN
My Pre-Closing Audits mirrors what you posted above from FHLMC.

Audit Date:
LP Data: Was the information entered into LP correctly
SSN: Do SSNs match or are there any "warnings" in the credit report.
Income: Is the required income documentation in file and what type of documentation was used.
Employment: Is the required employment verification in file and what type of verification was used.
Assets/Reserves: List of and balances of required accounts and the documentation source;
Appraisal/Evaluation: quick review of comps and value of the property
Mortgage Ins./PMI: Document commitment date and coverage is adequate
Additional credit granted if credit report contained inquiries with 120 days of the credit report: List inquiries and their dates and document a letter of explanation is in file.
Loan was underwritten and approved with the following exceptions:

20-30 minutes is an accurate time estimation however self employed persons can take an additional 10-15 minutes (depends how detail you get in reviewing the self employed worksheet).

I track all this in an Excel spreadsheet that I enter approved loans for the month and the loans chosen for review. The spread sheet calculates the number of approvals and the number of review and gives me monthly, quarterly and YTD totals. At the end of each quarter and the end of year I send a copy of the spreadsheet to management.
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#2127647 - 04/24/17 03:16 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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JC (Darth HMDA)
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Thank you for sharing Dan!
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#2128142 - 04/26/17 09:23 PM Re: new to QC - looking for information JC (Darth HMDA)
CountryBanker Offline
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Northern IL
Hey, Darth, I'll summarize my experience. I've moved on to a new employer after the old bank got swallowed up, but I have fond memories of setting up the Pre-Closing QC as CO. Had a full 2 years of performing the QC, we had a unit sending 800+ mortgages annually to the secondary market.

To meet the criteria to get into the QC, the file had to have its appraisal returned AND ready-to-close. For example, let's say 30 loans met the criteria: 20 purchases, 5 re-fi's, 3 VA, and 2 USDA loans. 10% says you only have to do 3 loans, right? But if you have a conscience, you look at the GSE's guidelines (can't tell you exactly where that's at) and the Prefunding QC Policy we wrote, and I would do 2 Purchases, 1 Refi, 1 VA, and 1 USDA. I think the GSE guidelines also say you may want to make sure your sample contains 1 loan from that New Lender, or 2 from that NEW branch (it's all about risk, right?).

Dan's list pretty much covers the major sections of the review, but we had a loan package that allowed a high degree of customization with forms. With 2 clicks, I could generate a 3-page Word doc crammed full of all the names, numbers, calcs, and notes for that loan. Sure, I needed to verify that the DTI figures coming out of the software matched what was on the credit bureau. For example, for appraisals, Dan's list contains "quick review of comps and value of the property." I didn't go thru the comps; I had the custom form pull the appraiser's name and license, and I verified that the correct appraisal figure got put into the App & the LTV was correct.

20 to 30 minutes is about right per loan. Tracked it all in a spreadsheet, reported to management, scanned the 3-pg QC forms into a PDF for audit & proof I actually did it. Post-closing QC was done by a vendor/third party. Happy QC-ing!
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#2128254 - 04/27/17 05:03 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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Thank you for the information CountryBanker! Greatly appreciate the insight!!! I may have more questions after I shadow the post-closing QC person tomorrow.

Definitely need to make some changes!!
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#2128664 - 05/01/17 11:52 PM Re: new to QC - looking for information JC (Darth HMDA)
JC (Darth HMDA) Offline
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JC (Darth HMDA)
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One more question if I may. I am having trouble finding anything on determining our organizations target gross and net defect rates. I understand you must have them, and it must be reported but I can't find any guidance on determining your target based on volume. We're a pretty small shop. Lets say we average 100 files sold to the GSE's per month. Our random, discretionary and targeted samples might equate to 20 files per month. If we have one file with an net error we are at 5% which puts us over our current target.

Would anyone be able to share guidance on determining your institutions target defect rate (or share their own based on volume)?

Thank you and sorry about all of the questions!
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