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Question: What do lenders need to consider with regard to Fannie Mae’s QC calibration process?

Answer:

Fannie Mae increased its performance of QC calibrations in recent months after announcing in June 2022 that it would expand and formalize the QC calibration process. QC calibration is the process of comparing a lender’s own internal QC results to a known measurement or standard to confirm the accuracy of the lender’s results. In its January 2024 Quality Insider, Fannie Mae shed light on some of its key learnings and observations from the QC calibrations recently performed. Specifically, among other issues, Fannie Mae indicated:

• It identified numerous instances of self-reporting violations. Fannie Mae requires lenders to self-report loans found to have a defect making the loan ineligible for sale to Fannie Mae within 30 calendar days of confirming the defect. The calibration exercises identified instances in which self-reporting did not occur or exceeded this timeframe. Lenders must self-report through Loan Quality Connect™. See Selling Guide D1-3-06.

• Lenders failed to identify collateral-related quality control issues at the same frequency and severity levels as Fannie Mae. For instance, Fannie Mae noted that more than half of the lenders reviewed cited no appraisal findings in their QC reviews on loans where Fannie Mae cited appraisal findings.

• Lenders may benefit from revising how they classify identified errors/issues related to the 4506-C. For example, citing the specific reasons tax transcripts were not in the file may assist a lender with performing a root cause analysis (i.e. specific reasons may include that transcripts were ordered but not returned in time for the QC review, transcripts were ordered but the 4506-C was rejected because of incorrect information, or that transcripts weren’t ordered because the 4506-C form was missing).

Fannie Mae will continue to perform these QC calibration exercises and indicates the key objective is to provide feedback to help lenders determine if their internal QC program is accurately identifying and classifying defects.