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Question:  I understand mortgage servicers need to perform Servicing Quality Control (QC) reviews on the FNMA, FHLMC, and GNMA loans that they, or their sub-servicer, service, but are mortgage servicers also required to perform Servicing QC on portfolio loans?

Answer:  Yes.  The Consumer Financial Protection Bureau (CFPB) describes the management and audit functions it expects of mortgage servicers.  These management and audit functions apply to portfolio loans.  Residential mortgage servicers must ensure that the loans in their portfolio are serviced compliantly, without creating undue risks of harm to consumers.  The CFPB’s Compliance Management Review (CMR) Examination Procedures specifically provide the following:

"To maintain legal compliance, an institution must develop and maintain a sound compliance management system (CMS) that is integrated into the overall framework for product design, delivery, and administration across their entire product and service lifecycle. Ultimately, compliance should be part of the day-to-day responsibilities of management and the employees of a supervised entity; issues should be self-identified; and corrective action should be initiated by the entity."

Additionally, part of what the CFPB requires for an effective compliance management system (CMS) is monitoring and/or audit.  The CFPB indicated that examiners should evaluate monitoring and audit programs to ensure they are commensurate with an institution’s size, complexity, and risk profile. 

Thus, although mortgage servicers may maintain some deference with regard to their portfolio loan servicing QC function, the requirement to maintain compliance certainly extends to servicing of these loans.  The expectation is that a servicer will both (i) identify issues and (ii) implement corrective action measures.  If servicers are not performing QC or loan file auditing on portfolio loans, they may not adequately identify and correct issues, which may result in harm to consumers.