PDF Quality Quality Control Best Practices - Freddie Mac

Quality Control Best Practices

Quality Control Best Practices

August 2018

Available at singlefamily/quality_control.html

Quality Control Best Practices Contents August 2018

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Quality Control Best Practices

Contents

The chapters in the Quality Control Best Practices cover the following:

TOPIC

CHAPTER

Introduction

1

Establishing and Managing an In-House Quality Control Program

2

Implementing an In-House Quality Control Program

3

Quality Control Program Reporting Requirements

4

Freddie Mac Postfunding Quality Control Review

5

In addition, you will find:

Exhibit QC1, Sample Origination and Closing Documents Checklists, provides helpful checklists on documents to review in the loan file.

Exhibit QC2, Sample Document Review Checklists, provides helpful checklists on a variety of topics, including mortgage application, credit reports, sales contract, etc.

Freddie Mac Contact Information.

Keep in mind that the best practices noted here are provided to assist you in establishing a new, or improving your existing, quality control program. This information is not a substitute for Freddie Mac Single-Family Seller/Servicer Guide requirements and may not address all the circumstances or meet all the needs of your organization.

Quality Control Best Practices Contents August 2018

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Quality Control Best Practices

Chapter 1 ? Introduction

Overview

Our extensive research into the practices of successful mortgage lenders has strengthened our belief that reliable and effective quality control programs are essential to the mortgage industry. Organizations with a commitment to quality control recognize that quality begins before an application is taken and continues throughout the entire mortgage origination process. The purpose of a quality control program is to monitor and evaluate the integrity of the origination process and to provide feedback to the organization about its loan originations. This publication provides you with requirements and best practices for designing, administering and documenting an effective quality control program for Loan Product Advisor? mortgages, non-Loan Product Advisor mortgages and mortgages that are manually underwritten.

General Requirements

You must meet all the quality control requirements found in the Freddie Mac SingleFamily Seller/Servicer Guide (Guide) as a condition to selling home mortgages to Freddie Mac. We have included Guide requirements for reference in this booklet and have indicated the Guide section where you will find the requirement. To verify that you are in compliance with all our requirements, please refer to Chapter 3402 of the Guide titled "Seller's In-House Quality Control Program." The best practices noted in this document are based on our experience and controls currently being used in the industry. Although you are not required to implement these best practices, we encourage you to refer to them and customize your quality control program to reflect your company's organization, circumstances, and needs.

Chapter 1 ? Introduction August 2018

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Quality Control Best Practices

Chapter 2 ? Establishing and Managing an In-House Quality Control Program

Overview

While no single quality control program can meet the needs of all Sellers, certain characteristics are found in all effective quality control programs. These characteristics are the foundation of our requirements.

General Requirements (see Guide Section 3402.1)

To comply with the Guide, you must operate a quality control program for home mortgages that is acceptable to Freddie Mac. Your quality control program should take into account the individual characteristics of your organization and reflect:

The size and structure of your organization

The experience and expertise of the staff

The geographic areas of operation

The branch structure

The volume and types of mortgages originated

The origination sources used (for example, from mortgage brokers or correspondents or via the Internet)

Any significant changes in the product lines, origination sources or production process

Controls in place to ensure that internal policies and procedures are followed

Your quality control program must:

Be in writing

Provide for standard operating procedures for all employees who will be involved with or affected by the quality control process

Be capable of evaluating and monitoring the overall quality of your mortgage production on a regular and timely basis

Include preclosing and postclosing quality control reviews

Include procedures to ensure that sample selection mortgage file reviews and the reporting of findings to senior management are conducted in a timely manner

Chapter 2 ? Establishing and Managing an In-House Quality Control Program August 2018

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Quality Control Best Practices

You may use any combination of preclosing or postclosing quality control reviews based on your specific operations and needs. Your postclosing in-house quality control program must operate independently of the mortgage origination and underwriting departments. Your preclosing in-house quality control process should operate independently of the mortgage origination and underwriting departments when operationally possible.

You must also comply with the requirement of Guide Section 3201.1(c) relating to fraud prevention and detection in your quality control program, as well as other applicable requirements of Guide Chapter 3201 relating to fraud prevention, detection, and reporting.

Your review of the mortgage file and reverifications must:

Determine compliance with the requirements of the Purchase Documents for mortgages sold to Freddie Mac

Assess whether the mortgage was properly underwritten based on prudent underwriting practices and sound underwriting judgment

Assess the data integrity -- this is important whether you are transmitting loan data to investors or using an automated underwriting system

Responsibilities of a Quality Control Representative

When establishing a quality control program, you should designate one individual in your company to be the quality control representative. This representative will have overall responsibility for implementing and coordinating activities under your quality control program.

Depending on the size of your company, the quality control representative may have other responsibilities. However, this individual must not be responsible for mortgage origination, processing, or underwriting functions.

Typical responsibilities of the quality control representative may include:

Maintaining and disseminating up-to-date information on your requirements as well as the requirements of mortgage insurers, applicable government entities and your investors, including Freddie Mac

Ensuring that your reviewers have the appropriate skills and experience to perform quality control reviews

Having the authority to modify the program when necessary to meet the objectives of the program

Reporting quality control findings to senior management

Working with the appropriate areas to develop recommended solutions to problems uncovered in quality control reviews

Chapter 2 ? Establishing and Managing an In-House Quality Control Program August 2018

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