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Key Insights into Mortgage Agency Guidelines in 2024

Cost is most certainly a concern for mortgage companies. According to Fannie Mae’s Mortgage Lender Sentiment Survey, “cost-cutting” was lenders’ top priority in 2022 and 2023. It will likely be top of mind throughout 2024 as well. This prioritization has led to an immense number of layoffs over the last couple of years – many of which occurred in lenders’ compliance departments.

With volume expected to pick back up this year, the fact that originators are short-handed in the mortgage compliance area is very concerning…and can end up being very costly. In order to avoid fines, you need enough support to stay up to date on guideline changes and make the appropriate process updates to meet new requirements.

To help you prepare, here’s an overview of what you can expect from the mortgage agency compliance landscape in the year ahead:

Increased Focus on Collateral Risk Assessments

Fannie Mae highlighted the importance of meeting collateral risk assessment requirements during its latest quality control (QC) boot camp.

During the event, several collateral risk assessment-related issues were discussed. Some of the most prominent included:

  • Field reviews are still being completed instead of the new collateral risk assessments.
  • Collateral risk assessments are either not being completed or include contradictory information.
  • Post-closing QC plans fail to address collateral risk assessments.

Back in 2021, Fannie Mae and Freddie Mac replaced their field review requirement with a new collateral risk assessment requirement. With this new standard in place, lenders no longer need to obtain field reviews on ten percent of loans selected for post-close quality control reviews. Instead, they can utilize standardized data and third-party tools to complete collateral risk assessments for all mortgage loans with an appraisal as part of the random QC sample.

While there are certain circumstances in which field reviews are still required, this update largely reduced the amount of necessary field review completions. And yet, many lenders are still completing them instead of collateral risk assessments.

Several lenders don’t even include the assessments in their post-close QC plans, which is a major red flag to the agencies. The lenders who are trying to complete the new assessments are failing to include accurate information.

The fact that these issues were a major topic of conversation at Fannie Mae’s QC boot camp likely means they will be top of mind this year. It’s a good idea to review the collateral risk assessment requirements and update processes accordingly, so you can ensure you’ll meet compliance standards under the agencies’ post-closing QC review guidelines.

Continued Appraisal Quality Challenges

Data is the lifeblood of the mortgage industry, and the Federal Housing Finance Agency (FHFA) has been focused on appraisal data, in particular, for years. In October 2022, the agency published its first Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File, which has been released quarterly since. The purpose of publishing this piece is to increase data transparency, gain a better understanding of the appraisal process, and improve compliance systems.

In June 2023, the FHFA updated it to include more property attributes as well as data on residential property sales comparables. With this in mind, the fact that Fannie Mae focused on appraisal data quality – specifically regarding comparables – during its 2023 QC boot camp shouldn’t come as a surprise.

As stated during the event, comparable and subject property condition data has been inconsistent. Fannie Mae identified several specific problem areas, including incorrect data in appraisal reports, inaccurate analyses due to incorrect data flow to collateral underwriters, and failure to validate data with photos.

The government-sponsored enterprise also provided several solutions to these problems, such as reviewing collateral underwriter messages, checking for differences and similarities in photos, and ensuring appraisers’ property descriptions align with UAD definitions. Keep these suggestions in mind as you navigate the 2024 mortgage compliance landscape.

More Time & Resources Invested in Pre-Fund Quality Control

Fannie Mae said it best: “Prefunding QC is the most important tool in your QC toolbox for identifying risk and remediating it before you own it. Invest in pulling risk forward, i.e., address risk before loans are closed, use strategic discretionary reviews, and mitigate risks before they become problems or financial liabilities.”

It’s no secret that pre-funding QC is critical to ensuring loan quality, and yet, some lenders don’t invest enough time and resources into it. With the recent requirement update that went into effect in September 2023, ensuring you do invest enough time and resources into it this year is crucial.

The update states that based on the prior month’s total closings, lenders are required to review the lesser of 10% or 750 loans. If you conduct pre-fund audits in-house, ensure your staff stays up to date on changes like this one.

Amplified Need to Upgrade Processes

The financial services sector as a whole is highly competitive. A recent American Bankers Association survey found that 76% of consumers feel as though they have an abundance of options when choosing a bank.

In order to effectively compete in today’s low-volume mortgage market and take advantage of opportunities that arise as volume picks up later this year, you need to simultaneously boost efficiency and ensure compliance. Upgrading your mortgage quality control processes is a great way to achieve both.

For many, the key to upgrading mortgage QC processes is outsourcing. By outsourcing mortgage QC to a trusted vendor with post-close auditing and pre-fund auditing experience as well as advanced reporting technology, you won’t have to worry about the other challenges mentioned in this post.

Your mortgage QC partner will stay abreast of the latest updates and ensure their processes are up to snuff. In addition to ensuring compliance and increasing efficiency, outsourcing QC can help you reduce mortgage compliance costs by taking advantage of a variable cost model.

Outsourcing will also help you navigate temporary increases and decreases in volume as production rises and falls with rates. With the right services, you can readily capture refinance activity when the opportunity presents itself and maintain peace of mind when you need to scale back down.

MetaSource: Your Key to Ensuring Mortgage Compliance in 2024

MetaSource is a well-established mortgage compliance partner offering pre-fund, post-close, and servicing QC audit services as well as advanced QC reporting software. We take pride in helping our clients simultaneously ensure compliance, boost efficiency, and reduce costs. Our team of experts stay up to date on the latest mortgage compliance changes, so you don’t have to.

To learn more about our mortgage quality control solutions, contact us today. If you’re not quite ready for a conversation and would like to dive into what the right mortgage QC partner looks like, download our free guide.

Your Guide to Finding the Right Mortgage QC Partner

The right mortgage QC partner can help you increase efficiency, drastically reduce costs, overcome obstacles, and ensure compliance. Learn how to make the right decision in our guide!