If I was selling loans at the moment and I wanted to reduce secondary marketing 'leakage', I would take special note of the changes, updates, and guidance's offered by Fannie Mae's QC department in Lender Letter 2010-03 below.
THE LOAN QUALITY INITIATIVE!
(aka loan repurchase world!)
The only thing I might add before you read on is FNs loan purchasing systems/work flow are tedious and usually time consuming.
Historically, many issues related to compliance with Fannie Mae selling policies are not detected until after loans are delinquent or through the foreclosure process. Loan repurchase requests to lenders have increased in the past three years, highlighting the need for an improved approach for working with lenders to deliver loans that meet Fannie Mae’s underwriting and eligibility guidelines. Fannie Mae conducted an extensive analysis to determine the primary drivers of repurchase requests and is launching the Loan Quality Initiative (LQI) to identify and implement policy, process, and technology enhancements to improve the compliance with underwriting and eligibility guidelines and mitigate repurchase risk.
Working with its lender partners, Fannie Mae will implement the LQI enhancements to promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage. The LQI will also help ensure that the loan meets the credit and eligibility standards, pricing guidelines, and other requirements of the Selling Guide or negotiated variances. A primary focus is on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery.
This updated approach is designed to stand the test of time across market cycles and risk tolerances, thus supporting market stability and reducing investor and lender risk. Changes introduced under the LQI are intended to reduce repurchase requests through improved data integrity and consistent and early feedback on policy compliance while maintaining the current business model of relying on lenders to make appropriate decisions in accordance with Fannie Mae’s guidelines.
Over the next few months, Fannie Mae will release a number of Selling and Servicing Guide announcements and release notes (Loan Delivery and Desktop Underwriter®) that will describe the specific changes that fall under the LQI. The purpose of this Lender Letter is to familiarize lenders with the changes that are coming to facilitate lender planning and allocation of resources for the implementation
Here are a few more excerpts intermingled with my comments:
Fannie Mae will be substantially rewriting Part D of the Selling Guide to include new and updated quality control policies, and reorganizing the topics to help lenders locate specific policies more efficiently. The policy changes will address prefunding quality control, sampling methodologies, reporting, and auditing.
"Substantially rewriting" is what scared me in that statement. This means bank QC staff will soon be required to net some classroom time.
Lenders may designate appraisal providers or correspondent lenders as agents to submit appraisal reports to CDD on its behalf. Lenders, designated agents, and correspondent lenders must register for access to CDD and execute the appropriate licensing agreement
Appraisal risk is on the originator. This next update might address the issue I shared above re: the tedious loan purchasing process
Loan Delivery Enhancements - Validation of Loan Eligibility at Delivery
Many repurchase requests are driven by the fact that the delivered loan does not meet Fannie Mae’s eligibility requirements. Fannie Mae will be implementing several changes to its delivery requirements to proactively identify ineligible loans at delivery. These changes will be phased in over the course of the next year
FN is attempting to reduce the number of new loan repurchase requests by locating ineligible loans before they are purchased. This means there is going to be a healthy market for approve/ineligible agency loan paper. Getting acquainted with a friendly scratch and dent desk seems like a smart idea.
Perhaps this is where private funding sources will reflate the non-agency secondary mortgage market?
They are using XML too. Thats a big plus.
READ THE ENTIRE RELEASE HERE
What percentage of files do you think they QC right now?
PS...Lenders are encouraged to refer to the Web site on a regular basis, as new and updated information will become available. Lenders may also contact their Fannie Mae Account Team for additional information.
Sounds like FN is saying "STAY ON YOUR TOES" people, we're gonna get a little nitpicky.