Quest Advisors provides quality control services consisting of approved loan file QC reviews, denied file reviews, defaulted file reviews, investor repurchase and QC Plan/Policy development options, that satisfy agency requirements.
- Post Closing Quality Control Reviews
Our underwriters are trained and experienced in all types of loan programs including Fannie Mae, Freddie Mac, FHA, VA, USDA, Non-Conforming, Conventional, Home Equity, and alternative residential loan programs. Thorough, detailed and expedient reporting is the hallmark of our highly experienced staff. Reports are typically delivered within a thirty-day timeframe.
File Selection – Random file selection is conducted by either Quest or the client and is consistent with secondary market guidelines or customized to fit additional criteria specified in the client’s Quality Control Plan. Selected files may be submitted for review as image files securely uploaded to our encrypted website or Quest can log directly into our clients system (ie. Encompass, Blitzdocs) in order to review the loan files.
Reverification – Employment, income, credit, asset, and alternative documents in the loan file originally verified by the lender, as well as borrower applications, are reverified by a series of mailings, telephone calls, and internet searches. The return rate of these mailings is maximized through occupancy investigation using internet and information searches. All of the reverification information is then analyzed to validate the integrity and reasonable accuracy of documents used in the credit decision process.
Appraisal Review – Fannie Mae and Freddie Mac Home Valuation Code of Conduct (HVCC) appraisal review requirements are followed. A desk review for each appraisal in the loan sample is performed, and a field review is conducted on 10% of the appraisals in the sample, to evaluate the reasonableness of appraisals used in the client’s loan decisions. Third party property valuation models are used to further evaluate the appraisal desk review findings when deemed appropriate.
Credit reports – Infile merged or full residential credit reports are ordered as required by secondary market or the client’s Quality Control Plan requirements to validate both the credit information and the quality of the credit reporting agencies used by the client.
Loan Documentation – Loan file documentation is reviewed for accuracy and compliance, including state and federal regulatory and legal documentation. Final figures are recalculated, including APR, finance charges, and closing costs.
Analysis of Approval Decision – Quest reviews the credit-related documentation and recalculates required ratios and funds to close to evaluate the overall credit decision relative to program guidelines.
Fraud Detection – Throughout the loan file review process, Quest remains alert for potential fraud indications when reviewing reverifications, appraisals, and other loan documentation, utilizing third-party fraud detection tools when deemed appropriate. While fraud is often difficult to detect, such vigilance can increase client management’s opportunity to spot potential control weaknesses caused by intentional misrepresentations.
Management Reporting – Quest will provide detailed, thorough and easy-to-read reports typically within thirty days. These Quality control reports summarize audit results which are measured against applicable agency requirements and render an overall Risk Analysis rating for each loan file. The management reports also provide a detailed analysis of each loan review. Results are also available in graphic presentations that provide comparative analysis of quality assurance results for past months up to a full year. The findings can be presented in different formats that provide information and trends about specific loan products, areas of the loan process, underwriters, production branches, brokers, and correspondents.
- Denied Loan Reviews
While FHA requires a quality control review of a 10 percent random sample of denied and withdrawn loan files, it is also recommended such reviews be completed for conventional loans as well in response to the CFPB focus on all of a lender’s loan programs. For this review, Quest Advisors will focus on whether an Adverse Action Notice was properly issued within the required timeframe, that the reason for the decline or withdrawal stated on the notice was appropriate, and if the reason for denial or withdrawal was documented in accordance with state and federal regulations. The disclosure is also reviewed to ensure the notice properly communicated the adverse action taken, particularly in light of fair lending requirements and regulator expectations.
Re-verifications, appraisal field reviews, closing documents, and regulatory compliance documents beyond origination disclosures and the Adverse Action Notice are not included in this type of review.
- Early Payment Default (EPD) Reviews
Quest Advisors provides quality control focused reviews of loan files that have suffered early payment default, as required by HUD, FHA, VA, Fannie Mae, and Freddie Mac. EPD loans identified by the client can be submitted to Quest Advisors for audit and analysis. The review is focused on assessing the potential reasons for default, whether the lender originated the loan compliance with investor guidelines and documentation requirements, and for any sign of misrepresentation that may exist. The review typically includes:
- File Selection – Selected files may be submitted for review as image files securely uploaded to our encrypted website or Quest can log directly into our clients system (ie. Encompass, Blitzdocs) in order to review the loan files.
- Re-verification – Employment, income, credit, asset, and alternative documents in the loan file originally verified by the lender are re-verified by a series of mailings, telephone calls, and Internet searches. All of the re-verification information is then analyzed to validate the integrity and reasonable accuracy of documents used in the lender’s credit decision process.
- Current Employment Verification – In addition to verifying the validity and accuracy of the original lender documentation and the borrower’s employment when the loan was approved and funded, the Quest Advisors auditor conducts a verbal employment verification. While reviewing the loan file to determine if the employer currently still exists and if the borrower (1) was employed when the loan closed and funded, (2) is currently employed at that employer, (3) what the job position is if still employed at that employer, and (4) the date of termination if not still employed at that employer. Current validation of employment with the employer when the loan was originated can provide indications of what may have caused the loan default.
- Appraisal Review – A desk review of the original appraisal in the EPD loan file is performed to evaluate the rationality of the subject appraisal used in the client’s loan decisions. Third-party property valuation models are used to further evaluate the appraisal desk review findings when deemed appropriate. If the subject appraisal appears to not support the valuation used for the subject loan approval, or if there appears to be signs of misrepresentation, a retrospective field review of the subject original appraisal may be obtained as part of the EPD review.
- Credit reports – In-file merged credit reports are ordered to determine if excessive liabilities have been incurred after the closing of the subject loan that may have contributed to the payment default; or, if there were liabilities incurred prior to or simultaneously with the closing of the subject loan that were not disclosed by the borrower to the lender.
- Loan Documentation – Loan file documentation is reviewed for accuracy and compliance with appropriate lender and investor guidelines. Regulatory Compliance reviews are not conducted for EPD loan file reviews, except to:
- Check for the existence of the Final HUD-1 to validate the terms of the loan transaction and the parties involved as required by most investor guidelines.
- To check for the existence and accuracy of the Final TIL and Notice of the Right to Cancel for loans that refinance the borrower’s primary residence relative to satisfaction of the borrower’s initial 3 day right to rescind
- Determination if the TIL finance charge is understated by more than $35 to allow extended borrower loan rescission rights if the investor or servicer of the loan initiates foreclosure actions.
- Analysis of Approval Decision – Quest Advisors reviews the credit-related documentation and recalculates required ratios and funds too close to evaluate the overall credit decision relative to program guidelines. Final LTV ratios, verified asset amounts, income, and debt ratios are recalculated.
- Fraud Detection – Throughout the EPD loan file review process, Quest Advisors remains alert for potential fraud indications when reviewing re-verifications, appraisals, and other loan documentation. We utilize third-party fraud detection tools for each EPD loan file. While fraud is often difficult to detect, attention to red flags indicating misrepresentation by the borrower or parties involved in the transaction can provide the client with information needed to further investigate potential liabilities or grounds for loss recovery that may be possible.
- Management Reporting – Quest Advisors will provide detailed, thorough and easy-to-read reports typically within thirty days. These quality control reports summarize EPD audit results and render an overall risk analysis rating for each loan file relative to the risk of a potential repurchase demand made of the client by the investor. The management reports also provide a detailed analysis of findings for each loan review.
- Investor Repurchase
On occasion, a lender may be requested by investors, the agencies, or a company to indemnify for losses realized or repurchase a loan that has gone into default. Quest Advisors will review repurchase requests to determine the validity of the request and/or help determine if there is a documented defense against the repurchase. Quest Advisors may also discover unacceptable trends or practices that if corrected may reduce future repurchase requests. Similarly, mortgage insurance (MI) claim denials can be reviewed by our team to determine the validity of the denial; and to make recommendations to help minimize or avoid future denials.
A Prefunding QC review is conducted on a sampling of loans selected by the Client prior to the completion of the loan closing package, but after the loan has cleared pre-closing conditions required by the underwriting approval decision. The Pre-Funding QC Review relies on the documentation in the loan file and does not reverify that documentation. QA will recalculate income and assets verified in the loan file as well as validate the credit report to the liabilities reported. The housing ratio, total debt-to-income ratio, and LTV ratio will be recalculated and checked against the underwriting documentation used for the approval (AUS or manual) to validate data integrity.
The Client will obtain and provide IRS Tax Transcripts, a refreshed credit report and a third-party fraud detection report (if applicable) for all loans submitted to QA for a Pre-Funding QC Review. QA will examine the IRS Tax Transcripts in comparison with the income in the file to ensure accurate approval. QA will also examine the refreshed credit report in comparison against the original credit report for undisclosed liabilities. If the Client desires a fraud detection report be reviewed, then QA will review the third-party fraud detection report provided in the file to check for possible misrepresentation red flags concerning the borrowers and/or property.