June 5, 2023
By Luana Slettedahl, Principal at BlackFin Group
Guideline Changes starting September 1, 2023: Announcement SEL-2023-02
A key element in managing any business is the ability to identify “defects” that cause reputational and financial risk. In the principles of lean six sigma this is otherwise known as the manufacturing process – is it working or not?
To ensure the manufacturing process of lending meets the countless industry requirements of today, is Quality Control. While the phrase ‘Quality Control’ itself can cause folks to push back and sets an underlying tone for a negative relationship with the agencies, or that any new rule is going to once again be considered ‘overkill.’ The truth of the matter is that Quality Control should be your firm’s best friend and is expected to ensure the on-going success of your lending institution.
Quality Control Programs are to be designed, tested, and re-evaluated based on sound business experience, evolving loan performance, other missteps, and known trends. Ultimately resulting in an improved loan manufacturing process. Subsequently, your team will reduce the long-term financial risk, which then has a guaranteed impact on your firms ROI. How many times can you develop and embrace standards that are guaranteed to impact ROI? So, ask yourself – How does your firm rate?
Consider for a second, the better the loan quality and loan performance, the better your firm’s reputation becomes. The higher value always gets a higher price! While stakeholders can be siloed in their own area of expertise, they may not embrace the importance of a strong Quality Control Program. However, the consequences go beyond the operational aspects. These industry standards have a direct impact on the method in which loans that are sold on a whole loan basis, or securitized in a mortgage-backed security are priced in the market. In addition, buyers of loans on a service-released basis, whether it be on a Correspondent model, or selling large volumes of the mortgage servicing asset (MSR) under a co-issue, AOT, or bulk sale agreement react to the quality of the mortgage asset.
And, since Guide Changes can be missed, be aware that some recent changes published by Fannie Mae in their Selling Guide Announcement, SEL-2023-02 must be implemented and in process at your firm by September 1, 2023.
KEY CHANGES ANNOUNCED
The minimum number of loans for prefunding review must now be 10% of the prior month’s total number of closings or 750 loans. That means that September prefunding percentages are based upon the number of loans closed in August.
The QC cycle time from start-to-finish (which includes reporting to, review by Leadership and remediation) is changing from 120 days to 90 days. For clarification, implementation of this Guide Change starts September 1, 2023 – so your new QC cycle also starts September 1, 2023 and must be complete by November 30, 2023.
I encourage you to discuss this topic at your next Leadership meeting. When everyone understands the changes, you can react and implement changes collectively and your firm is able to demonstrate a cohesive forum of Change Management – another Fannie Mae requirement.
While I could give real life examples of loans that did not meet loan eligibility requirements with either Fannie Mae, Freddie Mac or Ginnie Mae we won’t go down that path in this blog. Let’s simply turn those experiences into a better approach on a go forward basis.
If your firm is searching to improve your Quality Control processes – please reach out to the team at BlackFin Group for support and consulting in this area. It isn’t just Quality Control – it’s making the process and frameworks have positive outcomes in all the other areas of your firm.
Luana Slettedahl is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements. In conjunction with her understanding how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com