A Guide to Carrying Out Post-Closure Mortgage Quality Assurance Successfully


Complacency in QC rules and regulations played a significant role in the US subprime market collapse of 2007-2010. Consequently, the Federal government has tightened its rulebook over time to provide critical recommendations that now take hours to complete. Such regulations as post-funding audits exist for good reasons. For example, they validate the collateral and the mortgage application per se.

Auditors performing the post-closing audit must review documents, analyze credit risk, verify third parties, underwrite evaluation taxes, etc. This process helps identify and control errors while also protecting the lender, who is often at greater risk in defaulter situations.

Yet, even though lenders acknowledge the importance of post-closing audits, they face challenges in maneuvering the enhanced disclosure requirements and other mandated paperwork. Moreover, loan request volumes take a toll on the staff, creating haste that may cause record inconsistencies. Luckily, such challenges can be overcome with additional expert help. In the meantime, here is a checklist to remember when conducting your post-closure audits.

4 Things to Consider During Post-Closure Audits

Identifying a smooth process that works for your organization is crucial to the success of your pre-and post-closure audits. That said, here are things you must factor in to ensure that you cover all the essential bases.

1. File Review

An auditor must review each file thoroughly, from the initial application paperwork to the final closing documents. They should also have a checklist and note any findings, especially irregularities.

File reviewing can be the most demanding part of the post-audit review process. The availability of technical skills is vital to minimizing any chances of errors. Most lenders often find it practical to work with an outsourcing partner. In this case, you must ensure the partner specializes in your specific type of mortgage.

That said, the importance of in-house expertise should be emphasized too. The lender is often held liable even when outsourcing certain services. Consider consulting an expert if you need clarification on the adequacy of the technical expertise involved in handling your audits.

2. Financial Re-Verification

  • Financial re-verification is a mandatory step in post-funding QC. During this phase, the auditor must:Re-verify income, assets, and employment. It would also help to ask for a new credit report and compare it against the one already in the file.
  • Calculate the loan-to-value ratios, including the CLTV. The loan-to-value ratio offers insight into the quality of the loan. A too-high ratio indicates that the loan mortgage value may fail to cover the defaulted loan in case things do not work out.
  • Double-check the applicant’s debt-to-income ratio and other applicant liabilities to establish their financial stability and ability to pay off the mortgage.

Additionally, you must show the dates when the employer, bank, etc., were contacted for the information, identify the phone numbers of individuals contacted, any third-party sources involved in obtaining the data, and the relevant IRS income information to match.

Some elements of the financial re-verification process — like employment and income — may be delegated to a third party. However, the lender remains liable for the integrity of all the information in the documents.

3. Appraisal Desk Review

In this stage, you review the appraisal and make notes regarding any elements the appraiser or underwriter may have left out. Moreover, the reviewer verifies the accuracy of the report data, the legitimacy of comparable property sales, and evidence of the final values. However, this stage does not involve the collection of any new information.

4. Report Findings

By this phase, the auditor is done reviewing the files. They combine the findings and submit everything to senior management for a final review, ensuring the finished work’s accuracy and quality. This step should be taken in 30 days following the completion of the QC review.

The report must be comprehensive, featuring details such as error rate, the top defects found, and possible actions to be taken. Additionally, mortgages such as Fannie Mae require a report within 30 days if any findings deem the loan application ineligible.

Bottomline on Mortgage QC after Home Closing

The common denominator of post-closure QC is thoroughness. Nothing can be left to chance when so much is at stake. As mentioned, the lender is often at greater risk in the case of a defaulter. Be sure to use qualified technical expertise, outsource where need be, and by all means, consult a professional. A mortgage defense expert will save you from making mistakes and help with mortgage cases that reach indictment.