New Regulations Put Mortgage Underwriting, QC in Spotlight

DALLAS–Critical changes taking place in the real estate finance marketplace are having huge ramifications for mortgage underwriting and quality control practices.  

Here at the MBA Risk Management, Quality Assurance and Fraud Prevention Forum, representatives of HUD, Fannie Mae and Freddie Mac cited improvements in quality control procedures even as the regulatory environment imposes new challenges to lenders.  

Steven Spies, vice president for loan quality, underwriting, pricing and capital markets with Fannie Mae, Washington, D.C., said industry focus on loan quality has gone a long way in preventing a repeat of the financial crisis of the previous decade.  

“When a loan gets delivered to us now, it stays with us now,” Spies said. “Defect rates are at historic lows, which should give you confidence in what you are doing.”  

Christopher Mock, vice president of single-family quality control and customer eligibility with Freddie Mac, McLean, Va., said the secondary market faces an increasingly challenging environment, particularly with new Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosures, mandated by the Consumer Financial Protection Bureau, slated to go into effect Oct. 3.  

“When you think about our objectives, they have never been more important than today,” Mock said. “These new regulations increases costs and improves loan quality, but it cuts overall production volume…there is more work to do.”  

Justin Burch, director of the quality assurance division with HUD, noted the FHA portfolio has “stabilized” since 2009, when concerns were first raised amid actuarial reports that placed the FHA Mutual Mortgage Insurance Fund below congressionally mandated levels.  

“We saw a huge shift in underwriting criteria in the aftermath of the financial crisis, which really limited the availability of credit,” Burch said. “Now, we have more robust oversight, and with timely feedback from the industry, we see a more stable environment for FHA.”  

Monday, Sept. 14 marks initial effective date of the FHA Single-Family Housing Handbook, which Burch said consolidates thousands of guidelines and documents in to a single source for FHA lenders, from origination to endorsement. “We hope this provides FHA lenders with clearer guidelines for doing business with us,” he said.  

Burch said FHA’s loan quality assurance efforts have also improved, sampling roughly 4 percent of loans for quality. Results showed that defect rates have remained high, “which underscores the importance of our efforts to communicate with FHA lenders in promoting clarity in our policies.”