FHLBC - MPF in Focus

October Quality Control Changes

This is the fourth in a series of emails highlighting changes regarding the way we conduct the quality control review of loans sold under the MPF® Program. These new requirements will begin next Wednesday, October 15. To review the preceding emails in the series, please click here.

Loan Review Addition – MPF Government™
Marking a first in the history of the MPF Program, we will now begin to review MPF Government loans. This change is in alignment with changing requirements in the government loan secondary market, including the growing emphasis on quality control from the guaranteeing agencies and regulators.

Loan Review Timing Change – MPF Portfolio
Mortgages sold under the conventional MPF Portfolio Products have previously been reviewed annually. The MPF Program will now begin its QC review sampling for these mortgages monthly, choosing each sample two months after the month in which the mortgages were sold by the PFI. For instance, mortgages sold in October will now be sampled in December. Therefore, some PFIs may have a smaller number of mortgages chosen for review every month.

The benefit of sampling loans closer to origination is that it may be easier for PFIs to remediate individual loan defects as well as loan origination process defects in a more timely manner in order to avoid repetition of similar defects. PFIs will continue to receive an email when mortgages have been chosen for QC review.

Changes in MPF Xtra® Mortgage Sampling
Earlier in 2014, the MPF Program began to perform QC reviews of 10% of MPF Xtra mortgages on a monthly basis. Sampling was done in the month following the sale of the loans by PFIs. Beginning next week, we will be making these additional changes:

The basis of the sample will change from 10% to the same statistically based methodology used for MPF Portfolio and MPF Government loans; and
The time frame will be moved from one month in arrears as of the sale of the loan to two months in arrears in an effort to eliminate QC issues due to trailing loan documents

Loan Quality Assistance
Below are several quality control best practices/exceptions, along with some helpful tips. Additional tips will be shared in our next email.

1. Quality Control File Documentation – When submitting loan documentation for your quality control review, make sure that you:

Have fully completed the documentation worksheet
Submit files, in the proper order, with consistent orientation and without blank pages
Provide all documents within 15 calendar days

2. Appraisal Items – When submitting appraisals, make sure that:

You include the Uniform Collateral Data Portal® Submission Summary Report (note that any proprietary findings must be addressed)
The underwriter’s review and comments are included and address any unique features of the property
The appraisal includes an appropriate number of truly comparable selections. If comparables are dissimilar, the appraiser must fully address this
The property is in average or better condition
The use of outbuildings is addressed
The property is primarily residential in nature

3. Income Documentation and Calculation – When submitting income documentation and analysis, make sure that you:

Address income stability/ whether the borrower is likely to continue and complete a two year history
Include income calculations for wage earners
Analyze declining self employment income
Consider unreimbursed employee expenses
Include IRS transcripts
Include complete signed tax returns (25% or more ownership/family owned business/rental property) and your self-employed borrower income analysis

4. Assets and Reserves – When providing documentation related to assets and reserves, make sure you include:

The last two months of bank statements or printouts that identify the borrower and depository
An explanation and supporting documentation for any significant change in account balance or account opened within the last two months
HUD-1 from sale of property
Documentation to support all funds to close and reserves
Earnest money source and verification, per MPF product guidelines

5. Liabilities Paid Down at/or Prior to Closing

Revolving debt/line of credit must be documented as paid in full and closed or included in total debt

In addition, below are two recent MPF Program announcements that are related to the quality of your mortgages. Each item is summarized below, but you may read each one in its entirety by clicking on the title.

MPF Xtra Advisory (09/19/14) – Required Information for the Quality Control Reviews to the Home Ownership and Equity Protection Act (HOEPA)
A mortgage subject to the requirements in HOEPA that apply to high-cost mortgages, is not eligible for purchase under the MPF Program. Therefore, a mortgage secured by a borrower’s principal residence that has either an annual percentage rate or total points and fees payable by the borrower that exceeds the applicable thresholds under HOEPA is not eligible. As part of the QC process for MPF Xtra mortgages, the HOEPA status of certain mortgage loans selected for review is verified and the PFI must provide the requested points and fees and other information for that mortgage.

PFI Advisory (09/22/14) – Regulation Z Requirements Regarding Originator Name and Nationwide Mortgage Licensing System Registry) NMLSR Identification (ID) Number
We reminded PFIs that compliance with the requirements of the Truth in Lending Act and Regulation Z require that as of 1/10/14, they must add the loan originator organization, the name of the loan originator, and the NMLSR ID Number on the Note and Mortgage documents.

For More Information
Should you have any questions, please contact your MPF Bank Representative.

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FHLBC 200 East Randolph Drive Chicago, IL 60601 Phone: (877) 463-6673 www.fhlbmpf.com	New loan purchases available through the Federal Home Banks of Atlanta, Boston, Chicago, Dallas, Des Moines, New York, Pittsburgh, San Francisco, Seattle, and Topeka.
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