Spotlight on QC: What’s New
Quality control (QC) reviews of loans are an integral part of doing business with Freddie Mac. They help enhance the quality of mortgages, minimize repurchase risk, and identify and prevent fraud. Ultimately, a robust QC program fosters a strong housing industry and supports sustainable homeownership.
Our Single-Family Seller/Servicer Guide (Guide) outlines our requirements both for when Sellers conduct post-closing QC reviews and for when we review loans we’ve purchased.
Based on your feedback, we’ve made a several updates to our QC requirements to provide you with the flexibility and opportunity to save time and cost when reviewing loans that you intend to sell to us.
Optionality in sample selection for QC reviews
We’re providing Sellers with the flexibility to select a post-closing loan sample to review compliance with applicable law separately from their review of eligibility and underwriting requirements. This is a change from the previous requirement that each loan included in a QC sample needed to undergo both reviews.
With laws varying from state to state, this optionality allows Sellers to be able to pull a more meaningful loan sample when conducting their “compliance with applicable law” reviews. We highlight this flexibility in this quarterly policy video.
QC review of property values simplified
In Guide Bulletin 2020-45, we’ve simplified the review of property valuation for mortgages selected for an in-house QC. How?
- We’re replacing the current QC requirement which calls for a combination of desk reviews and/or field reviews. We are instead requiring desk reviews for loans selected for QC that have an appraisal. This change takes away the inconvenience and cost of physically going to the property to validate the valuation.
- Plus, you’ll no longer need to review the accuracy of the appraiser’s opinion of market value if the appraisal report received appraised value representation and warranty relief or a risk score of <2.5 from Loan Collateral Advisor®.
- And if the loan was originated with an automated collateral evaluation (ACE) appraisal waiver, a desk review is not required. However, the QC review should check the accuracy of the data submitted to Loan Product Advisor ® and that the ACE eligibility requirements have been met.
In total, these changes create cost and time saving opportunities for your business. These changes are effective on March 1, 2021, but you can implement sooner to take advantage of the benefits of a more streamlined QC approach.
Temporary QC flexibility made permanent
As a response to the impact of COVID-19, we allowed Sellers to select an appropriate risk-based sample of mortgages to review that were sold to Freddie Mac and have become delinquent 60 days or more within six months from the note date. This was a temporary QC flexibility since our Guide required Sellers to include all such mortgages in QC reviews.
With Bulletin 2020-43, we made this temporary sampling flexibility a permanent requirement in the Guide.
With this flexibility, the QC burden for delinquent loans is reduced, allowing you to allocate resources to other aspects of your QC program or your business. And by selecting a “risk-based sample,” you’ll continue to have confidence that the loans you sell to Freddie Mac are of investment quality.
It is important to note that there is no change in the scope of review. The selected mortgages must be carefully evaluated to determine the presence of any fraud or other deficiency.
QC component-based reviews enhances review of risk areas
In Bulletin 2020-36, we announced that we will begin conducting QC reviews of certain components of the mortgage file, in addition to our current full-file reviews.
Component-based reviews allow us to look at more loans over a shorter period with additional focus on specific areas of risk. These reviews will use the same QC loan file submission process, so there is no impact or additional cost associated with loan file submissions.
A future enhancement to Quality Control Advisor® will provide the same management reporting features for component-based reviews as you currently have for full-file reviews. File management and remedy management functions are the same for component-based reviews as for full-file reviews.
Review our FAQs on QC component-based reviews for more information.
I encourage you to visit our QC webpage for additional resources that can help you enhance your QC processes. At Freddie Mac, we’re here to support your QC efforts because QC is key to originating quality loans, increasing productivity and minimizing risks.