A mortgage audit is a multi-point assessment of loan papers and disclosures to detect lender overcharges caused by interest rate, monthly payment, amortization, or loan balance miscalculations. Mortgage audits can also reveal hidden, illegal, or excessive costs and violations of federal lending laws such as TILA, RESPA, HOEPA, and predatory lending. Homeowners facing foreclosure or seeking a loan modification may benefit from mortgage audits if they are concerned about overcharging, miscalculations, or illegal costs.

Homeowners could use the audit results to ask their lender for a refund if there were any overcharges, miscalculations, or other violations of federal lending standards.

YIt’s crucial to note that any mortgage might have faults resulting in overpayments. Fixed-rate and adjustable-rate mortgages, home equity loans, and reverse mortgages are examples.

A mortgage audit is a quick and straightforward approach for homeowners to acquire peace of mind about their lender’s calculations. It can also help them “win their case” and receive reimbursements from their lender for any overcharges. The homeowner will receive a thorough audit report and immediately know if they were overcharged.

Internal Controls

Specializes in meeting the internal auditing needs of mortgage lenders.

The GSEs have highlighted the need for certified sellers/servicers to have a comprehensive, written internal audit strategy to analyze and monitor the quality of their loan servicing and origination processes, with Fannie Mae and the Consumer Financial Protection Bureau (CFPB) leading the push. While many lenders have compliance officers and a quality control strategy in place, these measures alone are insufficient to meet the needs of an independent internal audit function that is free of operational influence.

Richey May, a certified public accounting firm with more than 25 years of experience serving lenders across the country, has designed services to meet the CFPB’s and GSEs’ independence criteria. Our mortgage industry professionals provide the experienced advice you need to preserve compliance, minimize risk, and increase efficiencies, whether as a co-sourcing partnership with your existing internal audit team or as your outsourced third-party internal auditors.

Don’t get your quality control inspection mixed up with a regulatory compliance audit.

Quality control and compliance audits are critical to ensuring the satisfaction of both your investors and regulators. While both check the correctness of your mortgage information, they do not overlap in most cases.

Quality control checks ensure that your underwriting is accurate and meets investor standards. Mortgage compliance evaluations determine whether you comply with applicable consumer protection laws and your regulators’ requirements.

Taking your eye off the ball, in any case, can lead to unresolved errors, inefficiencies, time delays, investor and regulatory attention, and expensive buybacks.

Audit of secondary market quality control

Your investor may request a secondary market quality control audit to ensure that your loans match their underwriting requirements. Audits should be done at the pre-funding and post-closing stages, as investors may seek verification.

Internal workers can do the reviews, but they must be fully separate from the lending process. In other words, the person who originates, processes, and closes the loans and the person who manages those staff members cannot also complete the quality control evaluations.

Internal workers can do the reviews, but they must be fully separate from the lending process. In other words, the person who originates, processes, and closes the loans and the person who manages those staff members cannot also complete the quality control evaluations.

Verification of underwriting criteria focuses on testing, with only a cursory examination of any regulatory compliance requirements. Reverifications of income, assets, and any unreported liabilities, such as rental payments validated and required for closing the loan, are included in the re-underwriting.

In addition, for 10% of the sample chosen, a field review evaluation is necessary. Tax transcripts and, depending on your investor, a post-closing credit report are required for all loans selected for post-closing quality control. These checks ensure that the underwriting process is completed correctly.

This gives the investor confidence that you are meeting their needs, but it also allows you to discover shortcomings and provide training to relevant employees. If there are persistent flaws in the process, this can lead to additional investor scrutiny and, ultimately, poor investor pricing, unsellable loans, and loan buybacks.

Depending on the investor, quality control assessments might be done monthly, quarterly, bimonthly, biannually, or annually.

Quality control reviews are frequently misunderstood to include compliance. While some quality control reviews touch on regulatory compliance issues, only a few areas unique to the file under test are considered. During the quality control review, compliance themes included ensuring joint intent was adequately documented, checking initial disclosure timing requirements were followed, comparing APR numbers to see whether they were within tolerance, and confirming the right of rescission was appropriately obtained.

A compliance review is necessary if you want to go deeper into compliance.

Audit of mortgage compliance

Compliance reviews aim to see if the financial institution is following federal consumer protection regulations.

The Consumer Financial Protection Bureau (CFPB), the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), the Department of Housing and Urban Development (HUD), and the Federal Trade Commission all have regulatory compliance requirements that are published in the Code of Federal Regulations (CFR) (FTC). Before conducting federal compliance examinations, federal regulatory compliance audits are undertaken to assess compliance with federal consumer requirements, allowing for correction before your inspection.

Compliance audits are often based on the financial institution’s compliance risk assessment. Based on intrinsic risk factors and the strength of internal controls, the risk of non-compliance with applicable requirements is considered in the risk assessment.

The greater the risk, the more frequent and thorough the audit.

The Truth in Lending Act and Regulation X (Real Estate Settlement Procedures Act), as well as the Equal Credit Opportunity Act (Regulation B), Home Mortgage Disclosure Act (Regulation C), Fair Credit Reporting Act (Regulation V), Homeowners’ Protection Act, and Flood Disaster Protection Act, are the subjects of the majority of mortgage audits. These audits focus only on the bank’s compliance with these rules’ applicable obligations, not on investor requirements.

While quality control evaluations include a few regulatory compliance components, they do not cover some high-risk computations or fulfill necessary disclosures.