Third-Party Originations

Question:

As a Fannie Mae Seller/Servicer, are we responsible for the actions of our third-party originators (i.e. brokers and correspondents)?

Answer:

In a word, yes.

 

Third-party originations refers to the process of mortgage loans being completely or partially originated, processed, underwritten, packaged, funded, and/or closed by an entity other than the seller (or its parent, affiliate, or subsidiary) of the loan to Fannie Mae. This includes mortgage brokers and correspondent lenders, which are known as third-party originators (TPOs).

 

In its recently released list of Seller/Servicer Risk Self-Assessments, Fannie Mae reminds sellers that they remain fully responsible to Fannie Mae for functions that are outsourced to third parties. A seller must have effective written policies and procedures for the approval and management of TPOs and must satisfy itself that all TPOs produce quality loans. The 13 required items include:

  • Developing an approval process and controls for TPOs (mortgage brokers and correspondents) including reviews of recent financial statements, current licenses, resumes of principal officers and underwriting personnel, quality control procedures, background checks, and hiring practices;
  • Conducting an annual review of the TPO’s financial statements to determine that it is financially viable and capable of meeting its contract terms; and the oft-missed
  • Ensuring the post-closing quality control process includes a representative sample of the mortgage loans received from the TPO to ensure that those originations meet the lender’s standards for loan quality. Review cycles must be structured to ensure that transactions originated by each TPO are reviewed at least once annually.