Checklists were created for the aviation industry in acknowledgement of the limits of human memory and attention. They've since been incorporated into numerous industries to enhance safety and security, ensuring that all items are reviewed and that nothing falls between the cracks. The mortgage industry employs mortgage audit checklists for the same purpose - to ensure that a all elements of a specific lengthy process is followed and numerous guidelines observed when compiling and evaluating the data relative to a mortgage application. The checklist improves quality and helps prevent fraud.
Mortgage audit checklists always start with the guidelines. Auditing the file to the guidelines requires knowledge of what guidelines are being used. If the file used is Desktop Underwriter or Loan Prospector, include a section for those guidelines to be detailed. Putting this section first reminds the auditor of what to look for. Include relevant sections such as income required, assets required, appraisal type required, etc.
Once the guidelines have been established, most checklists begin the specific audit with the mortgagor's credit report. An important element here is to ensure that all credit trade lines have been included in the debt-to-income ratios. Visually compare the credit report with the mortgage application and verify that the information matches, including address data, employment history data and AKA information (does the file have a Jr. or Sr. with mixed credit?). Provide space for pertinent notes regarding Social Security numbers and addresses to compare to other documents in the file.
The income sections of tend to be larger than the other sections. Many different types of income require access to as many different types of reminders. Provide sections for income calculations and comparisons using standard formats for wage earning borrowers. Self-employed borrowers require a more complex system. Using the standard Fannie Mae Form 1084, calculate income directly from the tax returns. Non-employment and retirement income provide yet another section to include. Provide an area to compare the data collected with the actual income used for the file.
The asset section ensures the funds used to close and satisfy reserve requirements meet the program's guidelines. This information, when crosschecked against the rest of the file, provides insight to other potentially negative issues. The existence of many large non-payroll deposits, for example, could indicate self employment. Crosschecking the income documents for tax returns is critical. In addition, it's critical to ensure that the assets used to close actually belong to the borrower. Double-check the asset statement to verify the owner's name and other identifying data are identical to the mortgage applicant's and follow up on any discrepancies. Complete mortgage audit checklists must include all of these items.
The property component must include sections for the appraisal, title work and insurance policies. The appraisal provides the lender with its security; ensure the checklist provides areas for third party verifications of the home's existence, as well as the comparable sales used on the appraisal. A section for calculations confirming the size of the home based on the appraiser's sketch is recommended as well. Always provide space to record verification of the appraiser’s license. Comparing the title work and insurance documentation with the appraisal allows the auditor to ensure all of the data support each other.
The sales contract section permits the auditor to ensure the contract meets the lending guidelines. The checklist should always include a complete contract and final purchase price comparison. Also include items such as seller's name compared to the appraisal section of “current owner on title," seller contributions of closing costs compared to program guidelines and rent-back clauses compared to program guidelines. Checklists should include reminders to look for personal property in the sales contract as well, since these create a negative effect on the purchase price of the home.
Complete checklists also include sections for the closing documentation. Include reminders for checking the HUD-1, note, deed of trust and all closing conditions with the closing instructions. Ensure your checklist includes a box asking if all documents have been signed by all parties and that they match the signatures on the application. In addition, checklists should include reminders for when files close with power of attorney, as well as specific acknowledgement of the underwriter's approval when the mortgage is in the name of a trust.
David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.