Blog: The Power of Prefund- Fannie Mae’s Prefunding Requirements Going Live on September 1, 2023

By Kristin Broadley, QC Ally’s Chief Innovation Officer

Fannie Mae continually reviews, amends and/or introduces new requirements and guidelines. One such development is the implementation of prefunding requirements, which are set to go live on September 1, 2023. In this blog post, we will delve into Fannie Mae’s prefunding requirements and explore their implications for lenders and borrowers alike.

Prefunding requirements refer to the quality control review guidelines that lenders must adhere to during origination and prior to submitting loans to Fannie Mae for purchase. These requirements serve as a vital quality control mechanism, ensuring that loans meet specific criteria before being included in Fannie Mae’s portfolio. The objective of the new prefunding requirements is to enhance loan quality, reduce credit risk, and safeguard the overall stability of the lender, Fannie Mae, and the overall mortgage market.

About Fannie Mae’s Prefunding Requirements

“Fannie Mae now requires lenders to complete a minimum number of prefunding QC reviews each month, and this review must be conducted by parties who have no involvement in the processing and underwriting decision of the loan being reviewed. A lender’s loan selections must equal, at a minimum, the lesser of:

  • 10% of the prior month’s total number of loans originated or acquired, or
  • 750 loans.

Note: If a lender does not originate or acquire at least 10 loans in the prior month, then the lender must select at least one loan for its current prefunding QC review.”

Fannie Mae Prefunding Quality Control (“QC”) Requirements: – Regulatory Solutions

Benefits for Lenders and Borrowers

Fannie Mae’s implementation of prefunding requirements brings benefits for both investors, insurers, and borrowers:

  1. Enhanced Loan Quality: By requiring prefunding quality control measures, Fannie Mae aims to improve the overall quality of loans being originated and entering the market. This translates into increased confidence for investors, insurers and borrowers through improved underwriting practices and reduced credit risk.
  2. Greater Transparency: The prescription of the prefunding requirements provides a clear framework for lenders to follow, leaving less room for ambiguity or misinterpretation. This transparency fosters consistency in loan origination for the individual lender and the greater mortgage market and helps establish a level playing field for all market participants.

Preparing for the September 1, 2023 Deadline

To successfully navigate the implementation of Fannie Mae’s prefunding requirements, lenders should take proactive steps, including:

  1. Familiarize Yourself: Lenders should thoroughly review the updated guidelines provided by Fannie Mae and ensure their QC/QA teams are well-versed in the new requirements.
  2. Process Review: Conduct an internal review of existing sampling and auditing processes to identify areas that may need adjustment to align with, and facilitate, the new guideline’s requirements. This includes evaluating resources, reporting and remediation procedures.
  3. Prepare: Communicate with your internal QC teams and Vendors your revised governance and monitoring program that meets Fannie Mae’s prefunding requirements. Leveraging your pre-determined strategy of full-file and component testing reviews.

Fannie Mae’s prefunding requirements, set to go live on September 1, 2023, mark an important evolution in the quality control landscape by emphasizing prefunding loan quality, compliance, and documentation. Lenders should prepare well in advance to meet these requirements, which will not only benefit the industry as a whole but also contribute to protect investors, insurers and borrowers alike. Stay informed, adapt your processes, and embrace the changes to ensure a successful transition into this new era of quality control.

For more detailed information on component reviews see our blog post on Component reviews.