How to Keep the Focus on Loan Quality in The Face of Regulatory Change

March 04, 2020

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Expert Perspectives: ARMCO’s Director of Compliance, Kacey Olson

Fannie Mae and FHA both made changes to their respective loan defect taxonomies in Q4 2019. Why are these taxonomies so important?

KO: While Fannie Mae and FHA approach their classification of loan defects differently, they do share a common goal for these taxonomies, which is to identify the root causes of loan quality deficiencies – especially those that may result in eligibility violations. As the only two agencies that have created a taxonomy for the categorization of loan defects, they have essentially set the industry standard in this regard, with many other entities using these respective taxonomies as a guidebook for their own quality control efforts. In addition, these taxonomies offer lenders the opportunity to work with the agencies and GSEs on defects, providing a clear path to filing rebuttals on defects that may be curable. Utilizing these taxonomies in QC reporting enables lenders to assess risks and take pre-emptive measures to mitigate defects, apply corrective actions and appropriately assess those corrective actions. Because of the importance of these taxonomies to overall loan quality and meeting FHA and Fannie Mae guidelines, ARMCO’s compliance team makes it a point to stay on top of all the latest changes to ensure our users are always reporting using the most up-to-date taxonomy.


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