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A3-3-01, Outsourcing of Mortgage Processing and Third-Party Originations (02/07/2024)


This topic contains information on the outsourcing of mortgage originations to third parties, including:


Third-Party Originations

A third-party origination is any loan that is completely or partially originated, processed, underwritten, packaged, funded, or closed by an entity other than the seller (or its parent company, controlled affiliate or subsidiary) that sells the loan to Fannie Mae. This includes mortgage brokers or correspondents, which are known as third-party originators. If a seller enters into a contract with a third party known for the quality of its underwriting (such as a mortgage insurer) to help the seller in underwriting its mortgage originations, the loans will not be considered third-party originations. Refer to Chapter E-3, Glossary for the definition of correspondent and broker. (Retail is also an origination type but is not considered a third-party origination.)

Sellers remain fully responsible to Fannie Mae for functions that are outsourced to third parties.

Certain Special Feature Codes (see Special Feature Codes) are required at delivery for third-party originations.

A seller must have effective written policies and procedures for the approval and management of third-party originations and must satisfy itself that the third-party originator is capable of producing quality loans.


Management Procedures for Third-Party Originations

Effective management procedures for third-party originations include the items in the table below.

Management Procedures for Third-Party Originations
  A system for evaluating and approving third-party originators to ensure that they produce quality loans. The seller’s procedures must include a review of the following:
  • most recent financial statements;

  • current licenses;

  • resumes or other appropriate information of principal officers managing the underwriting and originating process;

  • the third party’s QC procedures so that the seller can determine if the party and its originations meet the seller’s standards for quality;

  • results of background checks for principal officers; and

  • the third-party originator’s hiring procedure for checking all employees involved in the origination of loans (including application through closing) against:

    • the U.S. General Services Administration Excluded Parties List,

    • the HUD Limited Denial of Participation List, and

    • the Federal Housing Finance Agency Suspended Counterparty Program List.

  A method for verifying, and periodically reverifying, a third-party originator’s compliance with applicable laws, licensing, and qualifications for originating loans.
  A method for confirming that a third-party originator meets its contract with the seller and the seller’s Lender Contract with Fannie Mae.
  A requirement that a third-party originator have a written QC plan and a method to validate the existence of that plan.
  A process for resolving QC discrepancies and tracking corrective actions.
  A requirement for submitting periodic reports on activity and performance issues to the seller’s senior management.
  Standards for evaluating a third-party originator’s performance.
  Provisions for suspending or terminating the third-party originator’s relationship.
  Annual review of the third-party originator’s financial statements to determine that it is financially viable and capable of meeting its obligations.
  Quarterly review of the performance of loans originated by the third-party originator.


Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2024-01 February 07, 2024


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