The DocMagic "Goof Proof" audit system is an extremely popular feature with DocMagic software users. We are constantly adding to our already extensive audit database to accommodate regulatory changes, investor requirements and lender/broker preferences.  In this article, we highlight two recent audits that we have recently added.

FANNIE MAE AUDIT

Just last month we wrote about recent changes to Fannie Mae's Selling Guide regarding HOEPA and high cost mortgages.  Click here for a copy of that article.  One of the changes announced by Fannie Mae is that it will not purchase or securitize any loan that exceeds applicable HOEPA (Section 32) points and fees or APR thresholds; even if the loan is not otherwise subject to HOEPA.  Currently, if a loan is subject to HOEPA (Section 32) and the points and fees and/or APR exceed the applicable HOEPA (Section 32) thresholds, the audit system will return a warning that says:

WARNING: THIS IS A SECTION 32 LOAN

In order to accommodate the recent Fannie Mae Selling Guide changes, we have implemented the following audit: if a loan is not subject to HOEPA (Section 32) (because, for example, it is a purchase money loan or is not secured by the borrower's principal dwelling) but the loan's points and fees and/or APR exceed the applicable HOEPA (Section 32) thresholds, the audit system will return a warning that says:

WARNING; LOAN INELIGIBLE FOR FANNIE MAE PURCHASE/SECURITIZATION; [APR] [POINTS AND FEES] [APR AND POINTS AND FEES] EXCEED(S) HOEPA/SECTION 32 MAXIMUM THRESHOLD(S)

If the loan will not be purchased or securitized by Fannie Mae, then you may ignore the warning.  Otherwise, you must reduce your points and fees and/or APR below the applicable HOEPA/Section 32 threshold(s).

APPLICATION DATE AUDIT

As most of you know, the HOEPA/Section 32 APR test and virtually all state-specific high cost APR tests are based on a comparison of a loan's APR to "the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application is received by the creditor" plus a certain percentage depending on the loan's lien position.  A critical piece of information in determining which yield is used is the date on which the creditor (that is, the lender) receives the borrower's application.  Within the DocMagic software, this data element is referred to as (not surprisingly) the "Application Date."

Because of the critical nature of the Application Date to HOEPA/Section 32 and state-specific high cost calculations, we have implemented the following audit: if a DocMagic user fails to input an Application Date, the audit system will return a warning that says:

WARNING; APPLICATION DATE MISSING; NEEDED TO COMPUTE HIGH COST LOAN DETERMINATION

If the DocMagic software user ignores the warning, then we will assume an Application Date based on the following: if the Document Date entered into the software is earlier than the 15th of a month, then we assume that the application was received in the immediately preceding month; if the Document Date entered into the software is on or after the 15th of a month, then we assume that the application was received in the same month as the Document Date month.  For example, if the Document Date is June 14, 2006, and the DocMagic software user ignores the "Application Date Missing" warning, the DocMagic software assumes that the application was received by the creditor during the month of May and will default the comparable Treasury yield as of the April 15, 2006.  If the Document Date is on or after June 15, 2006, and the DocMagic software user ignores the "Application Date Missing" warning, the DocMagic software assumes that the application was received by the creditor during the month of June and will default the comparable Treasury yield as of the May 15, 2006.

Obviously, the most accurate determinations are made when an Application Date is provided.  Please note that any audit warning, including the "Application Date Missing" audit described above, can be changed to a fatal audit and thereby prevent the DocMagic software user from proceeding with the transaction unless and until the defect is corrected.  Please contact a DocMagic Customer Service representative at (800) 649-1362 if you have any questions regarding the DocMagic audit system.

For additional information about the DocMagic audit system, click here and visit DocMagic Audits.