Mortgage files are subject to many federal laws and internal bank policies and procedures. The requirements that apply to these files must be audited on a regular basis to ensure that the bank or mortgage company is adhering to all applicable guidelines. In order to make sure that all necessary aspects of a mortgage file are audited thoroughly, it is first necessary to create an audit schedule. This type of schedule allows the audits to be planned in advance and completed in a timely fashion. Mortgage file audit schedules are usually made on a yearly basis, and there are several factors that go in to deciding the order of audits on a schedule. Requirements that are new or have particular public focus are often audited at the beginning of the schedule. Aspects of the mortgage file that are considered to have a higher level of risk to the company for financial or legal reasons are also audited early in the schedule. If a particular part of the mortgage file has not been audited for a long period of time but is not considered particularly high-risk, this will likely be incorporated somewhere in the middle or toward the end.
When a scheduled audit of mortgage file begins, the auditor must first familiarize himself with the requirements of the law and internal policy that he will be auditing. This may consist of individual research or using past audits as a reference tool. When he is ready to begin testing mortgage files, the auditor will randomly select a number of files. This is often referred to as a "sample" of files. The auditor will request that the company's storage facility pull the files for the sample. Usually only one requirement at a time is audited, and the auditor will examine each file in the sample to ensure that it meets the requirement being tested. If he finds a file that does not fit within the rules, he will make a note of it and list it as an exception. Exceptions are discussed with the personnel who manage the mortgage department so that they can be resolved and prevented from occurring in the future. A report showing the details of the audit may be submitted to the board that manages the company.
Example Rules to be Audited
Due to the complexity of the federal laws and regulations that govern mortgages, it is most efficient for auditors to look at one requirement of one rule at a time. For example, an auditor may look at mortgage files to check that the annual percentage rate was calculated correctly under Regulation Z. She could later check that the data reported to the government under the Home Mortgage Disclosure Act was valid. An auditor might also verify that the disclosures required by the Real Estate Settlement Procedures Act were given to mortgage customers in a timely fashion.