BLOG

Document Custodians and Regulatory Requirements

Question: As a lender, am I required to audit my Document Custodian on a regular basis?

Answer:

Yes, a lender should review a document custodian from a vendor management risk standpoint. In addition, Ginnie Mae is explicit in its requirements for each issuer to review their Document Custodians. The Ginnie Mae MBS Guide (Chapter 6, 2000.04 Rev-2 CHG-20) requires an onsite Document Custodian audit by a seller-servicer at least annually if more than one Document Custodian is utilized. All Document Custodians must be audited within a three-year cycle. The review must be comprehensive because the Document Custodian is essentially a vendor of the pool issuer. When conducting an audit, at a minimum, the following areas should be addressed:

1. Deficiencies are identified and appropriately mitigated;
2. Management and staff possess adequate knowledge to perform in a custodial capacity;
3. The Document Custodian has established controls, policies, and procedures;
4. The Document Custodian meets the minimum requirements as determined by GNMA;
5. The Document Custodian is issuing Final Pool Certifications in a timely manner as required by GNMA;
6. A loan-level review from a selection of pools is conducted. Files must be reviewed to ensure that the collateral file is intact and contains all the necessary original documents and endorsements; and
7. Recorded modified documents and reinstated loans have had documents inserted into the pool or removed from the pool.

For most lenders, these areas are not a key area of expertise; therefore, outsourcing to third parties that have the expertise is a common practice. External auditors can be an effective way to ensure the Document Custodian is compliant with Ginnie Mae's guidelines. Additionally, Ginnie Mae recently issued APM 21-08 due to the continuing impact of Covid 19, which will extend the use of the alternative audit procedures announced in APM 20-14.