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Document Custodians and Regulatory Requirements

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

A: Yes, a lender should review a document custodian from a vendor management risk stand point. 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. Recorded modified documents and reinstated loans have had documents inserted into the pool or removed from the pool; and
  7. 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.
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 guidelines.

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