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“Lenders are doing a better job of originating loans with fewer defects,” according to a report provided by First American Financial Corp in a recent article appearing in National Mortgage News (Higher Spending on Compliance Results in Fewer Errors on Apps). The article stated that The First American Title Loan Application Defect Index decreased again in February after declining steadily for the past 7 months. For whatever reason, it seems that lenders got the message; loan quality and compliance are just as important as loan production.
Yes, the cost to produce a loan has increased over the past year, mostly the result of increased regulations, but for those lenders that made, and continue to make, this investment in loan quality, the benefits are clear. They are producing better quality loans with fewer defects, reducing their risks of closing delays, rejected deliveries, indemnifications and potential repurchases. Quality is definitely a good thing.
Unfortunately, not all lenders are seeing the benefits of spending the money to accommodate the recent regulatory changes. Some lenders are still just throwing more bodies at the problems, increasing costs, but not correcting the underlying problems.
For these lenders, more loan volume means more loan expense and exposure to more problems. If not careful, a lender can originate itself right out of business. It has already happened to some.
The goal is to increase business with quality loan production. This requires ample originator and support staff training, with adequate systems and technology to track and monitor loans throughout the loan process, paying close attention to the details.
The new regulations are meant to protect the consumer. Lenders must understand this. Staff and systems need to be geared toward consumer education, disclosure and service. As the saying goes, “The educated consumer is your best customer, or in a lender’s case, your best borrower.”
Do not overlook the importance of consumer education, loan quality and compliance. It doesn’t matter how well a loan is priced, or how many loans an originator brings through the door if these loans cannot be closed and delivered on a timely basis, and ultimately purchased in the secondary market.
Pre and post-closing loan reviews are not just required by Fannie, Freddie and FHA, they are tantamount to success. These are where the investment pays off. Where a lender identifies potential loan quality defects and ensures compliance with all related rules, both regulatory and those of the intended loan purchaser.
Pay very close attention to this process and the results. They will help provide a blueprint for future success by identifying the things that are costing your time and money and that may cost you the loan’s profit.
Don’t be production wise but quality and compliance foolish. Don’t kid yourself; loan quality is well worth the investment.
