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Laughing, we didn’t! Just kidding but not really! Communicating post close defects upon discovery was certainly not on anyone’s service level agreement back in the early days of doing post close audits. The technology just wasn’t there to help facilitate it. Lenders typically received findings from their outsourced quality control (QC) provider 60, sometimes 90, days out from the time the loans were submitted, and the audit was fully complete.
Lenders managing QC in-house were “fortunate” enough to share defects across their organization after 30 days because they needed time to manually assemble and distribute the information. Findings always came back on spreadsheets, sent rather insecurely via email. Managers sorted Excel tabs by defects, then by responsible party and made decisions based on what they saw sticking out as a trend. Comparing data meant you needed someone on staff that could do a mash up of spreadsheets and had a degree in formulas.
The biggest challenge with either of these processes was that by the time anyone received information it was often too late. Loans were likely already sold off with problems and systemic defects continued to occur in production for as long as communication of them lagged.
While managers tried to address the most frequent defects called out in the spreadsheets with trainings and/or policy creation, there was no real way to effectively monitor the results of these actions or tie it back to the defect itself. Instead, you assumed and hoped it worked.
Fortunately, the technology exists today to make defect communication real-time and action plans wildly more trackable and effective.
Online portals have leapfrogged email as a primary tool for communicating defects. As auditors perform loan file reviews, this information is disseminated to responsible parties in real-time. Information and documentation can be provided right within the portal to efficiently clear defects. These portals also provide a secure, centralized and streamlined process for rebuttals.
In my last “Hey Boomer” blog post I touched upon how centralized databases, Local Area Networks (LANs) and now cloud-based applications have advanced loan quality reporting capabilities. Within today’s more robust reporting modules, defects are more quickly and easily identifiable and can be drilled into by region, area of responsibility, type, or level of severity. Action plans can then be created in just as granular a fashion.
Action Plans let QC managers tie individual training programs or policy changes to commonly occurring defects. At any time, they need to review their progress against their objective. Without this, they have no way of knowing if the steps they’ve taken against what was defined as the root cause actually lowered the defect rate. One of the most common reasons for an action plan program not working is that the root cause of the defect was not accurately identified but robust reporting modules help to avoid this by enabling far more detailed analysis.
With technology also comes the beauty of action plan reporting and the ability to examine the defect rate before and then after the action was taken, and as such, effectiveness is easily identifiable. No more guessing on what did or didn’t work.
All the benefits technology automation has brought to post close reviews can also be applied to expand other QC checkpoints. Take pre-close reviews. Hard to believe that prior to the crash in 2008 the industry wasn’t doing pre-close reviews, but if you think about it from a technology perspective what tools did, we have to get them done quickly and accurately? Now they can be done in batches by QC companies in less than 24 hours and in-house on a flow basis with production! As well, prefund audits, with extremely time sensitive workflows, can also benefit from the same technology efficiency gains.
Thankfully, today with tools such as a rebuttal response portal, loan quality issues can be addressed in a timely manner within mortgage loan production. As well you can easily create and monitor the impact of actions plans to lower overall defect rates.
Be sure to check out my first “Hey, Boomer” blog post about reverifications and one of my posts from last fall that discussed the most popular reports for QC managers, which includes Action Plan reporting.
