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The topic of the June Fannie Mae Quality Insider article discussed the significance of strong loan quality control (QC) reporting and nine common gaps the agency finds in its sellers’ QC plans. The stronger and more robust that your reporting tools are, the deeper your loan quality insights are.
If you’re evaluating a new QC solution or audit service provider, the following blog illustrates how a QC platform like LoanHD® and its reporting capabilities can shore up these critical areas across all audit types. Given the topic length, I will cover the content in a two-part blog series.
Communication to the source responsible for resolving the defects and documenting the resolutions – Our Audit Response Center (ARC) is your 2-way, secure communication portal for closing this gap. After initial setup to align specific persons to their areas of responsibility, ARC provides automated, real-time notifications to all parties that a defect is present. Direct access to the condition detail, the related documentation, and a way to rebut and clear issues is presented right from a single user interface.
Monthly reporting to senior management, including third-party QC vendor review. As key stakeholders in the organization, ongoing communication with senior leadership is critical. To assist in keeping busy executives abreast of the issues and trends concise, illustrative reporting is available in LoanHD. Both pre-defined and custom reports can drill down on loan-level issues if required or provide the high-level visual dashboards typically needed for executive review.
Our Audit the Auditor reporting module provides an automated, on-demand way to select a random sample of loans to analyze, see the tests that have failed, review 3rd party auditor rebuttal commentary, and put any loans into a queue for further follow-up if the defects found are inconsistent with your organizations own findings.
Description of the sample selection (for all samples tested) – Best practice is to maintain sampling criteria for a 3-month period, so trends have time to emerge. Additionally, to help focus on the purpose of the sample, Fannie recommends sample descriptions should “reflect the amount of risk the sample represents.” (e.g., “self-employment income defects are our top driver and we originated 8% of our volume with this income type”).
Automated QC platforms, like LoanHD®, make the sampling process extremely flexible. Within the sampling module, users can either make their targeted stratifications against their required set of GSE loans or set up a separate pool of loans to test in discretionary reviews. Attributes for sampling are selected from easy-to-use drop-down menu. Sampling timeframes and descriptions are also easily modifiable.
Defect trending information – Defect trends are perhaps the bread and butter of QC reporting. In just a few clicks, creating monthly defect trend reports can highlight YTD, Top, Gross/Net, and Summary analysis across a variety of subcategories. Taking it a step further, with the Report Builder module in LoanHD, you can create custom reports based on audit type. This allows users to hone in on the desired focus areas at a birds eye and even more granular loan level.
Tackling Fannie’s best practice of trending defects at the subcategory or detail level to identify the root cause of a trend, our Action Plan Reporting module is the best place to get visibility into this. Users can create action plans based on specific defects identified in their monthly reporting and easily track how the effectiveness of how their resolution plans are driving the defect rate back down. Users can set, implement, and observe these trends filling in the gaps Fannie finds frequently missing in their seller reporting.
Inclusion of the final defect rate in the QC Report – Per the agency, this statistic should reflect the results of the current review period AFTER the resolution of the QC defects found. It’s also important this be published and resolved in the 120-day QC cycle. Because LoanHD offers real-time automated reporting, the final defect rate is calculated and accessible immediately from the reporting, as it updates in real-time as defects are cured.
Until our next post goes live next week with more loan quality reporting insights, I invite you to take a look back at a May blog that addressed the Fannie Mae identified gaps in lenders’ QC plans. You can read that post here.
