0
0
Welcome back to part two of our recap covering LoanLogics’ participation in the 2021 RMQA panel discussion*, “Approaches to Ensuring Loan Quality to Minimize Repurchase Risk”, the title of this post.
When we left off in our last post, we discussed how defects and repurchases are on the rise, further snowballing from a shift to a purchase market, skills and resource issues, and the effects of pandemic-related events. In this post, we share strategies to positively impact quality and reverse negative defect trends.
Three keyways include access to real-time reporting, a view into the effectiveness of your quality improvement programs, and a way to adjust your QC sampling strategy to effectively find defects. Technology automation can help. Let’s explore the first, real-time reporting.
Whether you’re doing your QC work internally or with an outsourced service provider it is critical to have real-time, timely insights into defects. Waiting for months to receive reports and see trends only allows systemic issues to impact more of your pipeline. Static reporting, common with outsourced service providers, lacks the flexibility to drill down on the issues.
Technology with robust reporting not only allows you to see the root cause of defects but allows you to track them to the individual areas of responsibility and tie them to an action plan to prevent them from recurring. How well is your QC staff performing appraisal reviews? Are your underwriters’ income calculations accurate? How well is a new branch gathering documentation? With that information in hand lenders can create specific training programs to the groups missing the mark and watch the defect trends reverse as a result of their implementation.
Having a solid sampling strategy can also help reduce the occurrence of defects. For example, selecting a pool of loans to review using various risk criteria, such as self-employed borrower, can uncover issues and help improve your processes. Taking sampling one step further, you might also consider sampling the loans reviewed by your outsourcing provider and performing your own reviews of these files to see if the defects found are consistent. Similarly, sampling could be done on certain types of loan file reviews, such as compliance, using a specialized team to verify results. LoanLogics Director of Loan Quality Solutions, recently did a blog post about our LoanHD® “Audit the Auditor” module which supports these types of reviews. With this spot check, lenders can review any discrepancies and/or get clarification on any possible misinterpretations of guidelines or procedural weaknesses that are causing defects to be missed. LoanLogics is seeing far greater adoption of this technology offering these days.
As mentioned in the last post, throughout the pandemic top defects centered around income and employment. A lack of continuity in income and ongoing bulletins with additional requirements related to Covid (requesting more documentation, for example) were among the big stressors. Freddie Mac, seeing this with its consolidated data, advised QC staff to slow down and take the time to go back to the borrower regarding missing documentation. For example, if there was an income decline ensure that there is an explanation along with it. Were multiple bank accounts not disclosed or was this the result of the normal ebb and flow of business.
Even with the dictates of borrower closing date requirements in a purchase market, a focus on accuracy seems to trump speed as defects increase. Lenders are becoming hyper focused on complex originations that require more documentation and are routing specialty underwriting for trickier loans to more seasoned staff. What they need now more than ever is more automation.
From a QC perspective, most of LoanLogics clients and our own internal audit staff are adding specific questions to be more thorough in reviews. The goal was not to slow auditors down but use technology to get that right extraction of data to execute a high percentage of audit tests automatically. This not only removes the subjectivity and human error but also adds the speed needed without sacrificing accuracy. Data-driven digital technology also allows auditors to audit by exception, with the system flagging missing or incorrect information, as well as designating audit skills based on loan type versus manually assigning those one by one.
It’s no secret it’s time to start sharpening the saw and really move the needle on the technology lenders are using to produce loans with quality. With repurchases on the rise and the technology tools available to combat the risk now is the time.
Visit www.loanlogics.com to learn more about our mortgage doc processing and audit automation solutions or reach out for a product introduction today,
*Speakers for the 2021 RMQA panel, Approaches to Ensuring Loan Quality to Minimize Repurchase Risk” included: Stephen Spies, CMB, SWS Risk Advisory LLC, Principal and Founder, Don Smith, Director of Transaction and Commerce Automation Solutions, LoanLogics, Amanda Zlato, Director, Underwriting and Quality Control, Single Family, Freddie Mac, and Kathy Herig, Chief Credit Officer, Homepoint
