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We’re back with part two of our series discussing how robust reporting from QC platforms, like LoanHD®, can address the gaps Fannie Mae sees in their lenders’ loan quality review plans and processes.
If you missed part one about these loan quality insights in reporting, you can look back at the first four points addressed here.
This new series begins with a bit more discussion on defect rates and then transitions into terminology/methodology best practices, and then everyone’s favorite, dives into the importance of action plan reporting.
Distinguishing between defects related to compliance (federal, state, or local laws and regulations) and underwriting and eligibility defects – Fannie’s goal is to “create equitable and sustainable access to homeownership while maintaining compliance and high credit quality.” Considering the two separately adds another layer of needed transparency to the process. LoanHD® is rather unique in its ability to support each of these topics. Not only does its robust reporting allow you to drill-down into specific defects by type but the actual audit work can be trifurcated by type. The benefit of doing this is it allows specialty compliance resources to focus on those types of reviews and/or other auditors can work specifically on collateral or credit reviews in support of responsible borrower access to credit.
Using consistent methodology and terminology across separately reported random and discretionary reviews – Back in January, LoanLogics covered the topic of discretionary sampling in a prior blog post and its role in helping assess new risks in a lender’s production and product mix. LoanHD makes the loan selection 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 are selected from an easy-to-use drop-down menu. Once the reviews are complete, dynamic, real-time reporting can help discern trends, issues and understand the root cause. LoanHD reporting even allows you to combine both your required and discretionary results into a single report or keep them separate.
Because LoanHD has multiple modules and worksheets in it to perform different audit types (pre-closing, post-closing, due diligence, pre-funding, etc) the same taxonomy and methodology is carried out throughout, making reporting and action planning more accurate.
Ensure QC results are properly categorized using the defect severity levels defined in the lender’s QC plan, including assigning the highest severity level to loans ineligible for sale to Fannie Mae – LoanHD makes categorizing loans’ defect severity levels extremely easy. Within the test management portion of the system, three predefined severity ratings are provided – eligibility, moderate and informational only. It’s Fannie’s recommendation that there be at least two or three, so this meets their criteria. Each audit type (pre-closing, post-closing, compliance, etc.) has its own pre-defined test packages. Should a specific test fail, these severity levels are automatically assigned based on the preset rating for that defect. If the audit rebuttal process or a guideline change ends up modifying the initial outcome of the test result and subsequent severity level, with just a click users can update their defect severity rating within the test management module. A history of these rebuttal changes are also captured should future review and explanation be necessary. It’s also worth noting, LoanHD allows QC managers to customize their own tests to add an extra layer of control for their loan file reviews, beyond that of agency and investor guidelines.
Intended corrective actions and action plans – Fannie noted this as a big one, which isn’t surprising given its direct correlation to successfully reducing the frequency of defects and preventing future recurrences.
Action plan reporting allows managers to define and tie a training program to a specific defect trend and monitor its effectiveness in eliminating the root cause. Program start/expected completion/completion dates, program goals, and owners/participants are all easily definable and trackable. Suspected root cause, marketing materials used in the trainings, and meeting notes are also easily captured. Reports can then be used in weekly discussions with staff to improve loan manufacturing quality. As QC managers observe improvements being made, these dates and details can also be documented in the system to show how the team is progressing towards rectifying the initial defect’s root cause.
In addition to over 100+ predefined reports in LoanHD, the Report Builder feature, allows QC managers to create, customize, and save countless reports in real-time. Explore this infographic for more on our reporting capabilities to help surface valuable loan quality insights.
Back in May, my colleague wrote a similar blog that addressed the Fannie Mae identified gaps in lenders’ overall QC plans. You can read that post here.
