Scenarios for Hybrid Loan Quality Control

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This ability to bifurcate or even trifurcate audit work between internal resources and a third-party provider is easily supported by a flexible automated technology platform.  As such, lenders interested the benefits of hybrid QC should look for vendors who support their clients with this type of dynamic technology, enabling both DIY (do-it-yourself) and third-party audit services on the same platform. This blog post describes some of the different scenarios where hybrid QC can be applied.

Phased Transition of One Audit Type

A lender considers insourcing but wants to take baby steps towards doing so. By allowing incrementally more of their reviews to be performed internally, it makes it easier to align and train resources to execute well. This might mean in the first month, performing just ten percent of their pre-close audits in house, while allowing their third-party vendor to perform the other 90 percent, and picking up another ten percent per month until fully transitioned.  During the transition, it is critical to have monthly calls with the outsourced provider to compare notes and make sure the internal staff is catching the same things the external team is catching (or more!). 

Phased Transition of One Audit Service

A lender may be prepared to take on their full volume for credit reviews, for example, but may not feel confident in fully transitioning their compliance audits.  Like the scenario above, a lender using a flexible audit platform should be able to allow their outsource company to continue to perform compliance reviews while the lender takes on credit audits.  Once the lender is comfortable handling the credit audits, they can transition the compliance reviews to their own team, either all at once, or with the phased approach set forth above.

Where to Start

Given the nature of the audit required for pre-close quality assurance and the ability to catch real-time issues that occur in the production process early, this is a good place to start bringing QC in house and allow a third-party to continue to perform the meatier post-close work.

When comfortable with the pre-close work, bringing post-close work in house can also be phased with hybrid QC. For example, your audit services provider can manage a large portion of the volume for the first month or two, then over the course of the next few months all of the volume can be slowly transitioned once resources are fully positioned to manage the job. 

Another reason to divide and conquer work with an audit services provider is if your internal staff does not have the required expertise in certain areas like compliance or appraisal audits but is rather more experienced in credit reviews. Those specialized audits can remain outsourced until auditors with that type of experience are trained or hired.  

Highly time-sensitive audits, such as prefund, are also a great place to carve out specialized resources with designated capacity who are ready to focus on those workloads as they come in.

Overflow

Even if you insource 100% of your work, hybrid quality control can still provide great value.  It gives lenders the ability to call up a service provider virtually “on demand” and have them offer overflow support during periods of unexpected spiked volume.  Another scenario for use might be when your audit team experiences some unanticipated changes due to staff attrition or temporary leave. Using an outsourcer can help manage the volume while new staff is hired and/or trained.

Hybrid quality control is really about being able to dial up and dial down audit resources and engage a resource safety net of sorts whenever your situation or goals change within your organization.  It’s really about finding the right partner with the right technology to make this transition seamless.

Want to know more about the benefits of outsourcing QC?  View a recent LoanLogics webinar I did with our VP of Sales, Matt Woolley.  Watch: “Insource or Outsource QC, Which is Right for Me?”

About the Author

Don Smith

Don Smith is currently serving as Director of Product Solutions for LoanLogics®. In this role he is responsible for driving the implementation of features and improvement of the company’s flagship SaaS based platform for loan quality management, LoanHD®. He also leads a team of business analysts. Don has been adding market driven capabilities to LoanHD since 2010. Prior to that, Don learned the mortgage industry during the boom and bust period from 2003 to 2007. He is also a law school graduate and “recovering attorney”, which helps him understand the regulatory landscape while designing solutions for the mortgage industry.