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QC software just one component of a QC solution

Lenders have some new options; some are great, but many are not so good

Human Technology

This article is part of HW PartnerDirect™. What is this?

In order to ensure quality loans with smaller teams, many mortgage lenders are now searching for automated solutions for the quality control (QC) function. The industry’s business process outsourcing providers identified this as a growth opportunity not too long ago, and went shopping for solutions -- which means if a company has QC software, you can bet a suitor has approached it within the past 12 months.

Software isn't likely to replace a well-trained quality control professional, but that hasn’t prevented an increase in mortgage-technology acquisitions aimed at buying the best-automated QC system on the market.

Earlier this year, Stewart Information Services Corp. (STC) acquired Wetzel Trott Inc., a firm that specializes in quality control review for residential lenders. First American Financial Corp. (FAF) purchased Interthinx from Verisk Analytics (VRSK). Interthinx is a provider of loan quality analytics, decision support tools and loan review services for the mortgage industry. TD Service Co. purchased the software assets of IMARC, Inc.; Stewart also bought up Allonhill, and Indecomm Global Services also made an acquisition in the space as well.

The various technology platforms acquired via the above transactions will drive the most direct impact on the return on investment these deals ultimately achieve. That’s bad news, because there is little chance that the tools acquired can meet the new demands present in today’s mortgage market. An effective risk-based mortgage QC loan audit and review process is, after all, truly a very manual process.

Software alone cannot get this job done.

For example, Fannie Mae now requires lenders to audit their quality control processes in accordance with SEL 2013-05 (read here). This can be very time consuming, especially if the lender tries to dump its QC software loan audit results to a spreadsheet and perform the Fannie audit on the results.

MERS also has QC auditing requirements that are currently built into very little of the software available on the market today. In fact, I only know of one tool that can do it.

Even with great technology, most service providers bolting on QC tech platforms will likely not be able to scale quickly enough to capitalize on the trend that likely prompted their acquisitions in the first place.

About 30% of the loans the typical lender funds should never have been closed -- either for material defects or fraud. The software that has been sold and acquired by companies in the mortgage space over the past year or so is unlikely to change that figure.

Lenders will have to find a way to ensure high-quality post-close audits for all of the loans they originate. That solution will include a technology component, yes, but that will only be part of what each lender will need to employ to remain fully compliant in this challenging operating environment.

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