In last month’s column, information was provided suggesting increased lender scrutiny of quality control plans for third-party originators. The status change from a HUD loan correspondent to a sponsored originator did not change or diminish the need for loan quality control procedures. For those companies participating in the forward loan market, there has been an increase in the profile and perspective with which lenders are assessing loan quality control activities among their customers.
It is impossible to pick up an industry publication and be unaware that the agencies, investors, consumer groups and regulators are all pointing fingers at each other over borrower default and loan foreclosure issues. A large number of these loans are the result of the economy and borrower inability to pay. However, recent buy-back and repurchase demands that have surfaced include loans with many other issues besides borrower payment default. Though the number of loans involving QC issues from the onset of origination has not been fully assessed, remediation of non-performing loans involves a heavy analysis of all components of loan failure, including quality control.
HUD has provided guidance over the years that maintaining an agency-compliant, effective QC program meets agency guidelines as well.
In a perfect origination world, loan QC guidelines would be required reading. Many originators make the assumption that this process is in place and working. How many times have we seen that the actions of one or a few taint the entire reputation of a company, and in some cases ultimately cause the operations of the company to discontinue?
How your company monitors its quality control responsibility should be a primary concern. Your livelihood and the fate of your family clearly rest upon your ability to provide, yet the undetected actions or failures of one or a few could abruptly cause you to be in jeopardy of not meeting your personal responsibilities.
Quality control is a function of everyone’s’ performance in the lifecycle of a mortgage loan. While it is suggested that you become familiar with your company QC policy and procedure again, additional QC resources also exist in your investor manuals, as well as in agency and regulatory guidelines. In going back to basics for QC, start your review by considering the following:
1. Does someone routinely review the forms that I use? Continuous changes mandated by law, guideline, policy, regulation and market changes require constant compliance review. If you are not responsible, who is? A good indication that there may be a problem in this area is if you are using forms and crossing out the year in required date areas, or having to strike out and initial pre-printed language.
2. Why do I have more or fewer documents than the checklist requires? The ability to update checklists and forms is almost instant. Utilizing yesterday’s checklist is a definite indication of internal process issues.
3. Why do borrowers leave messages for me that they are unable to get information on the status of their loan?? Knowing who and how many people are handling your file is a very important premise of good customer service. Requests made of the borrowers without your knowledge may be an indication of a faulted origination as well as operations issues. How will you learn to correct your mistakes?
4. Are updates, program and regulatory changes routinely communicated to all staff? Information and communication flow within your office is important to avoid mistakes and possible delays in the origination and processing of your loan. Many underwriting conditions are the result of changes that were not addressed prior to submission of the file for final approval.
5. How is customer privacy maintained? Look around the office. Are files left on desks or scattered in several different areas? Are there policies and procedures for document destruction and safeguards preventing access to borrower information without authorization? Who is permitted to alter or change information once you submit an originated file?
6. Do you – or does anyone – carry confidential borrower information on laptops or remote servers? Today’s information portability increases risk. Improperly secured laptops and remote information storage is a significant concern when security measures are not in place to protect from theft or misuse of this information. Blanket access to LOS and other operations systems without user permissions identified represents a potential for resulting quality control breach on a large scale.
7. Are post-closing borrower “experience” questionnaires or inquiries made? Feedback from your borrowers after their transaction is complete is an excellent source for evaluation of process changes, communication and information failures and unknown QC breach. From a marketing perspective, this communication represents another touch point in the development of referrals.
8. When was your last “how to” session? Is there someone in your company who is a “graphic designer” – the go-to person who utilizes Liquid Paper, Wite-Out and document-editing software as a routine part of their job? While there are some limited instances where the use of these products may be necessary, in general, document alteration is a very big issue. As the industry continues to move toward electronic documentation, the risk for fraud increases. Having the reputation as the “fixer” is not really a positive job attribute and begs the question: At what point does the correction or alteration become fraud?
9. Who handles compliance? Is there someone who is focused on reviewing QC reports, customer complaints, audit results and investor feedback? Believe it or not, in addition to protecting your company, the information protects your personal well-being. While the results of these types of activities may identify needed areas of improvement or change, lack of identified issues provides a false sense of security that the potential for QC breach could occur in the future.
10. Are there established pre-underwriting QC checkpoints? From origination to file submission for underwriting, are there certain activities or routine verifications that are conducted to assess the quality and accuracy of the information being received and processed? Many companies do little to test the integrity of their files (as well as the integrity of their employees), and wait or react until investor review and QC measures are complete. Quality loan files exist when the QC procedure begins as early as the pre-qualification process. More importantly, investor quality control at the time of underwriting is often assumed to be completion of the process. The reality is that the QC process continues well into the future past underwriting, through execution, into servicing and, as we mentioned above, even in loss mitigation.