The mortgage lending scenario in 2019 is not very different from the previous year. We are dealing with quality control, compliance, and low profitability issues even this year. The mortgage volumes are not picking up as per expectations, and many are choosing to rent a home over buying one. Additionally, the buying market is shifting to adhere to millennials who require a digitized experience in their loan buying process. Navigating through all this and more is a part of everyday routine for a mortgage lender.
Moreover, they are trying to maintain an excellent loan portfolio to ensure liquidity in the secondary market. A bad loan is the last thing mortgage lenders want right now. Hence, the focus on quality control has never been as important in the loan origination process as it is today. Mortgage lenders are continually trying to deploy methods that will save them from bad loans. Bad loans hamper their market credibility, and besides, they are stuck with a bad loan that cannot sell it in the secondary market.
To reduce these risks, a lot of lenders resort to specialized quality checks across the loan processing cycle. It is a good idea to carry out quality checks at all three critical stages of the loan origination process, viz. Pre-Underwriting, Pre-Funding, and Post-Close. Having a checklist that can be rolled out enterprise-wide, and which you can configure based on the changing market demands can help you minimize any bad loans in your portfolio. Visionet provides Digital QC as a part of its VisiLoanReview (VLR) solution and can help you across different stages in loan processing.
Digital QC offers specialized checks at the pre-underwriter, pre-funding, and post-close stages, ensuring quality control. It is a web-based and a configurable platform that rolls out the same QC process across the organization. It tracks the analyst output in the background providing a report every morning with a quick overview across the process coverage. It also offers multiple other reports that help clients monitor the performance of the team and plan appropriate training interventions for them.
Let us examine the role QC plays in all the three major stages of the loan origination process,
1. Pre-underwriting QC:
When a loan file goes to an underwriter, it is considered as industry best practice to have all documents completed and that no information is missing. If not adhered to, the underwriter rejects the file and sends it back for gathering the remaining data. This is simply a waste of time and effort for an underwriter. We all know the vital role underwriters play in loan processing and since they are expensive resources, it only increases the cost of the loan for the lender.
Some details that are checked and completed in this pre-underwriting stage are,
- Complete and comprehensive reviews
- Income calculation
- Credit Reconciliation
- Asset verification
Documents check including Trailing Docs review
- Collateral reviews before submission to underwriters
Pre-underwriter review & QC can save processing time and improve productivity for an underwriter.
2. Pre-funding QC:
After the underwriting stage, the file goes to the pre-funding stage for a last round of checks before the actual funding. This is to ensure that any irregularity that wasn’t caught in the earlier stages is identified before funding the loan. Even at this stage, a QC checklist relevant to the stage can be configured and made available across the organization. This ensures that the risk of errors and bad loans is minimized.
These are the details from the underwriting process that need to be thoroughly checked and verified before being cleared for funding. Such as,
- Any missing information in the documents submitted by the borrower
- Credit issues, problems in a credit history
- Lack of evidence of funding capacity
- Discrepancies in tax documents submitted
- Evidence of stable employment ensures borrower’s capacity to repay a loan
- Fraudulent income declaration
This stage is critical as post this stage; the loan gets disbursed. Sometimes we have seen cases where discrepancies in the loan files may be willingly ignored, or the loan files get cleared based on some external pressure. Such errors can be easily identified in the pre-funding quality control process, and the application can be rejected on these grounds. With the digital QC checklist being implemented within their systems, lenders can ensure strict and comprehensive QC before approving funding.
3. Post-close QC:
Once a loan is funded and closed, lenders focus on the performance of the loan in the secondary market. This means that once loans are funded, they will sell these portfolios to investors/secondary markets to ensure liquidity. Digital QC plays an important role here as well and performs post-close QC to verify data and compares all the documents for inconsistencies, omissions, and compliance thresholds. Implementing this process reduces post-close quality control (QC) findings, minimize non-compliance fines, and slashes operating costs.
Some details that are reviewed at the post-close QC stage are,
- Review 10% of each loan type of your closed loans, as required by Fannie Mae and Freddie Mac
- Re-verification of employment and assets
- Review of the automated underwriting approval
- Appraisal review
- Audit reports
- Comparisons of signatures, dates and other important details, clearly highlighting any inconsistencies and saving time over manual comparisons
- Comprehensive reporting features and automated rebuttals make corrective actions simple and trackable
Integrating the digital QC process within the lender’s systems enables collaboration between the lender, the underwriter and the borrower. A comprehensive QC process reduces human errors, identifies and corrects a variety of risks, and allows the implementation of quality checks across their locations in a uniform way. This integration helps faster processing of loans, enhances customer experience, and reduces operating costs due to increased efficiency. Thus, lenders can price their services/products more competitively, maintain profitability, and expand their market share.
Thomas is a Real estate professional with over 25 years of experience in the mortgage banking and financial services sector specializing in client relationship management, business process management and digital technology sales within the mortgage originations and servicing space. He has additional experience in default mortgage servicing and commercial portfolio/asset management. He is a strategic thinker, the performance-driven leader with broad origination and servicing experience, excellent communication skills, and experience in strategic planning.