As a lender managing a large loan portfolio, you always want to ensure that you do not have bad loans in your portfolio. A bad loan can severely affect liquidity for a lender. Financial institutions that partake in lending carry certain risk on every loan they fund. In this,verifying documents related to the property is very important. The underwriting team manages bulk of this process.
An underwriter is supposed to ensure that the borrower is indeed who they say they are, and that they have the capacity to repay the loan according to its terms and conditions. However, the underwriting process is prone to human error, which can lead to a loan turning bad in consequence. That is why an additional check post underwriting is essential, which we are going to explore in detail in this article. First, let’s look at some of the common errors that underwriters can make, which can be caught in the second round of verification.
Mistakes That Underwriters Can Make
Overlooking Financial History
An underwriter may overlook or neglect parts of a borrower’s financial history that may have implications on repayment of the loan. A person may have outstanding liens and judgements that are red flags. These need to be spotted and analyzed.
Taking the Word for it
Say you are an underwriter, and the case manager comes to your desk with yet another loan that is to be validated. He says that the client is legit and credible, and that all his papers are in order. So you do a cursory look over of the documents and pass them forward. A few days later, you come to know that the papers were forged and the client was a fraud. Need we make a further point?
Underwriting Cases Outside Areas of Expertise
An underwriter may sometimes have to validate types of loans where he/she does not have expertise or sufficient experience. Although it is impossible to be an expert on every case, those where expertise falls short can have overlooked details and elements.
Doing Everything Manually
The world is almost completely taken over by technology. However, if an underwriter still uses the traditional pen and paper to keep a track of all cases that come and go, an error or two are bound to happen.
Not Realizing ‘Overselling’
Many times, sales guys may push underwriters to clear cases quickly. However, an underwriter should be able to spot when a case is genuinely good, and when it is too good to be true. Sometimes, underwriters don’t catch the fact that a case is being sold too hard on them, and that they should ideally be looking at the borrower’s documents with a fine-toothed comb instead of just passing them off on the word of another.
How Can This Be Prevented?
Because of these misses and errors, it is always a good idea to have a comprehensive Quality check (QC) checklist covering important items to be checkedbefore the loan is funded. This QC checklist can be made an integral part of the process, thus ensuring a thorough check for all the loans before they are funded.
How A Comprehensive Check Helps
A comprehensive check post-underwriting and pre-funding mainly helps by adding an extra level of security before approving or rejecting a loan request. To ensure complete effectiveness, this check should be automated in the form of a virtual QC platform. This platform is customizable, which means you can include various checklists for various cases.
A comprehensive QC platform provides the benefits of automation, reducing human errors significantly. It also helps to verify a variety of risks and use that as a standard mechanism across different users across different locations.
Visionet offers a Digital QC platform, which is completely customizable. It ensures that every analyst can follow the same QC process across the globe. For more information on Digital QC, click here
Alok Bansal is Managing Director of Visionet Systems Inc. and has 21 years of experience in managing strategy and global BPO operations. He excels in optimizing and leading the growth of financial services companies who are looking to take their mortgage operations to the next level.