How to Maintain Loan Quality in a Rapidly Changing Market

With so much change in the market, it’s no surprise that the risk of mortgage fraud has increased this year. HousingWire recently spoke with Donna Gibson, COO and President of QC Ally, about fraud prevention and loan quality outlook for the remainder of 2022.

Housing wire: In this time of market change and as we head into the last quarter of 2022, what are the hot topics around risk, fraud prevention and loan quality?

Donna Gibson: QC Ally has just returned from the Mortgage Bankers Association Risk Management, QA, Fraud Prevention Forum. Industry experts from across the country came together to discuss this topic and themes aligned with what we see in our organization.

On September 12, HousingWire reported on a CoreLogic mortgage fraud report, which indicated that the risk of income fraud (27.3% increase) and real estate fraud (22.6% increase) had increased in the second quarter of 2022. We weren’t surprised. These numbers are consistent with what we monitor for mortgage fraud.

We are also monitoring the shrinking pool of potential mortgage borrowers and available products, such as the increased use of adjustable rate mortgages (ARMs) and others. The housing industry is much more regulated in a post-housing crisis era, and ARMs may not be used as they were before 2008. However, every mortgage must be funded, and shrinking the pool could cause rejection of loans that would have been previously approved and funded.

There is an opportunity here for risk and quality control teams to foster trust in the lending space through robust processes and review. Securing loan confidence opens doors for more creativity, such as expanding the credit box and additional products, ultimately increasing access to ownership and, therefore, expanding the credit box. This could help increase the number of potential borrowers and more loans.

HW: Why should C-Suite and lender executives put more emphasis on weaving QC, risk and loan quality into their strategy and budgets?

CEO: We all followed the headlines. The management had to make difficult decisions with the change in the market. Their goal is to continue growing the organization while keeping it healthy. This plays into risk reduction to ensure compliance and safety for their borrowers.

Quality control, risk, and loan quality play an important role in helping leaders achieve their growth goals by building trust in the system and driving expansion of the credit box and creative products.

As mentioned, the industry has noticed that fraud is on the rise across all businesses given the changing marketplace. We can expect GSEs and investors to take a closer look at loans issued during this period.

Last but not least, we hear about potential defaults and cascading redemptions.

We believe this is one of the many reasons Fannie Mae is now choosing to deploy QC Calibrations. In a fast-paced environment, we recommend partnering with qualified, technology-trained experts who handle quality control with many lenders, as it means they understand and see the landscape to deliver the best quality service. business loan.

Fannie Mae introduced QC calibrations in its Seller Guide on June 22, 2022. The new calibration will be a deep dive into a lender’s quality control process and results. Benchmarking aims to highlight the strengths, weaknesses and accuracy of the QC process.

Currently, Fannie Mae has focused, for example, on net defect rates and on the quality and accuracy of results. From 4e Quarter 2022, Fannie Mae will add a review of QC results and defect severity ratings.

At the RMQA MBA, Fannie Mae said benchmarking will be done on the top 50 lenders every year and on 51-100 about once every 3-5 years. They can also perform QC calibration if we have concerns about the quality of a lender’s loans. We believe in quality business lending, which includes the lender, the technology and a trained third party, like QC Ally.

I’ve had conversations with our current client partners about how best to prepare, and while I recommend meeting with a properly trained loan quality technology provider for a thorough plan tied to the unique needs of the lender, it there are general themes.

First, lenders must ensure they have a robust and compliant QC process from start to finish.

Second, be sure to validate your QC audit results, whether they come from an internal QC team or a third-party QC vendor.

Third, lenders should review their QC provider’s practices, process, accuracy and location of staff and services. We recommend a combination of in-house pre-funding audits with post-funding and maintenance audits outsourced to a US-based QC vendor. Lenders should work with suppliers with trained audit teams, properly verify verifier audits and accessibility, particularly if the lender is chosen for QC calibration.

Again, we recommend partnering with a provider that has technology experts and understands the entire loan lifecycle from many lenders.

HW: What challenges do lenders face in terms of loan quality and fraud prevention?

CEO: In this environment, every lender is looking to reduce costs while generating revenue and managing risk.

We have had good years of refi, but lenders are challenged in this cycle change and in the buy market. Lenders and QC departments face additional pressure to get loans to the closing table faster, and again we encourage an internal pre-funding partnership with technology departments for more flexibility and control towards closing. .

An effective QC team can build trust through the accuracy of the mortgage system. When we all trust the system and how it works, we can expand risk tolerance to open the box of credit and more creative products to increase home ownership.

Lenders also continue to explore how to implement more technology and digital elements. A smart lender knows that technology is not a quick fix to cost reduction, but rather looks at processes to see how technology can enable efficiencies and costs. In turn, QC teams know that a partnership of technology-enabled services and human expertise and support will yield the best results for their organization. Experts trained in this field know what to look for in the rapidly changing regulatory and investor environment, and technology is a tool in their toolbox to support efficiently and quickly. Both work together with checks and balances to protect the lender and the consumer.

We find the best solutions enable technology-enabled in-house pre-financing in partnership with outsourced post-financing to balance efficiency and accuracy over the loan lifecycle.

HW: How does QC Ally help lenders maintain loan quality?

CEO: We believe that a change in the procurement market is an opportunity to examine internal processes, including risk, fraud and loan quality.

We focus on the power of partnership between a lender’s QC team and our 100% US-based staff. We work with our client partners to ensure rapid responsiveness while administering the most accurate and highest quality services and audit results.

We monitor changes in the regulatory environment and work with our client partners to ensure an understanding of trends to identify new products and high-risk loan types that should be selected for audit.

Specifically, this fall and into the year ahead, we are currently working with our client partners to prepare for a successful calibration with Fannie Mae. We are also using cycle change to review their internal processes to identify opportunities for efficiency, risk reduction and opportunities to build confidence in their systems for product expansion and different loan offerings. Our technology software provides a platform for our team members and trained client partners to communicate and review analytics and benchmarking.

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