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The mortgage industry has largely been perceived as a risk-prone sector that is sensitive to market dynamics such as government regulations, the health of the economy, market competition, and others. This led the industry players to establish robust QC processes and refine those over the years to create a reliable framework that enables them to spot and mitigate risks for better outcomes. Also, the rising instances of fraud and manual errors have forced lenders to make arrangements for close evaluation of the various critical processes for an error-free mortgage lifecycle.

It was going all good until the industry was hit by the Covid-19 pandemic in 2020. The crisis forced lenders to downscale their operations, triggering a plethora of inconveniences in carrying out the mortgage QC audit services. The lack of the right technology and the unavailability of the human workforce severely affected the ability of lenders to capture loan defects, pinpoint trends, identify root causes, and take corrective measures related to loans, people, and processes.

In a survey of banking and lending executives, 82% of the respondents revealed that digitization is the key to transform home mortgage processes.

The Role of QC and Skilled QC Experts for Lender’s Success in 2021 and Beyond

Mortgage QC services have always been an integral part of the pre and post-closing processes including origination, loan administration, default servicing QC, and others. A foolproof QA/QC process enables the lender to constantly improve and enhance the overall mortgage workflow for better employee productivity, higher borrower satisfaction, and greater profits. As the industry strives to regain its lost traction after the Covid-19 catastrophe, lenders would desperately need the QC boost to fuel their pursuit.

Best Quality Loan Origination for Better Stakeholder Experience

In 2021, lenders must take special care to generate better loans. They need to bank more on seasoned experts to capture defects in loan quality and identify potential business risks. In fact, in the post-Covid era, QC experts would be pivotal in ensuring data integrity, underwriting accuracy, and standard documentation of pre-fund and pre-close loans.

  • In 2021 quality of loan sampling would be the key in capitalizing on the right opportunities. Therefore, the QC team will have a big role to play in improving loan sampling and identifying, categorizing, and measuring loan defects.
  • Lenders will find it hard to run their QC process efficiently owing to the shortage of skilled QC staff. Therefore, they need to bank more on digital and secure system protocols to track and report on QC issues.
  • In 2021, borrower experience would determine success more than ever. For that, lenders would need an effective QC process that takes into account customer experience issues while analyzing loans.
Freddie Mac estimates the 30-year fixed-rate mortgages to be around 2.9% in 2021 and 3.2% in 2022.

A Profit-inducing Post-closing Origination System

mortgage loan origination services

In the post-pandemic period, a well-framed QC review process would be critical to ensuring that loan originators are in compliance with evolving regulations such as GSE selling guidelines and Ginnie Mae’s requirements. A reliable team of QC auditors can protect the interest of the client with strict adherence to the regulatory guidelines, while facilitating scalability in a post-pandemic age.

  • Concerns about data handling in post-closing are giving sleepless nights to lenders. The onus is on the QC team to check for data integrity and accuracy in all loan origination files, verify the appraisal/eligibility of borrowers, refresh credit reports, and re-evaluate credit decisions.
  • The crisis has impacted real estate values, making the appraiser’s life difficult. Lenders need a QC team to review appraisal/property valuations and check for alignment with the industry’s valuation code of conduct. For new or supplemental valuations, the QC team must leverage custom valuation solutions.
  • Instances of fraud during both pre and post-closing skyrocketed in 2020 and are still on the rise. To safeguard their comeback plan from financial crimes, lenders are employing QC teams with time-tested processes to flag and communicate suspected fraud to the lender.
In 2020, the average number of fraud attempts at mortgage organizations was 1,316 (per month).

Build a Framework to Measure Success

For lenders operating in the competitive environment of 2021, having well-defined KPIs and metrics for measuring the efficacy and success of their moves is critical to driving their overall performance. This underscores the need for a robust QC program that helps incorporate the right KPIs and metrics in the workflow of the lender.

  • For improved performance, lenders would have to recalibrate their workflows (including QC) according to market dynamics. The insights and operational framework of QC auditors can help the client with that and also with the analysis of reports for determining success.
  • As lenders try to regain lost ground once the pandemic abates, they must maintain consistency in loan origination and servicing purchase/asset transfer volume. This highlights the growing importance of an expert QC team for their success in 2021.
  • To grab the limited opportunities, they may have to associate with multiple vendors. While doing so, lenders must be cautious as it could impact their processes, including QC. Reliable QC teams adhere to industry best practices and proven methodologies to evaluate the implications of any change proposed.

How a Shortage of Experienced Professionals Hit QC Management in 2020

mortgage QC audit services

The Covid-19 pandemic came down hard on the mortgage ecosystem, inflicting staggering levels of business and monetary losses, disrupting age-old workflows and practices, and posing serious threats of halting business permanently. Safety protocols such as social distancing, although necessary, caught lenders off-guard as they didn’t have anything to fall back on to ensure business continuity.

The lack of QC professionals made the going all the more difficult as the lenders ability to reach out to prospects, carry out daily operations, and provide support to borrowers was severely constrained.

Disrupted Documentation Management

Due to the lack of adequate remote working infrastructure, most QC teams were unable to review loan documents efficiently, which affected their deadlines and even the output quality. By working remotely, they couldn’t liaise with stakeholders for tasks such as information validation and details verification, leading to inaccurate appraisals and estimations.

The Implications of a Demotivated Workforce

The financial impact of Covid-19 forced lenders to trim their workforce, including the QC team. This needed the remaining members to take up additional tasks and even multitask, thereby affecting forcing them to do more with less. Also, with the virus raging, QC employees were in the high-risk group as they were likely to contract the virus owing to their frequent interactions with loan processing agents.

A Tangible Drop in Productivity

Even before the coronavirus episode, most mortgage organizations were already operating with an understaffed QC team. The crisis forced lenders to keep operations running with reduced employee strength because of which the QC team faced a surge in workload. This led to increased turnaround times and errors in the quality check process.

Why Staying Prepared is Important for Lenders in Dealing with Future Resource Crunch

mortgage lenders USA

The virus has posed an array of short and long-term business challenges to lenders by exposing their shortcomings in areas such as technology, and employee training. However, it cannot be denied that the catastrophe has pushed the industry in the pursuit of a more robust ecosystem comprising of well defined, robust, and future-proof workflows. Lenders have to stay prepared for more such (or even severe) crises in the future to realize the following.

Business Continuity Even During Turbulent Times

The chances of recurrence of the pandemic in the near future or the possibility of more dreadful occurrences cannot be underplayed. To ensure continuity of operations and stay profitable during such times, lenders need to be adequately prepared. The easy way out is to explore the option of automating their QC structure.

Automating the QC audit process is a leap forward in tackling the rising compliance costs, a major concern for the industry in testing times like these. When all front-end and backend audit processes are subjected to precise automation, it reduces the reliance of the lender on the human workforce and eliminates the scope of manual errors.

Better Visibility of the Real Picture

During desperate times when lenders are faced with a real risk of business loss, having a clear picture of the various processes to assess the overall health of the organization is crucial. In this regard, lenders must beef up their QA/QC reporting workflow (usually a resource-hungry process), so that decision-makers are in sync with the real state of affairs and can take the right decisions.

Mortgage companies must ensure that their reporting process is tailored to the organization’s unique characteristics. To that end, they can explore modern reporting solutions, data visualization tools, and trend forecasting software that help build insightful reports that can be viewed on interactive dashboards. The application of AI and big data can be a huge productivity boost for lenders.

Fraud Identification and Competition Analysis

The mortgage industry has reported a surprisingly high number of fraudulent instances that implied monetary and reputation loss and compromised the safety of borrower’s data. During chaotic situations when things get difficult to manage, curbing ill-intentioned actions gets difficult. But even during such situations, predicting the flow of the market is critical for lenders to ensure survival.

To reinforce their attempt of weeding out the chances of fraudulent loans, lenders must consider the digitization of risk assessment, collateral underwriting, credit reporting, etc. Such measures have proved to be highly effective in keeping unethical incidents in check. For analyzing the market, industry leaders largely rely on digital tools with AI, analytics capabilities, and the services of data handling firms.

In a survey of banking and lending executives, 78% of the respondents said that digitization and advanced analytical tools in home lending enable better decision-making and more profitable outcomes for borrowers.

Why Lenders Must Outsource Their QC Process in 2021

As already established in the preceding sections, lenders must work aggressively toward future-proofing their business owing to the looming uncertainties that threaten their survival today. However, as most lenders are still recovering from the impacts of the virus, they don’t have the necessary resources for that. This is where outsourcing the QC audit and other backend operations emerge as the logical choice for lenders. In fact, delegating their backend tasks to competent mortgage services firms has always worked in the favor of lenders.

Home prices rose by a whopping 9.5% in November 2020, compared with the same month the previous year. This has been the strongest yearly growth rate by that index in over six years.

Keep Variable Costs in Check to Reduce the Overall Expenses

At a time when most mortgage lenders are reeling under severe financial constraints, maintaining an in-house QC team adds substantially to the recurring variable costs. On the flip side, an external services firm usually does a better job at a significantly lower price, helping the client set their operating budget for their bounce-back plan in the post-Covid era.

Better Sampling to Fine-tune the Threat Monitoring Mechanism

For the QC team, drawing statistical and targeted samples is central to ensuring quality outcomes. However, with the in-house employees already overburdened with daily firefighting, they might find it overwhelming to ensure sampling accuracy. A reliable mortgage services firm can help lenders adopt the right sampling strategy by factoring in the client’s historical and ongoing process risks.

A Fool Proof Defect-Measuring Apparatus

To enable their clients to realize the goal of measuring loan defects effectively, outsourcing firms employ loan defect taxonomies that help in identifying the root cause of defects. They categorize loans for standardized measurement of defects, identify areas of concern with greater specificity, and classify loans as per the defect levels for convenient reporting.

A Head Start to Win the Market Battle

With the sophisticated QC models employed by outsourcing mortgage QC firms, a high degree of efficiency can be realized in evaluating critical metrics and KPIs to spot potential adverse trends. Also, the lender’s side is in a better position to take on the market by focusing on their core competencies of originating and servicing loans. With increased adaptability and flexibility, they can now better negotiate the challenges of scalability.

For lenders trying to regain their lost grip in the post-Covid period, beefing up the QC audit process must be a priority. While there are various options available for that, seeking the assistance of an external mortgage back-office services provider is indubitably the most efficient way. Competent service firms leverage periodic loan audits, standard operating procedures, and a systematic document management process to foolproof the mortgage quality control process for their clients.

Who We Are and Why Our Expertise Matters

At Expert Mortgage Assistance (EMA), we assist mortgage companies across the world to navigate the complex and resource-intensive QC challenges with custom solutions. Our QC audit workflows proved their robustness even during the peak of the Covid-19 catastrophe, helping clients to carry out operations when more than half of the industry was on the verge of permanent closure. Our expert team of QC professionals adhere to the industry best practices and a checklist-based approach and are backed by the latest tools to ensure economically viable and round-the-clock services for our clients.