2023 will be a complex year for lenders, and you need to double down on your mortgage quality control principles. Inflation and rising interest rates are likely to bring down mortgage demand, and Fannie Mae has already cut its mortgage origination forecast for 2023 from $2.7 trillion to $2.4 trillion. Further, with refinancing volumes beginning to shrink (refi occupied just 18% of the market share, the lowest ever since January 2018), lenders are now shifting to a purchase-first economy. This also brings with it a higher risk stance.
Are your quality control processes equipped to handle non-qualified mortgages (non-QMs), longer servicing timelines, and potentially higher delinquency and default? Or, should you work with a mortgage quality control partner to mitigate risk at low costs? In today’s economy, it might make sense to invest in the latter.
Why Are Mortgage Quality Control Principles Necessary?
While a risk-free market may be ideal, some amount of risk and potential quality lapse is inevitable in mortgages. This is particularly true in an economy marked by headwinds, where lenders must aggressively push their offerings to stay afloat and ahead of the competition. For instance, inflation has reached a historic high in 2022, causing home buyers to tighten their purse strings. This makes it necessary to roll out non-QM offerings (among other things) even as you look at ways to manage risk.
Further, despite declining delinquency rates in the short term, default and delinquency is expected to rise again as refinancing options decrease and foreclosure moratoriums are lifted. As a result, lenders need to adhere to mortgage quality control principles to properly manage their QC processes and service default loans in a compliant manner.
In a complex economy, regulatory bodies are likely to bring mortgage businesses under close scrutiny and ensure that their houses are in order. Mortgage quality control principles make sure that you audit QC procedures regularly and stay prepared with reviews such as Servicer Total Achievement Rewards (STAR) evaluations and Fannie Mae Mortgage Origination Risk Assessment (MORA).
How Can a Mortgage Quality Control Partner be of Help?
A mortgage quality control partner is a third-party organization specializing in audits and mortgage quality control principles. Frequently, they will also provide mortgage automation services so you can streamline key QC processes such as document reviews, random and discretionary sampling, re-verification, data integrity reviews, etc. Importantly, these partners are fully conversant with the latest and emerging mortgage QC regulations to provide you with comprehensive coverage.
1. Preclosing quality reviews during origination
A mortgage quality control partner will assist lenders in QC at the time of loan origination. They will evaluate the loan closing process through random sample selection, and occasionally through targeted samples if you have a new branch or technology system. The partner will also look after data entry from source, employment verification, insurance checks, etc., to surface any bottlenecks or loopholes in the process.
2. Quality control and risk management during servicing
The mortgage quality control partner is responsible for operating a quality-controlled servicing process. This means that all communication adheres to regulatory norms, deadlines are followed, the necessary documents are retained, and red flags are raised at the right places. The partner also helps to streamline default mortgage servicing and makes sure that delinquency cases are resolved smoothly and in a compliant manner.
3. Post-closing reviews
After a mortgage is complete, the quality control partner will ensure that the proper processes and checks and balances are followed throughout the borrower’s journey. This also includes reviews of denied applications so that you remain compliant with state and federal loan approval laws. After a loan closure, the mortgage quality control partner is in charge of error discovery to help you undertake training and employee education and prevent similar errors in the future.
Read more: How to Mitigate Risks in Default Servicing? A Guide for 2022-23
How to Select the Right Mortgage Quality Control Partner?
In 2023, choosing the right quality control partner can help you mitigate and manage risk even as you respond to market volatility and succeed amid challenging conditions. Outsourcing to an external partner can help save costs and stay agile, adapting as home purchase volumes dip or pick up. They also simplify regulatory compliance by staying on top of the latest industry laws. To select the right mortgage quality control partner, remember these insights:
- The right partner will have adequate staffing capacity and access to resources to deliver accurate reviews at a competitive fee. They will also be credible and unbiased.
- The outsourcing partner will be well established and have a good reputation built across decades. They should also be able to provide support with short turnaround and response times.
- They must have robust technology expertise, like a proprietary risk management platform or artificial intelligence-based document reviews. This will exponentially increase QC efficiency.
- Within the first quarter of the partnership, they should be able to surface some findings. Otherwise, it is likely that the partner is not providing diligent services.
At Nexval, we leverage cutting-edge technology to help lenders adhere to the most stringent mortgage quality control principles as per CFPB, FNMA, FHA/HUD, USDA, VA, SCRA, MERS, and COVID-19 norms. Our risk management platform, combined with a highly experienced team of audit professionals, delivers bespoke solutions and services to leading US mortgage companies. This makes quality control simpler at every step of the loan lifecycle, regardless of the headwinds or opportunities you’re looking to tackle. To learn how that can be achieved, schedule a meeting with our Tech Gurus today!