Today lenders are required to perform both pre and post close loan reviews for Fannie, Freddie, and FHA loans. Many banks do those reviews as well for loans held in portfolio. It’s not a bad idea. With the rising costs of quality and compliance, are you sure you are getting the best return on your QC investments?
For years lenders have done perfunctory reviews on loans because these are required by the agencies. The QC process was looked upon as a direct expense, a hit to the bottom line, providing no real returns. They were done only because it was required. Nothing can be further from the truth.
Lenders have learned (unfortunately, the hard way) that quality and compliance are just as important to the bottom line as is production and pricing. What good does it do to produce large volumes of loans, properly priced to generate profits, when these same loans are either not purchased in a timely manner, or not purchased at all, on the secondary market?
Even worse, producing loans that result in indemnifications, repurchases, fines and/or penalties? An entire month’s profits can be wiped out by one problem loan.
Lenders doing high volumes of poor quality loans can originate themselves right out of business. It’s already happened to some, don’t let it happen to you.
With rates rising, refis shrinking, and business getting tighter every loan counts. Make sure the loans you originate produce the most income possible and don’t come back to take it all away.
That’s where your QC reviews come into play. The money spent to have audits done on loans coming up for closing, and those closed, should help to identify the defects and problems and help to save you time and money down the road.
A good comprehensive QC plan will uncover those areas needing improvement, and any additional training needed as well. It can also help you find ways to streamline your process to attain maximum benefit for minimal costs.
Pay close attention to the results. Create trending reports monitoring loan activity and performance across all business channels and departments, with action plans for defect correction and related training.
Document the process for your use as well as to provide evidence to the agencies and regulators of what you’re doing to ensure quality and compliance. Don’t take shortcuts when it comes to quality. They only lead to more problems and expense.
As I’ve said in the past and will say again and again since you’re required to perform these audits, why not get the biggest bang for the bucks you invest. Don’t be afraid to uncover problems or defects. By doing so, and doing what needs to be done to correct them, you’ll be avoiding much bigger problems and saving quite a bit of money to boot.
As they say, “An ounce of prevention is worth a pound of cure”; said in the lending world, “A penny in detection is worth dollars in correction.”
Don’t fear the audit.