Yesterday, I spent the entire day with Fannie Mae’s QC Team who is launching the Lender Quality Initiative (LQI). The QC Team consists of QC Specialists who are out in the field monitoring the approximately 900 Sellers/Servicers.
First of all, I want to thank Fannie Mae for showing great leadership in pulling the top Quality Control Vendors in the country to work in a round table forum to hear from the mortgage QC vendors on industry quality control concerns, processes, and policies that should be implemented for a better industry loan quality. This meeting was the first of its kind.
One driving point that kept surfacing during the different sessions is the effectiveness of mortgage quality control whether at pre-funding or post-closing. Mortgage operation either broker or lender must determine what is effective in maintaining and monitoring their QC processes.
Pre-funding QC is difficult to measure effectiveness because it is mostly reactive mode to fix a loan problem in order to get the loan funded or rejected. Whereas post-closing QC is the best measurement of effectiveness because when loan defects are found during the post-closing QC audit, the loan defects can be associated with a process during the loan production enabling management to implement policies and process to improve loan quality.
It is my perception and several other QC vendors that Fannie Mae may make some changes to LQI to incorporate the Seller/Servicer monitoring of TPO/Broker’s quality control. It may come in the form of reviewing the TPO/Broker’s post-closing QC reports and QC Plans in order to see that TPO/Brokers are practicing loan quality. Brokers need to take this as things to come. You never had to perform post-closing QC on conventional loans before but you will have to in the near future. Fannie Mae is taking LQI very seriously and they will hold the Seller/Servicers accountable for TPO/Broker monitoring. TPO/Brokers can expect to provide post-closing QC reports and QC Plans as part of the approval process.
I applaud Fannie Mae for taking the industry to this new level of loan quality. It will be interesting to see if other agencies will follow their lead in pushing loan quality down to the point of origination.
There was small discussion about post-closing QC not being needed any more because of some technologies used in pre-funding QC however, that thought was quickly overwhelmed with the fact of that many lenders pick and choose which loans receive the pre-funding QC tools therefore, creating a gaps in the pre-funding QC process and that many loan defects occur in the credit and collateral that require some type of manual process. Most repurchases are based on credit, collateral, and material defects that require a manual process during the loan production.
In spite of the mortgage technology firms who are trying to capture the mortgage QC space, it appears the old, proven and tested manual post-closing QC audits will not only continue to be a vital part of measuring the pulse of loan quality but it will grow into the TPO/Broker space.
Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528, ext. 124 or e-mail [email protected]
You may also visit Quality Mortgage Services LLC on the Web at www.qualitymortgageservices.com.