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The Top Three Compliance Problems in the Mortgage Origination Application

Tommy A. Duncan
Jul 23, 2013

While executing the quality control audit and review of thousands of loans, we have noticed the consistency of some reoccurring problems during the mortgage origination application process, said Tommy A. Duncan, CEO of Quality Mortgage Services (QMS), a provider of mortgage banking and compliance solutions in the industry. The number one compliance problem in the origination and retail side takes place during the initial 1003 Application, Tommy added. We continue to notice incomplete borrower information, liabilities not lining up properly against the credit report, no HMDA data, and missing signatures. Although there was some improvement from 2011’s 22.29 percent to 2012’s 18.19 percent, mortgage loan officers should exercise more thoroughness in the completion and accuracy of this document. The second highest compliance problem in mortgage originations and retail is the initial disclosures of the Truth-in-Lending and Good Faith Estimate (GFE). During the audit process, we marked loans with errors in fees and missing signatures. 2012 reported improvements from the 16.25 percent error rate to the 2011 19.53 percent scores. Based on this data, we conclude that if there are numerous mistakes on the initial 1003, errors will then follow to the initial disclosures. The third biggest compliance problem involves missing disclosures required by the FHA and disclosures not prepared properly. This is worsening as more and more originations are moving to the purchase market and first time homebuyers. As the refinance market reduces and the purchase market returns, more government lending programs will be used. As the initial 1003 and Truth in Lending defects improved from 2011 to 2012, disclosures required by FHA got worse in the same period. The defects increased from 10.87 percent in 2011 to 12.82 percent in 2012. Overall, regulatory compliance improved from the origination and retail side for mortgage banking.  However, the numbers of errors excessively outnumber the errors in the credit risk and valuation side of mortgage banking.  Once mortgage lenders push aggressive pre-funding compliance programs down to the mortgage loan originators, the compliance numbers will continue to be high.  I do want to congratulate the number of professionals who have taken steps to insure compliance requirements are met and maintained because the industry is showing improvements from previous years, concluded Tommy. Tommy A. Duncan, CEO of Quality Mortgage Services and Certified Mortgage Technologist started with QMS in 1992. Tommy designed the Mortgage Analysis Review Software called MARS that creates analytical reports for mortgage trending from mortgage loan audits.  Tommy’s industry knowledge of trending and mortgage analytics has resulted in advising congressional staffs, and interviews with the New York Times and Bloomberg. Tommy is the CEO of a U.S. owned off-shore company called QMiS Systems that supports back office processes and technology development. Tommy received his Masters of Science in Aerospace from Middle Tennessee State University. He may be reached by phone at (615) 591-2528 or visit
Jul 23, 2013