I had a client call me who is working diligently to make sure his company is tight on compliance. I am very proud of him taking such a proactive approach and taking ownership of this focus for a quality loan production. He sees the value of quality loan production resulting in survival in the mortgage industry. As we were discussing the many things in quality control, he suggested that I should share it on my blog. Boy … did that stroke my ego. So, here I am bringing it to you as he suggested.
I have the numbers to show that those companies who manage their own appraisals have more high risk loans than those who do not. This does not mean the higher risk loans are directly associated with the appraisal. Some are and some are not. Most of the high risk loans are credit related, some are fraud for housing, and some are just due to poor underwriting. Until someone can do more thorough research than I, I can only base this insertion on my clients whom I preformed post closing quality control audit.
The elephant herd is changing direction. Fannie Mae with its new Lender Quality Initiative (LQI), is requiring seller/servicers to perform post-closing quality control within 60 days of closing. I did not speak directly to Fannie Mae on the reasons why they are now requiring post-closing quality control within 60 days, but I have a good idea why.
By the time a post-closing quality control department or company receives files, it can be up to 90-180 days. There are some production staff who delay this process for a number of reasons. I will not get into why in this forum. It may take another four to eight weeks for the post-closing QC auditors to complete the audit. By this time, loans may have gone into early payment default, or just default and the loan may be going into foreclosure before the company even knows if the loan was good or bad. The Fannie Mae requirement for post-closing QC audits to be performed within 60 days will force production operations and QC to work together to meet the suspense. Other investors will soon follow and require the same. I think it is reasonable.
Now that there is a standard for performance in the industry for completing post-closing QC, I believe that loan production will see timely feedback in order to adjust policy or procedures that will positively affect loan quality results.
Myth buster… your FHA sponsor is not doing your post-closing QC for you. You can count on the FHA sponsor to be more demanding than FHA. Your sponsor will require you to provide to them a quality control plan and probably three to six months of post-closing QC reports. The Mortgagee Letter (ML) that speaks about the annual financial audit is not the same as post-closing QC audits. Brokers … stop this fantasy that you no longer have to do post-closing QC. You can count on this requirement to continue because the sponsor does not have the resource to do it for you. Post-closing QC audits are a burden on everyone to include the sponsor. They will want to keep an eye on you and they will require proof that you are doing something and will require periodic reports that you are continuing according to your QC plan.
There you have it … the writing is on the wall.