Image by Tessa Hunkin
Fannie Mae’s new Loan Quality Initiative adds a number of new quality control requirements for originators that must be in place by July 1, 2010. Perhaps the biggest change is the new requirement for all originators to perform pre-funding quality control reviews, in addition to the existing requirements for post-funding and early payment default (EPD) reviews. For mortgage quality control professionals, this is another step toward what we at Cogent call “Enterprise QC” — an integrated, end-to-end approach that promotes continuous QC monitoring of all loan origination and servicing processes.
Until now, most lenders have had a disjointed and incomplete approach to quality control across the enterprise. Even among lenders that have been doing some form of pre-funding review, the results are often not available to post-funding reviewers, because there is not a common database for sharing the information. Although many lenders have begun using automated compliance engines (ACE’s), such as those provided by Mavent and ComplianceEase, the loans that are flagged by the ACE for potential compliance errors are not automatically targeted for post-funding reviews. And QC auditors doing reviews of EPD’s, Repurchases and Claim Denials often do not have access to the data from the pre- and post-funding reviews. On the servicing side, many lenders still do not have a formal quality control process in place, and those that do often do not have access to data from other servicing department audits, let alone audits of originations.
We believe the keys to successful Enterprise QC are: (1) the ability to easily access and manipulate the production and servicing data that are needed to accurately define the populations and select the loans that qualify for each quality control audit, (2) continuous communication between quality control managers and the managers of the processes being audited to ensure that audit checklists always reflect the most current policies and procedures; (3) closed loops for reporting, feedback and response, to ensure that adverse findings are responded to and corrective actions are implemented and documented; and (4) sharing of all quality control data across the enterprise, to maximize the returns from the risk information generated from each QC process.
