As lenders em­brace the au­to­mated pro­cesses and data in­te­gra­tions of digital mort­gages, they must also re­think their ap­proach to qual­ity con­trol.

National Mortgage News - - Voices - BY TERI SUNDH

IF QUAL­ITY CON­TROL ISN’T PART OF your digital mort­gage con­ver­sion strat­egy, it should be.

Most lenders agree, at least in the­ory, that a full-blown e-mort­gage is the ul­ti­mate de­sired out­come of go­ing digital. Fan­nie Mae de­fines an e-mort­gage as “a mort­gage loan where the crit­i­cal loan doc­u­men­ta­tion, specif­i­cally the prom­is­sory note (e-note), is cre­ated elec­tron­i­cally, ex­e­cuted elec­tron­i­cally, trans­ferred elec­tron­i­cally and ul­ti­mately stored elec­tron­i­cally.”

While QC isn’t ex­plic­itly in­cluded in this def­i­ni­tion, it does have a sig­nif­i­cant role to play in lenders’ abil­ity to ex­e­cute fully digital mort­gages. Fur­ther­more, go­ing digital can have a sub­stan­tial im­pact on over­all loan qual­ity. As such, it is crit­i­cal for lenders to in­clude QC as part of their larger digital mort­gage strat­egy.

Take pre­fund­ing QC, for ex­am­ple. This process usu­ally hap­pens once a loan has been cleared to close. De­pend­ing on how quickly the fi­nal Clos­ing Dis­clo­sure has been is­sued, the pre­fund­ing QC team may only have three days to con­duct their re­view to en­sure the loan is er­ror-free and el­i­gi­ble for clos­ing/pur­chase.

A pre­fund­ing QC process, as out­lined by Fan­nie Mae as part of its Loan Qual­ity Ini­tia­tive, re­quires lenders to con­duct full file reviews of a sam­ple of their loan pro­duc­tion and highly en­cour­ages them to also con­duct tar­geted sam­pling on key ar­eas, such as credit, em­ploy­ment, as­sets, etc. While Fan­nie Mae’s Day 1 Cer­tainty ini­tia­tive has of­fered lenders cer­tain buy­back as­sur­ances in some of these ar­eas, the QC must still con­duct a thor­ough re­view to en­sure there aren’t any is­sues present that would re­quire a re­dis­clo­sure or ex­pose the lender to re­pur­chase risk.

If the QC de­part­ment is us­ing man­ual (think spread­sheet) to con­duct this re­view — or if the QC team must re­view hard-copy doc­u­men­ta­tion rather than a digital file — this process could take the full three days be­tween CD is­suance and clos­ing. There­fore, er­rors un­cov­ered at the eleventh hour could de­lay clos­ing by sev­eral days while the lender cor­rects the er­ror and is­sues a new CD. On the flip side, au­di­tors may feel the pres­sure to con­duct their reviews quickly and, as a re­sult, be less-thanthor­ough in their reviews, which could po­ten­tially al­low er­rors to make their way to the clos­ing ta­ble.

On the post-clos­ing side of things, go­ing digital can have a demon­stra­ble ef­fect on loan qual­ity and sub­se­quently im­prove in­vestor con­fi­dence. One of the most fre­quently oc­cur­ring loan de­fects lenders ex­pe­ri­ence is miss­ing doc­u­men­ta­tion. Ac­cord­ing to Fan­nie Mae’s es­ti­mates, 40% to 60% of the re­pur­chase re­quests it is­sues are ul­ti­mately re­solved by sub­mit­ting miss­ing doc­u­men­ta­tion, and the en­tity re­spon­si­ble for track­ing down those miss­ing doc­u­ments is usu­ally the post-clos­ing QC de­part­ment.

When loan doc­u­men­ta­tion is cre­ated, ex­e­cuted, trans­ferred and stored dig­i­tally, it is nearly im­pos­si­ble to mis­place that doc­u­men­ta­tion, thus ex­po­nen­tially in­creas­ing the like­li­hood of de­liv­er­ing a com­plete loan file. Fur­ther­more, by es­sen­tially elim­i­nat­ing this cat­e­gory of de­fects, the post-clos­ing QC de­part­ment can spend less time track­ing down pa­per­work and fo­cus more of its ef­fort on en­sur­ing the cor­rect un­der­writ­ing de­ci­sion was made and ver­i­fy­ing that other er­rors un­cov­ered in pre­fund­ing have been ad­e­quately ad­dressed.

How­ever, that re­fo­cus­ing of ef­fort could be all for naught if man­ual is also in play in post-clos­ing QC. That’s be­cause an­other crit­i­cal func­tion of this de­part­ment is re­port­ing. To­day, in­vestors ex­pect timely, de­tailed re­port­ing, with re­sults bro­ken down across mul­ti­ple cat­e­gories, and de­liv­ered in an easy-to-read for­mat.

Teri Sundh is CEO of Salt Lake City-based TRK Con­nec­tion.

On the post­clos­ing side of things, go­ing digital can have a demon­stra­ble ef­fect on loan qual­ity and sub­se­quently im­prove in­vestor con­fi­dence.

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