Understanding The News: Many Lenders Miss The Boat When It Comes To Quality Control

*Many Lenders Miss The Boat When It Comes To Quality Control*
**New Research Reveals Critical Flaws**

***The flight to quality is a big concern in the mortgage industry. Especially with all the increased scrutiny from investors and regulators, lenders have to do everything possible to originate quality loans. New data that PROGRESS in Lending got from Interthinx shows that existing quality control programs may not be going far enough. Interthinx has identified two major defects in the outsourced Quality Control programs of lenders that affected residential mortgage loan files in 2011 and may pose significant risk in 2012. Here’s the scoop on their findings:

****According to Interthinx, 40.9 percent of its Quality Control findings relate to missing documentation or data integrity issues. Eligibility and credit issues account for only 18.3 percent of 2011 findings. “Many in our industry will be surprised to learn that more than 40 percent of our findings last year were related to missing documentation or data integrity issues,” said Connie Wilson, executive vice president.

****“It’s significant when comparing this recent data to data from 2006 to 2009 when missing documentation only accounted for 7.1 percent of all findings,” said Wilson. “If lenders are not outsourcing their quality control processes, they should at least consider having someone from the outside take a look at their processes. If a lender’s internal quality control process mimics their internal originations process, the lender could easily miss documentation or data integrity issues.”

****“The shift towards manufacturing defects in 2011 from historical borrower eligibility issues is a significant finding,” added Jeremy Burcham, director of quality control for Interthinx. “Today’s borrowers are very well qualified for the most part. However, a well qualified borrower does not always protect lenders from elevated defect rates or even repurchase issues. The lender’s loan manufacturing process needs to be sound in all areas to avoid potential repurchase. A simple breakdown can leave the lender on the hook for a loan that should have been bulletproof.”

****The Quality Control process provided by Interthinx includes learning how each client does business to assist in identifying critical issues from application to close. Interthinx provides lenders statistics on the individuals who deal with their loans on a daily basis to identify training and process needs and to help lenders gain more confidence about the loans they originate.

****“If lenders haven’t used outsourced quality control in the past, 2012 may be the year to try it,” noted Wilson. “To reduce repurchase requests, most major Government Sponsored Enterprises (GSEs) recommend having an independent source back up internal processes.”