Since the OCC, CFPB, and Fannie Mae have all recently issued bulletins regarding their requirements for appraisal quality assurance strategies, many lenders and AMCs have been lamenting yet another regulatory burden piled on their already overtaxed operations.
But recently, several news stories (links below) have highlighted the direct benefits to lenders as a result of these heightened QC requirements. Many have already avoided fines for selling mortgages with defects.
Another consideration is in your offerings to the non-QM channel. When lending to lower FICO-rated borrowers, the increase in risk may be mitigated when less risk is associated with the collateral. With an effective collateral quality assurance strategy, you may be able to lend to lower FICO-rated borrowers and still maintain the same relative risk profile for your portfolio.
At least two articles were published in September that outline specific benefits to the bottom line that have resulted from lenders’ stringent new quality control operations. National Mortgage News published a story on September 16th, quoting Kevin Marconi, the chief investment officer at United Fidelity Funding. As quoted in the article, “At first glance, we thought this was just another expense, but Fannie had it right. By achieving a zero defect loan, you’re actually saving money and in some cases making money. I believe this does pay for itself.”
The article also quotes Craig Wells, the residential underwriter in charge of pre-funding quality control at United Fidelity Funding. Mr. Wells concludes, “Everybody felt that this was a hassle, an extra layer and additional cost that we had to spend just to make Fannie happy. But we found our defect rate has plummeted. We are getting loans off our line quicker and turning money faster. We’ve essentially taken sour grapes and turned it into sweet candy.”
A separate article, also published by National Mortgage News, quotes Rosemarie Wolfe, a vice president of quality assurance and investor repurchase at Bayview Loan Servicing. In the article, she provides multiple examples of how higher risk loans can eat into revenue. Read the entire article for two scenarios in which even the smallest percentage of high-risk loans can put millions in funding at risk every month.
We arranged for distribution permission on both articles, so if you don’t have a subscription to National Mortgage News, you can read both articles in their entirety at the links below.
- “Vendor Oversight Helps Boost Lenders’ Bottom Lines” by Kate Berry published in National Mortgage News, September 16th
- “Quality Control, Once Seen As Costly, Now Saves Lenders Money” by Kate Berry published in National Mortgage News, September 10th
How are you responding to the new quality control requirements? In addition to your compliance status, have you seen any extra benefits to your bottom line? If so, I’d love to hear about them so please contact me at Jennifer.Miller@alamode.com.
About The Author
Jennifer Miller is president of Mercury Network, a web-based software platform used by more than 600 lenders and AMCs to manage compliant collateral valuation workflow. Jennifer can be reached at Jennifer@MercuryVMP.com.