Is QC Now Officially Dead?

In 1995, with the advent of automated underwriting systems, I co-authored an article entitled “Is Quality Control Dead?” that appeared in the Mortgage Banking magazine. At that time there was a strong belief that QC was only used to find underwriting errors and with automation taking over the underwriting process there was no need to review these loans. At the time, the agencies, Fannie Mae, Freddie Mac and HUD must have been part of that trend because they made no changes to the existing antiquated QC programs they required for seller servicers.

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Unfortunately, as we all have learned to our great regret Quality Control was needed more than ever. From the turn of the century through 2007 lenders rode roughhouse over the underwriting requirements and triggered the greatest financial crisis since the Great Depression. Even as the QC Committee of the MBA meet with agencies, Congress members and consumer groups asking that they support stronger QC requirements, less and less attention was paid to QC. Despite the white papers developed showing the extent of fraud and documenting proof of what the lack of support for QC was conjuring up in the “magic elixir” that were the subprime ingredients of the collapse, QC was so weak there was no hope that the industry would listen. None of these warnings were heeded. Since then of course, QC has been revived and strengthened and the economists say we are fully recovered.

Yet once again we are hearing and reading about the latest and greatest mortgage program; the digital mortgage. According to the developers and purveyors of these programs, we have once again eliminated the need for Quality Control. These programs and their supporters claim that by using these programs have the capability of electronically validating the information entered by the consumer, running the data through an AUS and providing an approval within minutes. It is only if the loan cannot be electronically approved does it go to a loan officer to amend and approve.

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However, just as in the initiation of the automated underwriting systems, there are opportunities for mistakes inadvertent or otherwise. One of the biggest concerns is the inability to validate the information. While it sounds good, how many consumers are willing to give bank account information on-line, or those who work for small companies that don’t report the information to these on-line employment services. Sure, we can get tax returns, but they are at least a year old and not helpful in giving current income information. How is that validated?

Furthermore, despite the restrictions placed on lenders regarding DTI limitations, product and document types, non-QM loans are thriving. Just today I saw an advertisement for a “new” mortgage type, “No Income, No Employment”. There has also been a myriad of statements from the current political administration that the controls put in place to prevent another crisis will be loosened and/or eliminated in the near future.

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The question then is, can this alternative QC process that leaves numerous loopholes for bad loans to slip through and provides little incentive to do things right, stop another housing crisis. More than likely the answer is no, and because of that, it is likely that Quality Control really is dead. May it rest in peace because the rest of the industry surely won’t.

About The Author

Former Fannie Mae Exec Joins The StoneHill Group

The StoneHill Group has hired T. Gail Callueng as the company’s new quality control manager. In her new role, Callueng will be responsible for directing quality control services for The StoneHill Group as well as overseeing QC reviews on behalf of clients.

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Callueng has more than 25 years of experience in the mortgage industry and is skilled at servicing and subservicing reviews, managing large loan and servicing portfolios, leading operations and servicing teams, and conducting training and staff development. Prior to joining The StoneHill Group, she worked at Fannie Mae for eight years, most recently as the GSE’s senior relationship performance manager. Before joining Fannie Mae, Callueng served in a variety of executive and consulting roles in the banking industry, including assistant vice president at Fidelity Bank and vice president at Gainesville Bank & Trust. She graduated from Jacksonville University with a degree in Business Administration.

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“Quality has never been more important to the mortgage industry or to our clients, so we are delighted to have someone of Gail’s caliber leading our QC efforts,” said David Green, founder and president of The StoneHill Group. “Gail’s experience at Fannie Mae makes her a particularly valuable resource for our many clients who partner with the GSEs. As demand for loan quality continues to soar, we are confident Gail will deliver the results lenders and servicers need to excel.”

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“I am thrilled to join The StoneHill Group, one of the mortgage industry’s most trusted providers of QC services,” said Callueng. “Having worked on both the seller and purchasing sides of the mortgage industry, I know how challenging it can be for lenders to create and maintain quality throughout the loan cycle. I look forward to leveraging my knowledge and skills to help our clients and make The StoneHill Group the first name in the mortgage industry when it comes to loan quality.”