Published on June 27, 2019
Written by Joseph Prettner
That's the result lenders want to see on their routine quality control reports, and most of the time that’s exactly what they receive. In fact, many lenders received QC reports month after month finding no investor or compliance violations.
A collective sigh of relief spreads through the entire loan production floor. They have just received confirmation that they know what they are doing. “But,” they worry, “can we really be doing this so perfectly?” From the mountain of compliance requirements stemming from TRID disclosures to the nuances of underwriting self-employed borrowers with multiple properties, surely we make mistakes sometimes, right?
Indeed, sometimes there is reason to worry. Perhaps the quality control vendor didn’t find an error this time, but it may still exist, deep inside the file.
“GE to pay $1.5 billion fine over crisis-era subprime mortgages” reads the Reuters headline from April 12, 2019. According to the article GE and its former mortgage-unit, WMC, “misrepresented the quality of WMC’s loans and the extent of the originator’s internal quality and fraud controls.” The article goes on to say the penalty is a result of mortgage loans originated from 2005-2007!
I am sure they and other lenders getting fined for similar issues received clean QC reports month after month, which is exactly why no news isn’t always good news. Many quality control vendors don’t perform anything more than a basic due diligence review, so if you are not routinely reviewing samples of the QC vendor’s work then you may not have adequate protection. You could be leaving yourself open to repurchase risk, compliance penalties, or like GE, large civil penalties for past loans.
When we perform QC services for our partners we often hear, “that isn’t how we have always done it” or “no one has told us this was wrong before”. While it may seem frustrating on the surface for the partner, it’s a good thing. What it means is that we have found exposure to risk that could hurt your income, and we will help you shore up your procedures to remove that risk – risk that could have lived in your files for years.
At Servion, we measure the success of QC services by how much risk exposure in dollars we find and then how much we clear in working with the partner on remediation. So next time you get a clean QC report take one of the loans reviewed and run it through your compliance review and see if you get the same thing.
Or have us take a look at it. We can provide you with our opinion on the loan and see if the loan really was great quality or you just received inadequate QC.
If you want to know more about what we do or what you can do, please get in touch with me any time: firstname.lastname@example.org.