Published on April 03, 2023
Written by Brock Miller
The Three Lines of Defense (LOD) model and compliance management systems (CMS) are both essential components of risk management in the mortgage industry. Both are designed to ensure that your organization is operating in compliance with applicable guidelines, laws, and regulations. They also aid in identifying and monitoring risks, developing policies and procedures, training employees, and creating and implementing corrective action.
Why is this important? Because noncompliance can result in significant financial and reputational harm. Adding a qualified Quality Control (QC) partner to your second level in your 3 LOD model can provide an efficient and cost-effective way to ensure your second line of defense is intact and actively monitoring your first line mortgage origination and servicing processes.
The three LOD framework consists of the following three lines of defense that work together to manage risk:
Operational management (first line): The first line of defense is responsible for managing risks in their day-to-day operations. This includes identifying risks, implementing controls, and monitoring the effectiveness of those controls.
Compliance / quality control (second line): The second line of defense is responsible for overseeing the risk management process and ensuring that the organization is complying with applicable guidelines, laws, and regulations. This includes developing policies and procedures, testing and monitoring compliance, as well as providing guidance to the first line.
Internal audit (third line): The third line of defense is responsible for providing independent assurance that the organization's risk management processes are functioning effectively. This includes conducting audits and providing recommendations to management on areas for improvement.
The Role of a Qualified Mortgage Quality Control Partner
A qualified mortgage QC partner can play a critical role in ensuring that your first line mortgage origination and servicing activities are functioning effectively. More specifically, this partner can provide independent, objective reviews of your mortgage origination and servicing activities, helping to identify areas of risk and potential root causes.
Here are some additional benefits of working with a qualified mortgage quality control partner:
In today’s every-changing regulatory environment, the importance of following the three-part risk management framework and having a structured compliance management system in place for your organization cannot be overstated. Collaborating with a qualified mortgage quality control partner can provide an effective and efficient way to strengthen your second line of defense given tight market conditions and slim bottom lines in today’s mortgage market.
Servion can ensure that your mortgage lending and servicing activities are functioning effectively, providing independent, objective reviews, identifying areas of noncompliance, providing guidance on best practices, and assisting in root cause analysis. Working together, we can help to strengthen your 3 LOD framework and overall CMS, thereby minimizing your risk exposure and ultimately protecting your organization’s overall reputation and bottom line.