As the industry grapples with adapting to a changing regulatory environment with a heightened focus on consumer protection, an unintended casualty might be the traditional quality control department.
Consulting and technology giant Accenture thinks so. Changing rules and expectations are forcing lenders to rethink their technology priorities and traditional lending procedures, according to a recent Accenture white paper.
The new emphasis on compliance with consumer regulations may encourage lenders to embed quality control procedures within business processes, rather than relying on a stand-alone QC unit to double check work that’s already been done, according to the white paper. Ironically, a dedicated QC team actually could introduce mistakes to the process.
“It introduces human error into a part of the process that you really want to be flawless. You don’t have an appetite for a lot of errors to exist in QC,” Ghazale Johnston, managing director at Accenture Credit Services, told me.
In addition, supporting a stand-alone QC department—even if it is offshore—adds to the cost of the origination process.
In the wake of the housing crisis and the pressure of buybacks on lenders, many firms beefed up QC so much that it resulted in overkill. Some lenders had “checkers checking the checkers,” Johnston said.
“In some cases, it has gotten a little out of control,” she said. “QC is critical and important, but the challenge is figuring out how to be wise about it.”
To successfully embed QC into the lending process, companies need to adopt systems that raise red flags along the way and create “hard stops” that prevent a loan from going forward until those red flag issues are resolved. That is preferable to trying to remediate a problem that is discovered later after a loan has proceeded.
Database management is another area where leading mortgage executives will have to focus on strategically implementing technology tools.
A lot of lenders are relying on third-party vendors to ensure compliance with new qualified mortgage rules that go into effect next year. But lenders need to make sure they have the systems and procedures in place to make sure those technology solutions will work.
“From our perspective, it’s not just as easy as creating a partnership or enhancing an existing partnership and then putting it into a black box in the background,” Johnston said. “A lot of these engines are only as good as the data they get.”
One problem that lenders face, especially in the wake of the many mergers and acquisitions that have taken place in the mortgage industry, is that they have to rely on multiple data sources. If those disparate information sources yield inaccurate or incomplete information, a third-party technology solution can’t fix those errors.
The mortgage origination process requires more information from customers than just about any other consumer transaction, Johnston noted. Ensuring the integrity of that data requires lenders to centralize a complete, single-source platform that can support the entire lending process.
Another technology trend that may help lenders improve data quality and minimize compliance costs is the use of “consumer facing” portals for collecting information. Lenders may not have much choice in adopting this approach.
“Clearly, the obvious benefit is that it’s what consumers are expecting at this point,” Johnston said. “It’s addressing what consumers are demanding, which is the ability to communicate real time with their lenders.”
In addition, consumer facing portals can help lenders integrate mobile devices into their lending operations. To facilitate communication with consumers on mobile devices, lenders need systems that ensure that information coming in is staying with the loan and is part of the system of record, so that audit trails are complete.
In an increasingly digital world, she also believes that analytics can be used to support more lending functions than just underwriting. In the future, she predicts that analytics will be used to maximize cross-selling, improve the efficiency of pipeline management, and leverage relationships with real estate brokers and builders, for instance.
Earlier this year, Accenture acquired Mortgage Cadence, a provider of loan origination software and document management technology. Mortgage Cadence’s approximately 190 employees joined Accenture, a global consulting, outsourcing and technology behemoth with more than 270,000 employees. Talk about a change in corporate culture.
Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.