A major hurdle for the mortgage industry in 2011 that may continue to pose a significant risk this year is ineffective quality control.
Agoura Hills, Calif.-based Interthinx identified two defects in the outsourced quality control programs of lenders that affected residential mortgage loan files—missing documentation and inaccurate information.
More than 40% of mortgage industry quality control problems were due to missing documentation and data integrity issues in 2011, Interthinx said. Meanwhile, eligibility and credit issues accounted for only 18% of the setbacks seen in loan files.
Connie Wilson, executive vice president for Interthinx, said approximately 7% of all findings on mortgage loan files from 2006 to 2009 was attributed to missing documentation.
“If lenders are not outsourcing their quality control processes, they should at least consider having someone from the outside take a look at their processes,” Wilson said. “If a lender’s internal quality control process mimics their internal originations process, the lender could easily miss documentation or data integrity issues.”
Even though borrowers today seem to be well qualified, said Jeremy Burcham, director of quality control for Interthinx, this does not always protect lenders from elevated defect rates or even repurchase issues.
“The lender's loan manufacturing process needs to be sound in all areas to avoid potential repurchase. A simple breakdown can leave the lender on the hook for a loan that should have been bulletproof,” Burcham said.
Interthinx provides a quality control process that includes learning how each client does business in order to assist them in identifying critical issues from application to close. The company then provides lenders statistics on the individuals who deal with their loans on a daily basis to determine training and process needs and to help lenders gain more confidence about the loans they originate.
“If lenders haven’t used outsourced quality control in the past, 2012 may be the year to try it,” Wilson said. “To reduce repurchase requests, most major government-sponsored enterprises recommend having an independent source back up internal processes.”
