How Analyzing Post-Closing Data Can Refine Lenders' Prefunding QC
The primary benefits of prefunding quality control are preventing ineligible loans from being closed, identifying possible training needs or process gaps and reducing misrepresentation and fraud.
Using advanced analytics to understand complex data in real time, and incorporating prefunding strategies based on those results, can not only reduce defects in lenders' manufacturing processes, but more importantly, save them from making loans that are ineligible for sale.
Because prefunding QC reviews must happen before closing, timing is a critical factor planting the focus on the re-underwriting process, as well as the review of data and documents with a loan-level focus.
The ability of lenders' systems to extract and analyze huge nuggets of information scattered throughout data from previous QC reviews can create enormous efficiencies, prefunding.
Post-closing QC is a more in-depth review that has a broader focus, enabling a lender to assess their entire manufacturing process. Post-closing reviews are not as time sensitive, thereby allowing functions that require additional time to be completed, such as the reverification process, trend analysis and assessment of policies, procedures and controls.
By using data from both post-closing and prefunding QC, lenders can craft a more proactive prefunding QC strategy that takes into account high-risk areas that are specific to their business.
This type of analytic strategy allows lenders to better select the most appropriate loans for review. Furthermore, targeted reviews at predetermined points of the origination process can be set up, leaving only the final tasks to be completed during the last days or hours to enable timely funding of a defect-free loan.
With a robust prefunding QC strategy in place, lenders can also narrow the focus of their post-closing discretionary QC to high-risk areas and loans. Utilizing real-time analytics from prefunding QC will allow lenders to assess areas of concern that were just recently identified in the underwriting process. While prefunding audits are completed on a daily basis, management many times fails to review the results collectively until the end of the month. But, patterns can develop quickly, and waiting until month's end to discover these will yield only pain. With the use of advanced analytics issues can be managed in real time.
For example, if it's been discovered that an underwriter has made improper income calculations, waiting until month-end to bring this to the underwriter's or manager's attention could allow additional loans to be underwritten using the same calculation error, opening an opportunity for unsalable loans to close.
The identification and the corrective action that can be implemented will not only aid in the reduction of turn time from closing to sale, but will also improve overall loan quality, which inevitably strengthens relationships with investors.
As the saying goes, an ounce of prevention is worth a pound of cure.
Phil McCall is chief operating officer of ACES Risk Management Corp.