A top executive from a well-known mortgage software company is advising lenders to develop unique quality control (QC) audits for each of the niche mortgage lending products they may offer, including jumbo, U.S. Department of Agriculture, Veterans Affairs and reverse mortgages.
‘As any experienced loan originator or underwriter can attest, there are unique manufacturing requirements for loans that fall outside of the conventional conforming bucket,’ says Phil McCall, chief operating officer for ACES Risk Management (ARMCO), in a statement. ‘That's why lenders need to develop QC audits for each of the loan types offered.’
As McCall points out, applying QC audit procedures for a conventional conforming loan to a jumbo or Veterans Affairs loan ‘is going to create gaps in your analysis and expose your organization to unnecessary risk.’
To illustrate this point, McCall offers the following example:
XYZ Lending has made the decision to add a niche program for jumbo lending. As a base for post-closing QC, it utilizes Fannie Mae's QC requirements to establish its process of conducting QC on these originations.
As a baseline question, and in accordance with Fannie Mae guidelines, XYZ's QC review process includes validating the bankruptcy status of any of the borrowers, if they have filed. Fannie Mae's guidelines are only concerned with borrowers who have a discharged Bankruptcy (Chapter 7 or 11) in the past four years. However, many jumbo investors require at least 10 years seasoning from a previous bankruptcy.
This is but one of many other guideline nuances that require modifications to the base QC questionnaire. Overlooking these types of quality review questions, if left unchecked, can lead to a non-saleable loan and pose serious risk to any organization.
‘Niche loan products typically have a very small pool of investors,’ McCall says. ‘Whenever a lender adds product offerings, executives are well advised to bring in the appropriate QC personnel to properly and accurately assess the guidelines and make the needed changes to the QC questionnaires at a loan level to address the associated risks. Having a configurable QC system will create a much more efficient flow to this process, whereby business rules can be established to assure compliance with all guidelines are outlined and delivered at the loan level.’