Quality Mortgage Services, which offers compliance and quality control solutions to the mortgage industry, reports that although regulatory compliance improved on the origination and retail side during the past two years, inconsistencies continue to plague the mortgage origination application process.
‘The number one compliance problem in the origination and retail side takes place during the initial 1003 application,’ said Tommy A. Duncan, CEO of Quality Mortgage Services, in a release. ‘We continue to notice incomplete borrower information, liabilities not lining up properly against the credit report, no HMDA data and missing signatures.’
Duncan said that although the error rate for 1003 application processing improved from 22.29% in 2011 to 18.19% in 2012, ‘mortgage loan officers should exercise more thoroughness in the completion and accuracy of this document.’
Another area where discrepancies are consistently turning up is in the initial disclosures of the Truth in Lending and Good Faith Estimate.
‘During the audit process, we marked loans with errors in fees and missing signatures,’ Duncan said, adding that the error rate in this area improved from 19.53% in 2011 to 16.25% in 2012. ‘Based on this data, we conclude that if there are numerous mistakes on the initial 1003, errors will then follow to the initial disclosures.’
The third biggest compliance problem involves missing and/or improperly prepared disclosures required by the Federal Housing Administration (FHA).
‘This is worsening as more and more originations are moving to the purchase market and first-time home buyers,’ Duncan said. ‘As the refinance market reduces and the purchase market returns, more government lending programs will be used.’
Duncan noted that as the initial 1003 and Truth in Lending defects improved from 2011 to 2012, disclosures required by the FHA deteriorated in the same period. The defects increased from 10.87% in 2011 to 12.82% in 2012.
‘The numbers of errors excessively outnumber the errors in the credit risk and valuation side of mortgage banking,’ Duncan said. ‘Once mortgage lenders push aggressive pre-funding compliance programs down to the mortgage loan originators, the compliance numbers will continue to be high.’
Duncan, however, congratulated those professionals who have taken steps to ensure compliance requirements are met and maintained.