Risky Business

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cover story By Chuck Green Companies are adapting to the changing climate by producing a bevy of analytical reporting tools to increase efficiency and accuracy in the industry. S uccessful mortgage quality control teams are tapping into flexible technology solutions that, in turn, are yielding a gaggle of analytical reporting options. Measures such as compare and contrast risk scores—where targeted and routine quality control audits are compared and measured in terms of the effectiveness of pre-funding origination processes—are being utilized by firms, explained Tommy Duncan, president of Quality Mortgage Services. Those tools dissect loan programs and various loan scenarios, origination locations, and individuals, he notes. Credit Where It's Due A s for which options to leverage, some lenders defer recommendation-making to their company's credit risk department. In instances where lenders maintain a say over recommendations, their input often is overridden by operational staffs and leadership, both of whom place greater emphasis on production, Duncan says. When the production staff flouts recommendations from risk staff, though, portfolios become more vulnerable all the way through to the secondary market and servicing—and that goes hand in hand with failing to provide sufficient resources for the risk staff to properly do its job, he explains. Often, when clients don't adhere to the advice of risk staff, it's because the staff lacks proper resourcing, Duncan adds. "Production departments will always have a heavy influence on operational policies and procedures," noted Mark Meyer, founder and CEO of MLinc Mortgage Solutions. However, risk departments are gaining in power and authority, and the chance of violating regulations and the associated cost of noncompliance are weighing heavily on the minds of C-level executives in the industry, Meyer said. Given today's often daunting workloads, though, risk departments typically devote little-to-no time to drilling down into the details that would otherwise help them most effectively evaluate potential weaknesses or vulnerabilities in origination processes, Duncan notes. Frustratingly, he says, that can culminate in repeating the same, potentially incorrect, actions. Concurrent to that, Duncan pointed out, the industry is seeing quality control and risk personnel leveraging "robust" technologies that abet management responses. As a result, those individuals can hold origination staffs accountable for mistakes and defects. "Once [members of] an origination staff have to stop work, respond, and report to the quality control manager a few times for the same problem, quick changes in behaviors and practices [tend to follow]," Duncan said. "Lenders are overwhelmed [as they] absorb which new regulatory requirements will apply to them, and the associated risk of noncompliance," Meyer said. The M Report | 23

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