MReport April 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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M R EP O RT | 21 EXPERT INSIGHTS Anywhere. Anytime. MReport Digital Bringing Today's Lending Headlines into Focus, MReport Digital Puts Mortgage Banking News at Your Fingertips Experts you trust. People you know. News you want. MReport is putting essential mortgage market news at your fingertips with our new digital edition, now available online via your smartphone, tablet, or computer. Enjoy the magazine at your desk, and tap into MReport Digital's easily accessible platform anywhere, anytime. Committed to giving originators, servicers, and all lending professionals access to smarter perspectives, MReport believes it's time to think differently about the mortgage industry. Because the American Dream is evolving . . . are you? Subscribe to MReport and MReport Digital now! Call 800.856.8060 or connect with us online at to take advantage of our special introductory offer! powered by THEFIVESTARINSTITUTE they do the work internally, use a partner, or both. The problem for most lenders is that they have not had the capacity to perform inline or pre-close QC for the past two years, because they were moving at such a high rate of speed. Now is the time to adopt best prac- tices in both of these areas to avoid what may come back to bite you in the future. The most successful of our lending clients are those that have built what I call a "culture of correction." They create a plan, do the work, review everything, identify the problems, and use this information to adjust their plan. The goal is always to do things better. It is never too late to take the effort to fix something once you catch it. If a lender has fostered a culture of correction—whether they have created it internally, externally, or both—small issues are far less likely to become larger ones. It is also important to remember that federal agencies require a certain amount and style of reporting, but that should not be the target. There are lots of other quality issues that will surface that reporting requirements are not going to help you catch, and you need to adjust for that. What are some of the technologies available to manage repurchase and compliance and regulatory risks? Schachter // On the origination side, there are several compliance-oriented tools that can be integrated into a lender's LOS. For example, there are automated post-closing platforms that use artificial intellegence (AI) and machine learning tools to streamline the document classification process and create client-specific checklists. This can help lenders improve loan file integrity and reduce repurchase risk. Lenders should also have a strong third-party risk management vendor and make sure all their third-parties and business parties are using the latest technologies to ensure data security. While it may seem obvious, lenders need technologies that make compliance more ef- ficient and do not slow things down. Timing is everything, whether it is funding a loan, completing a trade, or paying down warehouse lines. However, technol- ogy is only one vari- able—it is QC and risk management plans that complete the equation. How do mortgage lenders manage costs for upgrades in man- aging compliance risk, especially with margin compression concerns in 2022? Schachter // That is a great question. I've yet to see a company that places line items in their budget for problems that are not supposed to happen. One good practice is to attach some dollar amount to your risk. It is very difficult to anticipate contingencies and losses, but if you are able to get a decent estimate, you are better able to measure what the benefit of deploying a certain strategy is going to be. Lenders must realize there is a cost for compliance and control. They need to determine the level of cost and risk that is acceptable for their organization. The smart companies, however, think of these costs as an investment. You can either buy these capa- bilities or build them, but the smart ones do both. While every organization is different, it is always good to have the option to buy top level capabilities without having to develop them yourself. This enables lenders to "vari- abilize" their costs and improve their expertise more quickly. The bottom line is that the cost of effective and smart compliance manage- ment is always lower than enforcement or repurchase costs. "Lenders must realize there is a cost for compliance and control. They need to determine the level of cost and risk that is acceptable for their organization." —Steve Schachter, President, Sourcepoint

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