TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/257884
26 | Th e M Rep o RT Feature Feature necessary for them to analyze the data once it is returned? The actual process of obtaining verification documentation can be outsourced to companies that specialize in such services, leav- ing the processor more time to analyze data and assist in what needs to be done to structure and assemble the quality prod- uct. As an alternative, a lender may consider using entry-level trainees who can perform this service for several experienced processors at a much lower wage. These trainees benefit by learning the business, and a lender benefits by building its pool of future processors. Experienced processing staff becomes much more productive, reducing the need for additional processors as business volumes increase. A lender may choose some combination of outsourc- ing and in-house trainees depending on loan volumes and preference. Either way, you can reduce the overall costs of manufacturing the loan. Outsourcing Tasks A nother prime area for this type of savings is with the collateral review assess- ment currently being done by underwriters. As it is common- place to outsource the appraisal process to a specialist, why not do the same with the review of this report once received? Given the fact that appraisal standards are fairly uniform for the most part, the evaluation of the appraisal and verification of its data against existing loan file information (i.e., sales agreement and application) is a routine and repetitive type of analysis that can be easily transmitted for review by a specialized vendor. This will free up underwrit- ers to concentrate on credit and income qualification, the applicant's ability to repay, and more quickly issue accurate loan approvals. This will pay big div- idends in the future, as properly underwritten and documented quality mortgages will move more quickly and receive certain safe harbor protection under the new rules for the ability- to-repay requirements. As an alternative, a lender may decide to use an experienced processor, or an underwriting trainee, in this role at a salary somewhat less than that paid to an experi- enced underwriter. Either way, the lender can reduce expenses while streamlining the process. The strategy to maximize current resources by offloading nonproductive or clerical-type functions allows experienced personnel to be more productive and helps lenders manage their staffing costs more effectively. The results of overall cost reductions can also put the lender in a better position to price loans more com- petitively and—with well-trained, experienced salespeople—increase sales as well. By using more experienced staff for higher-value tasks in the assembly of the loan, the lender can manufacture a better quality product in less time. The better the quality, the better the loan, the quicker the closing, delivery, and loan purchase—all of which contribute to increased income from the loan. Ensuring Quality Via New Rules T he proper allocation and use of resources coupled with a precise system of checks and balances to properly moni- tor the process to ensure the proper assembly of the quality mortgage will go a long way for the continued success and ultimate survival of any lender. But in addition to reviewing processes for potential savings from outsourcing or reallocation of tasks to less costly resources, a lender must pay very close attention to the production of a quality mortgage that car- ries certain limited protection against a borrower's ability-to- repay defense under the law. The rules for the underwriting and approval of a loan are now written into federal law. No longer are these rules mere "guidelines" that could be interpreted by investors and argued by lenders; they are now law. Interpretation will take place in a federal court. As a result, it is not sufficient to perform only a post-closing review of a selected sampling of loans to ensure compliance. Such reviews must also be done all along the loan's production cycle to ensure quality. The successful lender will find ways to use outsourcing strategies not only to streamline its operations, but also to improve the overall quality of loan production, comply with rules and regulations, and achieve a reasonable return to the company. Proper Assembly Required H owever, it's not enough to just reduce the costs of originating and manufacturing your loans. With new regula- tions, there are also implications to the final assembly of your loan products. When all is said and done, the new mortgage must be assembled correctly under these new rules so it will perform as expected throughout the life of the loan. Otherwise, it's not just a waste of time, but a big waste of money and a potential threat to a lender's very existence. Sounds a little extreme, but it will only take a few improperly assembled loans to create major problems for a lender. So what's a lender to do? Here are a few solutions: • Learn and understand the new rules. • Have a documented imple- mentation plan for compliance. • Document all policies and pro- cedures for compliance with all the rules. • Ensure your staff understands what is expected and required. • Train staff on what they need to do and how to do it. • Create quality checkpoints along the loan manufacturing process to ensure compliance and loan quality. • Have in place a system for monitoring loan production, approval, and closing to ensure compliance, with regular reporting of results to senior management. • Have a system to document training and any corrective actions. Make sure you and your staff know what to do, how to do it, and have the necessary tools and periodic checkpoints along the loan manufacturing process to quickly identify potential prob- lems well before a loan closes. Don't wait until the last minute; it may be too late. If you're thinking that this new process may be a little more com- plicated than you first thought, you can again look to outsourcing to supplement your own internal procedures and staff. Remember, the final product is only as good as the sum of its parts and how well it is put together. If some parts are missing, or if it's not assembled properly, it may work for a while but ultimately it will break down and cause you prob- lems—sad but true. Be informed, prepared, con- sistently verify what needs to be done, and validate that what you think is being done, is actually getting done. Quality assurance checkpoints and quality control audits can reveal issues that are not just impacting one loan, but also multiple loans in the pipeline. Through comprehen- sive reporting and tracking of defects, corrective actions can be implemented that will save costs by reducing suspense ratios (and nonproductive re-work) as well as the risk of repurchase (and the associated costs). What is the recipe for success? A dash of outsourcing to enhance the flavor of a lender's resources, with a diligent chef watching the process to produce high-quality loans in less time. Bon appétit!