A Quality Control Plan is a company-wide commitment, passion and process to originate and fund high quality loans. It starts at origination and carries on through each stage of processing until the loan is finally purchased by an investor.
Over the course of the last decade, many mortgage bankers implemented a "Russian Roulette" approach to QC. Back then, production volume and units drove profits and loan quality took a back seat. Lenders reviewed only a small percentage of files after funding. Because such a small sample was being taken, bad apple loans were able to make it through the review process undetected.
This wasn't a big deal in the heat of the housing expansion, but when the mortgage market crashed and property values dropped, it became a VERY big deal. Poor loan quality control processes back then have led to major quality control process overhauls by the GSEs and secondary market investors now. Lenders are reviewing just about every loan file. Mortgage bankers with substandard quality control processes have seen a dramatic rise in pre-purchase conditions and stipulations. Delays in loan purchases have increased secondary market revenue leakage and a jump in loan repurchase requests has resulted in huge losses for loan sellers.
During FOCIS reviews performed prior to 2008, on more than one occasion, we were handed 10-year old plagiarized, quality control plans...that appeared to have been photo copied several times. Some lenders didn’t even have QC plans! Many companies instead outsourced to a reputable quality control provider. Unfortunately it seems like the findings were never reviewed by management nor were there any actions taken to correct QC issues.
FNMA's Quality Control Initiative and the key points outlined in the March 2, 2010 announcement represent a strong move to ensure quality control encompasses all aspects of the loan origination process. Many of the items listed in this announcement are practices that mortgage bankers have recently taken to improve loan quality and ensure all loans meet investor quality guidelines. We found during our FOCIS reviews that companies with low revenue leakage and minimal loan repurchases have already implemented most of the items on FNMA's list.
We are participating in a quality control webinar with ComplianceEase on June 24 at 10 AM Pacific Time. The webinar will cover key aspects of the FNMA Quality Control Initiative and review some of the best practices implemented by mortgage bankers.