Let's Not Go There!
Mortgage Industry Insight: One of the great things about SCA is the range of issues we get to see, and the wealth of knowledge we get to tap into while working with dozens of clients on a monthly basis. Today, we'll share some important insight about the current mortgage environment.
By Bill Dolan:
In previous Blog posts, SCA has addressed the current mortgage environment and rising rates placing a toll on both homebuyers and mortgage lenders alike. We see this being manifested within the industry, by the weekly number of layoffs occurring on both the local and national level.
We at SCA are keenly aware of these cutbacks just by the sheer number of resumes we receive on a daily basis; particularly from highly accomplished and seasoned underwriters (take this to mean vastly experienced and highly paid). These workers are being let go and are being replaced (in many cases) with far less qualified and less compensated employees, to allow many organizations the ability to reduce expense and meet budget.
SCA through its trend analysis reports has noted a definite spike in all facets of the defect rate categories, including the “critical defect rate” in comparison to earlier quarters this year. A majority of the defects have specifically been identified in the employment/income category. We have also detected a rise in overall defects with “loan package documentation” often associated with downsizing and understaffing. Both Purchases and FHA loans are far more prone to underwriting related defects due to the sheer and increased complexity during the origination process to those of refinances that many were accustomed to closing prior to this cycle. The defects thus far this year attest to this fact: Employment/Income, Credit, Borrower and Mortgage Eligibility are all categories relating to mortgage underwriting activity and appear to all be raising their ugly head.
Many of these so called “defects” identified in the QC process, could have been prevented, had the underwriter reviewed the work received from the mortgage loan originator at the initial stage and prior to the start of the loan process.
Furthermore, a continued decline in production appears to be impacting loan quality (here we go again). For historical cycles like these, a decline in mortgage production elicits loosened underwriting standards by lending personnel. Simultaneously, secondary market investors and private conduits often expand or soften guidelines in an effort to allow more borrowers to qualify for a mortgage.
No matter what mortgage cycle you lend and underwrite in, you as a mortgage lender must identify exactly where your greatest risks lie, in order to effectively manage that risk.
SCA can resolve many of these daily challenges your company faces during these cycles. One way to mitigate these re-occurring documentation issues is to have SCA perform a Residential Mortgage Pre-Funding QC and/or a Post-Closing Documentation Review. Many of our Clients have requested these particular services to ensure that all mortgage files adhere to and are in accordance with their Pre-Funding and Post-Closing Review Checklists as well as their overall Policies and Procedures.
Don’t allow potential repurchases or regulatory examinations and audits leave you unprepared and ultimately creating potential consequences to your financial institution.
Spillane Consulting Associates has served the residential mortgage lending business since 1991. We have specialized in mortgage banking consulting services and provided quality control reviews, risk management and process consulting and employee training to credit unions, community banks and non-depository institutions. We are a thought leader on the strategic growth of residential mortgage lending. You can learn more by visiting our website, or scheduling a meeting with me or one of my colleagues.
SCA Compliance Hotline: Need a question answered quick?
Email: Compliance-Question@scapartnering.com
Call: (781) 356-2772
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**