Magazine article Mortgage Banking

Quality Control Applies to Servicers as Well

Magazine article Mortgage Banking

Quality Control Applies to Servicers as Well

Article excerpt

Quality control (QC) has a new address. It has taken up a second and perhaps even more prominent residence on the servicing side of town, after being located in the originations neighborhood for so long.

This relocation brings new focus on the quality-control process in servicing and an opportunity for mortgage servicers to learn from their front-end QC peers.

Stepping back, it is a sensible evolution. After all, the goal of QC is the same for both the origination and servicing functions: Identify problems and exceptions, locate the root cause of those deviations, fix them so they don't recur and, in the end, deliver better performance.

Today's loan investors (GSE and private) want the companies that service their loans to adhere to strict guidelines, which has motivated servicers to integrate QC into their operations and the day-to-day processing of loans.

While there are similarities, some differences also can be seen between QC in originations and servicing. QC in originations revolves around adhering to standards, such as underwriting, compliance, disclosures and on-time performance. It also focuses on finding and remedying critical deviations that impact the salability of loans in the secondary market.

On the servicing side, QC involves making sure that the various actions servicers perform are completed and done correctly. These could include monitoring phone calls to make sure appropriate disclosures are given to borrowers and sending out loss-mitigation documents on-time in the right format. It is always important to make sure that each loan is handled appropriately--meaning there is greater emphasis on customer-service issues.

The components of servicing that can be improved through a rigorous QC process include adhering to investor guidelines, complying with state and federal regulations, boarding loans on the system, payment processing and escrowing. The customer-service functions include responding quickly to borrower questions, collections and, if necessary, offering borrowers loss-mitigation and workout options. We see this today with the Home Affordable Modification Program (HAMP) and in the new sophistication of the borrower regarding the full array of options available. With HAMP, it is important to make sure the package is complete and correct with the latest pay stubs and financial information. Another example is ensuring that the escrow analyses are being reviewed and done appropriately in terms of positive and negative escrows. Borrowers are much more knowl-edgeable today about short sales, deeds-in-lieu and even strategic defaults. Contact with borrowers needs to be recorded with consent to avoid future confusion.

Specialty servicers, which more often deal with borrowers in distressed situations, have an additional set of processes that can benefit from QC. When we take on a new loan, it quite often already has some problems, such as delinquent tax or escrow payments.

All exceptions are not created equal

One of the biggest issues special servicers have to deal with is missing loan assignments and documentation. The loan collateral file must be in perfect order in case we need to offer some type of workout option, such as a short sale or a deed-in-lieu or to bring a foreclosure.

While the functions involved in originating and servicing loans may be different, there are common QC components that both sides share. …

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