Posted by Dough Bush | Compliance Officer | Opus CMC | Date: 6 April 2016
There’s a significant opportunity for lenders to boost bottom line profits and gain competitive advantage by taking on a new, zero-tolerance approach to quality control. According Moody’s Investors Services, TRID defects were found in 90% of loan files reviewed by third parties. Lenders and investors attribute these defects to delayed closings, productivity issues, increasing origination costs, and investor reluctance. With that in mind, how will lending institutions continue to grow and evolve while effectively managing risk?
Today, TRID defects at pre and post-close origination have significant costs associated with them— time, portfolio marketability, reputation, productivity, and resources are among the most obvious. Compounding these challenges are the civil and regulator penalties and the potential for class action lawsuits. Lenders who recognize the value potential of a defect-free origination operation and proactively address defects earlier in the origination process will not only minimize the need for extensive remediation and costly corrective actions but will gain competitive advantage in the market.
Some will say “zero defects” are not possible in the volatile regulatory environment, it is important to shift the focus back to stakeholder expectations. By focusing on delivering a product that meets the borrower, the investor, and regulator expectations, it becomes more about aligning your origination operation with firmly established guidelines. A “zero defect” approach may even be about living up to your brand potential. The importance of borrower satisfaction during loan origination should not be overlooked, nor should the investor’s perception of portfolio hygiene or the regulator’s conviction of compliance.
Are there inherent obstacles that may prevent achieving zero-defects? Of course. Unfortunately, the infancy of TRID means that there is limited guidance and few use cases around curability of TRID errors. Since a precedent has not been set, investors are rejecting loans for minor technicalities that may or may not be material. With so many unknowns, what is the best way to approach quality control and set the bar high for zero defects? We’ve provided a few key recommendations:
Prevention. Develop processes and programs that will prevent defects from ever occurring in the first place. Uncover risk factors within your business and create a quality control program that is consistent, and more importantly, repeatable.
Culture of Compliance. A preventative quality control program will only work if it is deeply embedded into an operation. Do the extra leg work to gain enterprise-wide program adoption.
Early Capture. Preventative measures take time to perfect. Establish independent pre-close QC processes to ensure nothing slipped through the cracks. The earlier you capture errors, the better for everyone.
Trust but Verify. Whether you are assessing the effectiveness of your internal QC program, a technology application, or third party partner, lenders should periodically review 10-20% of a loan portfolio to ensure it is capturing error at all stages of origination.
Double Knot Your Laces. Post-close QC offers lenders that final opportunity to correct some defects before regulators come knocking. There is no harm in checking one final time. Removing imperfections in the initial stages of origination and establishing ongoing check points is an optimal solution for a successful QC program.
Fewer defects mean improvements in customer service, closing timelines, productivity, loss control, and marketability of a loan portfolio. If there is ever a time when zero is good for your bottom line it is now.