Mistakes are inevitable. But repeated mistakes become problems when we do not correct them. And they become dangerous when we refuse to acknowledge they were mistakes in the first place. This is true in every facet of life and business, and loan originations are no exception.
Through discipline and quality control (QC), lenders can identify mistakes, minimize their occurrence, and correct them when necessary.
Common QC Errors
Inaccurate and Insufficient Documentation
If a borrower fails to provide furnished documents required for the loan, approving the loan may result in a future bad debt for the lender. Rejecting such a loan may result in them losing a customer, but the risk may be worth it. Better still, you need to put in efforts that all the necessary documentation is available for review at the right times.
Repayment Sources Not Fully Analysed
An underwriter must carefully examine a borrower’s primary and secondary sources of repayment. If the underwriter rushes through the application materials, he or she may overlook important data that show the borrower is unable to repay the loan within the specified timeframe and at the specified interest rate. The borrower may use all assets, both liquid and non-liquid, as well as income, to service the debt.
Take Credit Risk Into Account
Credit risks come in a variety of forms. The underwriter should consider all possible risks that a borrower may face. Is he/she employed in a volatile industry prone to sharp ups and downs? Has the borrower previously encountered unexpected setbacks? Is the borrower a resident of an affluent neighborhood? The underwriter must satisfy himself/herself, using analytics and predictions, that the borrower does not pose a significant credit risk.
Not Evaluating Enough on Collateral’s Real Value
Borrowers frequently use a property, asset, or piece of land as collateral in the event that the loan is not repaid. Before the loan application is approved, a valuer appraises the collateral. An underwriter must also determine whether the collateral’s value is its genuine value, or whether the market value has decreased or increased after the appraisal. He or she should check all of the collateral’s details and come to a reasonable decision. It can cost the lender if an underwriter approves the application, but the collateral value is less than what is stated.
Do Dig In and Explore Fraudulent Possibilities
Some common errors that lenders make in the QC process, as underwriters, are approving applications under pressure, getting swayed or oversold on the case, not being an expert on a loan type, or simply ignoring potential red flags if the file looks alright. The biggest possibility here is missing out on key information that could ascertain any likelihood of fraud. It is always pertinent to look for any such red flags and bring these to attention immediately. If the borrower turns out to be fraudulent, it is a loss for the lender.
Our Hands-On Approach to Quality Control Takes a Load off Your Mind
At PrivoCorp, our mortgage quality control staff performs loan reviews and provides a complete analysis of credit, collateral, and compliance. From pre-funding to post-closing, we ensure that all loan file selections are structured to comply with investor and agency requirements and guidelines.
We work closely with you as your mortgage compliance partner to spot errors and trends that can lead to costly mistakes.
PrivoCorp has been serving the mortgage industry for 10+ years. We are a full-service mortgage solutions provider delivering mortgage origination, servicing, and title solutions. We implement strategic tools and process transformation to address the mortgage industry’s operational and customer experience challenges. Do reach out to us, in case you need any assistance with your mortgage processing. Reach us at marketing@privocorp.com
