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Loan quality control reporting tips

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In the 2012, Freddie Mac published its exhaustive Quality Control Best Practices, in which they argue that through extensive research they can strongly conclude that the mortgage industry must employ reliable and effective quality control programs. Maintaining commitment to quality control, from before an application is submitted, throughout the full mortgage origination process, is essential. This affords organizations the ability to monitor and evaluate the origination process’ integrity and provide feedback to the organization about its loan originations. Toward this end, Freddie Mac’s publication details the requirements and best practices for designing, administering, and documenting an effective quality control program.

Quality Control Program Reporting Requirements

Documenting and reporting quality control activities to senior management on a regular basis forms the crux of a successful quality control program. Providing these to management enables them to: better respond to specific quality control findings, resolve identified problems, monitor the quality of mortgage production and the operation of the quality control program, and demonstrate documentary compliance to Freddie Mac. Section 48.10 specifically mandates that each mortgage company’s quality control program includes documentation of all pre-closing and post-closing quality control activities and reviewed by management on a regular basis. (Source: http://www.freddiemac.com/singlefamily/pdf/qc_practices.pdf)

Within 90 days of selection, results or findings of quality control reviews must be reported (in writing) to senior management. Freddie Mac recommends this be done on a monthly or quarterly basis. In the reviews, a thorough analysis of findings affecting eligibility or the acceptability of mortgages, must be made, and any corrective actions necessary should be initiated. Within 30 days of your determination, Freddie Mac must be notified in writing of the determination that a post-closing quality control finding affects the eligibility of a mortgage sold to Freddie Mac, with the exception of any findings that are related to potential or actual fraud, which must be reported in accordance with Guide Section 7.3.

Building Quality Control Reports

An organization’s quality control program may have as few or as many reports as it requires, depending on the organization’s specific operations, size and needs. At minimum, reports should:

  • Be timely

  • Be given to the appropriate management personnel

  • Contain not only useful information, but also the right amount of detail

  • Be designed to elicit suitable responses, in particular corrective action if and when appropriate

  • Produce trending and tracking results to better monitor the quality of originations

Types of records and reports you may want to maintain include:

  • Tracking and trending reports (documents historical quality of originations)

  • Mortgage sample selection documentation (documents which mortgage files were selected and the selection process)

  • Individual mortgage file report (summarizes the quality control review’s findings for a given mortgage)

  • Summary report of individual findings (generated routinely [weekly or monthly is recommended] to summarize the findings of individual mortgage file reports, identify trends, as well as fraud or other real or potential problem areas)

  • Quality control finding reports (given to specific department heads; allows them to comment, make recommendations or offer explanations)

  • Follow-up quality control findings reports for senior management (summarizes findings and includes responses from the affected department heads)

  • Management’s response, special problems report, corrective actions status, investors’ reports, tracking and trending reports, and other special reports (e.g., branch office reports, reports of targeted reviews, mortgage service provider reports and/or fair lending reports )

Pulling these reports and records together can be more manageable through the use of loan document quality control (QC) technologies that perform essential loan QC and quality assurance (QA) functions, such as document classification, data extraction and audit rules automation, allowing loan agencies to potentially double their output without diminishing loan quality. The ability to do deep granular evaluations and reporting – which these applications support – has become essential to a loan agency’s ability to meet and exceed regulatory oversight requirements, such as those of Freddie Mac. (Source: http://loanlogics.com/qcloseloan_overview.html)