Pre-Fund, Post-Close & Servicing QC: What’s the Difference?
Mortgage quality control is a complex process with a lot of people, documents, and details at every step. Get it wrong, and the risks can be steep. From the repercussions of non-compliance, to repurchase remedies, to the business risks of inefficient and gap-ridden processes, QC is not something you can afford to do halfway.
This is especially true in the current regulatory environment. The Consumer Financial Protection Bureau (CFPB) has made it clear that it will continue to closely monitor both mortgage servicers and lenders.
Getting mortgage quality control right under these circumstances requires a thorough understanding of agency, regulatory, and investor requirements as well as possible obstacles. Additionally, when it comes to pre-funding QC, post-closing QC, and servicing QC, the requirements and obstacles vary.
Here’s what you need to know about QC processes across different points in the loan life cycle.
Establishing Solid Pre-Fund QC Practices for Foundational Compliance
Pre-funding QC is a long-established practice in the mortgage industry and a requirement for lenders selling to Fannie Mae, Freddie Mac, Ginnie Mae, and FHA. Using standards from post-close QC audits, pre-fund audits flag problems before loans are closed, enabling you to identify and correct issues before they grow into larger headaches.
High-quality pre-fund QC audits provide in-depth feedback and analysis to help you adhere to agency and investor guidelines. These audits provide thorough risk assessments of your in-house underwriting quality and also detect potential fraud and high-cost violations.
In order to achieve a successful pre-fund QC process, you need a team of industry experts on deck. With mortgage activity hitting a 22-year low, many lenders have decided to take the process in-house or outsource to a trusted QC provider to capitalize on variable cost savings. Many lenders are also laying off employees due to the record low volumes and choosing to keep their best talent focused on origination underwriting.
Outsourcing pre-fund audits to a reliable mortgage QC partner is a best practice and helps lower costs during the current economic downturn and beyond. By outsourcing, you’ll take advantage of a variable cost model. You’ll avoid overspending when volumes are low and ensure you have the resources you need to meet demand when production volumes pick back up.
Another best practice is to include validation and re-verification of key data in your pre-closing QC reviews. You should also evaluate your pre-fund process on a regular basis to ensure that it’s up to date with guidelines. And let’s not forget about reporting. Conduct monthly quality control reporting to analyze findings and trends. This will help improve decision making, identify training gaps, and establish prevention practices. In addition, pre-fund QC data will enable lenders to better understand the selection criteria for their required discretionary post-close audits.
For more tips on pre-fund mortgage QC requirements and best practices, read our whitepaper.
Completing Timely & Compliant Post-Close QC Audits
While pre-fund QC audits are proactive, post-close QC audits are reactionary. They review and verify closed loans against requirements from the agencies and other investors.
There are several types of post-closing audits, including random/statistical, discretionary, and early payment default (EPD), and the agencies’ requirements vary for each.
Keeping up with ever-changing agency requirements is critical to remaining compliant and meeting deadlines. You have 90 days to select and complete post-close reviews for Fannie Mae and Freddie Mac. Then, you have 30 days for reporting.
Similar to pre-fund QC, the key to ensuring post-close QC compliance is to make sure you have a team of experienced personnel. Also like pre-fund QC, outsourcing post-close auditing to a trusted partner is a best practice and can be maintained at a variable rate cost. The right partner will have the team of industry professionals you need to ensure compliance during any and every market. They’ll keep up with requirements and deliver reviews to you within 35 days, so you can meet deadlines.
Top partners are well aware of the fact that completing post-close audits is just one step of the QC process. When lenders outsource their QC, the real work begins once the reviews are complete. Keep this in mind when vetting vendors. The best partner will provide you with advanced reporting software that enables you to efficiently share and validate findings, so you can say goodbye to a manual process powered by spreadsheets once and for all.
An ideal software solution will enable you to track key quality control metrics, workflow processes, and final reports instantaneously as well. It will also integrate with your loan origination system (LOS) for a streamlined loan document delivery process. With a platform that seamlessly connects to your LOS, you can avoid a primary source of QC findings: missing documentation.
Looking for more post-close QC best practices? Check out our whitepaper.
Benefitting from Efficient & Accurate Servicing QC Audits
Servicing quality control goes straight to the heart of the customer experience, while also ensuring compliance with agency, regulatory, and investor guidelines.
The CFPB alone maintains many servicing QC requirements for periodic billing statements, notices for ARM loans, prompt payment crediting, and more. And the agencies have their own set of requirements, which revolve around elements like loss mitigation, escrow account functions, and lender-placed insurance.
Failing to meet this seemingly never-ending list of requirements can result in hefty fines – especially with regulators keeping a close watch on servicers. In late 2021, one bank was hit with $3.6 million in civil fines due to violations caused by internal controls, training, and an inadequate third-party risk management program for loan servicing.
Partnering with an experienced servicing QC partner with an impressive suite of servicing audits is a good way to ensure that you maintain an adequate risk management program and, in turn, avoid fines.
Learn more about meeting servicing QC requirements in our whitepaper.
Take the Work Out of QC with a Reliable Partner
MetaSource has unmatched experience providing mortgage lenders and servicers with reliable, cost-effective pre-fund, post-close, and servicing QC audit services.
With state-of-the-art mortgage QC software and a team of seasoned mortgage compliance experts, we can help you meet requirements and follow industry best practices as outlined by Fannie Mae, Freddie Mac, FHA, VA, USDA, other governing bodies, and investors – while also improving the efficiency of your business.
Want to learn more about what to look for in a QC partner? We’ve got a guide for that.
Ready to get started? Contact us to learn more about the role that third-party mortgage QC help can play in the success of your business.