Virtually every step in the mortgage process has been impacted by new and evolving regulations, with hefty fines imposed for noncompliance. The sheer breadth of loan quality problems continues to adversely affect manufacturing productivity and production costs.
We can all surely remember when lenders were simply doing post-close audits on loan samples as required by the government-sponsored enterprises. Then TRID came along, putting any lender that produced an inaccurate disclosure at risk, followed by the new Home Mortgage Disclosure Act requirements — and things got even tougher.
But the demands for loan quality aren’t just coming from regulators and the GSEs. Your secondary market partners and investors don’t want to be left holding the bag if the loans you create have quality issues. Gone are the days of “ship and hope.” When investors buy loans, there’s a huge liability attached. Investor scrutiny has increased so much, in fact, that investor requirements can seem as strict as regulators’. This has heightened the quality mandate and placed more emphasis on post-closing, shipping and delivery.
Whether you realize it or not, the game has changed. The slow accumulation of new requirements and mandates created by the GSEs, TRID, HMDA, investors — as well as the onset of other risks such as False Claims Act charges and class action lawsuits — have pushed the stakes so high that conventional approaches to loan quality do not apply. That means lenders can no longer ensure loan quality by looking backwards, through post-close sampled audits or any other method. They need to address loan quality issues where they happen — in production.
Loan quality is now a loan-by-loan event that is best performed as loans are created, not after the fact. The regtech market is taking off because lenders are realizing they need to tackle loan quality issues as they happen, from the very point they begin gathering information to create a loan file. Regtech enables lenders to electronically view, validate and verify all the loan data and documentation as it’s introduced, lowering risk and saving money by increasing both processor and underwriter productivity.
The bottom line is that lenders just don’t have the luxury of going back in time to fix bad loans after they’ve already closed. Nor can they simply hope that their loan origination systems or staff caught every problem. Today’s loans must be done right the first time. The game has changed, and lenders need to play it differently before it’s too late.