No Risk, No Reward? The Power of Knowing Your Risk Appetite
By: Donna Gibson, COO and President of QC Ally
In today’s increasingly tumultuous landscape, lenders are slamming the brakes on their risk appetite in order to ride out current market conditions. But sometimes strengthening the health of your organization means revisiting the fundamentals. In our last post-closing article, we discussed the power – and common misconceptions – of discretionary audits. Now, let’s go a step further and touch on how a well-oiled QC review process can potentially allow you to take on additional risk.
The ticking 90-day timeclock to complete post-closing loan selection, review, rebuttal, and reporting can feel overwhelming and reactionary even to the savviest lenders. But there is a great deal of empowerment that can come from streamlining your review processes. Ultimately, this upfront work can ensure your frontline team isn’t reducing their origination output remediating unnecessary findings.
The ASAP Mindset
It’s true, with only 90 days to review your loans on a monthly basis, it’s easy to get caught up in an “everything must be done now” mindset. However, establishing turn-times with your QC partner or team and setting due dates is a sure-fire way to guarantee both timeliness and accountability every step of the way. By setting expectations, your entire team has the breathing room to operate in a realistic headspace and avoid burnout.
Another way to offset the rush and burden of post-closing reviews is to ensure your team is working smarter – not harder. Here’s what that might look like:
- Avoiding costly mistakes. For example, forgetting to include documents. Lenders need to have all documents in the files to be reviewed because if they aren’t there, that has to be noted as a finding even if the lender does have the documents. Having your QC team or vendor remediating documents that should have been sent to them in the first place is a huge time-suck. One option is to give your QC partner access to where you house your documents. This can save you the headache of remediating simple findings.
- Utilizing true subject matter experts. It can be tempting to think a “checklist checker” could complete a lot of the QC legwork, but this often leads to incorrect findings, resulting in even more costly time spent clearing incorrect findings. Ensure you have a qualified subject matter expert at the heart of your team to guarantee a qualified professional is on the pulse of the review process.
- Establishing consistent processes. With so many resources involved in the post-closing loan review process, ensuring everyone is on the same page about their role and turn-times can greatly simplify what often feels like a very reactionary process. The Fannie Mae QC Self-Assessment as well as their Beyond the Guide booklet are great starting points for building out your systems and processes.
The Power of Gross and Net Defect Rates
With Fannie Mae’s focus on gross defect rates (the defect rate based on the initial findings prior to rebuttal), the steps outlined above will help improve the accuracy of all findings before they go out. But prevention is also an important key to success. Understanding the issues that arise during the rebuttal process will further help your defect rates over time. This is where root-case analysis and action plans come into play. By tracking issues down to the source, you can alert the necessary teams to take steps to resolve the issues from recurring again in the future.
On the other hand, your net defect rate is based on the final findings after the rebuttal activity. This rate must have a target that essentially determines how much risk your organization is willing and able to take on. Right now, many lenders aren’t open for much risk at all, but if you put in the hard work to streamline your QC processes, ensuring accuracy and root-cause analysis every step of the way, you might be pleasantly surprised to see an opportunity to increase your risk appetite and bring on new products – even in today’s market.
As you look for ways to gain an edge over the competition, you might just find that your QC processes are the key to unlocking hidden opportunities. For more information on how QC Ally can help be your guide, contact us today: