Quality Control in Mortgage Lending

Challenges associated with closing disclosures have dominated the 15 biggest quality control (QC) issues in loan origination, according to an analysis by MetaSource. The three common quality control issues that continued to trouble lenders in 2017 and in 2018 were tolerance violation, calculating cash-to-close, and timing violations.

For the analysis, MetaSource studied its post-close QC audits that it had performed over the past year. It revealed that lenders were still struggling to consistently comply with enhanced disclosure requirements under the Consumer Financial Protection Bureau's late 2015 rules.

While closing disclosures took up fewer spots in 2018, compared to 2017, on the top compliance issues faced by loan originators, the analysis found that the number of significant regulatory findings remained consistent in 2018 despite the fewer number of audits due to decreasing loan originations.

Among non-regulatory QC issues, the analysis revealed that incorrect income calculation, missing or defective employment verification, and insufficient assets to close were the highest-ranked challenges by lenders.

"Some of these findings are likely the result of inadequate processes for document management and version control and not confusion over the now three-years-old regulatory changes," said Brady Meadows, Senior Director, Mortgage Services at MetaSource.

Meadows was referring to the TILA-RESPA Mortgage Disclosure (TRID) Rule under the Dodd-Frank Act. "Despite everyone's understanding of TRID and efforts to correct for it, we're not seeing the decrease in findings we should be seeing," Meadows said. "It appears the rush to execute volume is superseding effective document and process management."

This rush, the analysis revealed had led to lost or conflicting records, with some lenders reissuing documents for every small change and creating multiple redisclosures in the process, "when it's not necessarily required."

Some of the other QC issues indicated by the analysis included missing or defective settlement service provider list, security instruments, unacceptable omissions of debts, insufficient income documentation, and total points and fees exceeding the maximum limits.