Mortgage Loan Quality Control OverviewIn an effort to offer more loan products and remain competitive in today's expanded marketplace both the bank and mortgage brokers participate in correspondent or wholesale lending programs. Correspondent and wholesale lenders refer to the banks and mortgage brokers that sell them loans by many names - Originators, Brokers, Lenders, Sellers or Correspondents. For the purpose of this article the banks and mortgage companies that originate the loans are "Sellers" and the correspondent or wholesale lenders that fund or buy the loan from the seller are "Investors".
Investors typically perform quality control checks on a percentage of the loans that they retain for servicing. The reason that quality control checks are performed is to find mistakes, minimize their occurrence, and correct them when necessary. When the investor securitizes or sells a pool of loans on the secondary market they are required to perform quality control checks and provide reports as required by federal or agency regulations. The less an investor spends on correcting mistakes in the loans they have purchased the more profitable they are. As a result, sellers that correctly process, underwrite and deliver loans are more profitable for an investor because of the lower quality control costs.
In determining a seller's quality control performance, investors will track and report statistics for loans purchased from the seller. Examples of values that an investor might track and report on a quality control report are:
- Number of loan files reviewed
- Number of findings
- Number not investment quality
The "Reporting Seller Mortgage Loan Quality Control Statistics" section of this article details steps for creating a report that an investor might use to track and report quality control statistics for loans that a seller has delivered to the investor. A seller with a high percentage of quality control issues could warrant a caution or corrective action letter from the investor. Serious quality control issues such as fraud determinations might warrant a suspension of seller privileges or legal action. The Sample Mortgage Loan Quality Control Report in this article can be used as a model for stand alone reports or incorporated into a comprehensive Seller Scorecard report.
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