The past couple of years may one day serve nostalgic for mortgage originators. With record low mortgage rates and soaring homeowner equity, lenders had a historic level of refinance opportunities. It has been, in many ways, the best of times.
However, a completely different picture has emerged. Higher interest rates have caused rate/term refinances to evaporate and prompted the Mortgage Bankers Association to lower its origination forecast for 2022. Meanwhile, higher home prices are shutting out many potential homebuyers. In fact, in late 2021, the National Association of Realtors reported only slightly more than one-quarter of the purchase market were first-time buyers.
As a result, lenders are beginning to venture into new arenas, including non-QM lending. That means they’ll need to dig deeper into unique employment terms and income streams as well as credit complexities and new investor requirements that some underwriters have never seen before.
The picture is no less challenging for servicers, who face increased regulatory enforcement as a result of COVID and a more active market for mortgage servicing rights (MSR) trades that will foster greater risk. Every time there’s a trade in MSRs, there is an impact to the borrower and heightened scrutiny for the originator and servicer. Even something as simple as a new payment address has the potential to cause a missed payment and inadvertently put a dent into a borrower’s credit.
Yesterday’s QC is Not Enough
For both mortgage lenders and servicers, quality control must take center stage. Risk management, compliance and manufacturing quality in all phases of the mortgage chain should be on the minds of every organization.
For originators, post-closing QC as it has been done over the past two years will not cut it this year. Origination QC, pre-funding QC, and targeted discretionary reviews should all be part of their production strategy.
For servicers, timeline management and making sure loan program and legal requirements are followed all represent high-risk areas. Attention to detail while boarding new loans will become paramount as well. Servicers that fail to provide consumers with the accurate information will run the risk of legal action, not to mention the potential for reputational risks.
As more loans end up in default following the pandemic, more bankruptcies, foreclosures and loss mitigation issues will follow. In fact, foreclosure filings were already up 39% in the first quarter compared to the previous quarter, according to ATTOM’s Q1 2022 U.S. Foreclosure Market Report. All default-related activities must follow a legal framework and protocols to maintain loan histories, timelines, and processes prior to and after boarding loans.
Now’s the Time to Ask for Help
The services that third party QC and due diligence providers can do today would represent a major investment if performed internally. While some financial institutions do choose to handle compliance and risk management in-house, many are opting for a trusted third party. And they don’t have to break the bank to get it.
In fact, QC and due diligence expertise from third parties can provide top shelf risk and compliance management at variable per unit costs. That means no need to train or retrain people on new technologies or performing reviews of purchase originations or servicing trades.
Looking forward, it’s experience that will win the day — which is exactly why Sourcepoint recently acquired The StoneHill Group, one of the most respected QC providers in the industry today.
Over the past three decades alone, we’ve seen some of the best of times and the worst of times in real estate finance. Thankfully, the lessons we’ve learned over the years helped produce the knowledge, expertise and technologies that we’re using to help mortgage organizations overcome today’s market challenges. The risks may be larger than ever, but we’re more than ready to take them on.
Download the HFS Research: From outsourcing to innovation: partnering to revolutionize mortgage servicing that analyzes how outsourcing can be a gateway to innovation and adoption of emerging technologies in the mortgage servicing business.