How is Today's Lending Different?


When you purchase a new car, quality is an important feature. Manufacturers rely on solid quality control to ensure auto quality. Nothing hurts a brand more than being known as a lemon or having poor quality.

The very same theory applies to home mortgage loans. Customers do not think of their mortgage loan being a product. Loans don't come in brands, like Ford, Cadillac or Volvo are for automobiles. Mortgage lenders manufacture Conventional, Jumbo, FHA and VA loan products. Internal quality control for quality assurance is mandatory. Without QC, we felt how "lemon loans" impacted our financial markets.

Is quality control performed in home lending and how? Fannie Mae, Freddie Mac, FHA & VA all have QC standards for mortgages. With cars, it all happens behind the scenes, before the car hits the showroom. With mortgages, it occurs during your personal loan process and you are the star.

To understand this, we need to define mortgage quality control and how it occurs. Search mortgage quality control to see the words: audit, check, review or compliance. Examining some quick summaries will educate you on meaning & importance.

Freddie Mac:
  • Research into practices of successful mortgage lenders has strengthened our belief that reliable & effective quality control programs are essential to the mortgage industry.
  • Organizations with a commitment to quality control recognize that quality begins before an application is taken & continues throughout the mortgage process.
  • The purpose of a quality control program is to monitor & evaluate the integrity of the origination process & to provide feedback to the organization.
FHA:
  • Assure compliance with FHA and lender requirements throughout operations.
  • Protect lenders and FHA from unacceptable risk.
  • Guard against errors, omissions and fraud & assure swift appropriate corrective action.

Every home mortgage lender handles quality control in their own way. Certain QC processes have timeframes preset for when performed. Other QC tasks are left to a lender to manage appropriately. Mortgage QC affects both your service & your lending experience.

Financing involves obtaining your financial data & validation of its accuracy. Mortgage lenders perform your credit check upfront and again before closing. Your employment is checked during processing and within 72 hours of closing. In reality, these are perfect examples of mortgage quality control with required timing. If your credit or employment changes, be proactive to inform your loan officer. Discovering change during a lender's quality control process can result in a terrible outcome.

IRS tax return transcripts are ordered electronically by all mortgage lenders. This quality control function checks that a client provided accurate return copies. At 3-4 days it is not time consuming and can be done anytime during loan process. Variations or IRS errors create real heartburn for a client seeking loan approval. If you have an IRS issue, tell your loan officer upfront to collaborate on possibilities. If the underwriter is unable to approve your loan, imagine your emotional state.

So many lenders wait until approval for mortgage QC as it is hard cost. Making sure a loan is viable seems logical when lenders design their process. Being on pins & needles waiting for loan approval is the worst possible time for problems. Nothing impacts your lending experience more than having your loan denied! Fixing a QC problem requires you understand the issue at hand to successfully resolve it.

The appraisal is reviewed in the lending process, as the basis for collateral analysis. A completed property appraisal is required for the appraisal/collateral QC process. Appraisals typically arrive right before underwriting, pushing QC into the underwriting stage. Having problems this deep in your financing process afford little time to resolve issues. At this stage, without curing time, the result can be a major headache for everyone.

It is definitely worth becoming familiar with the phrase "Mortgage QC". When you hear terrible lending tales from friends & family, QC is often the underlying reason. Understanding lending QC better prepares you to successfully obtain home financing. Simple questions you can ask your mortgage loan officer are:

  • When do you validate tax returns?
  • Do you check credit scores twice?
  • How will you notify me of delays?
  • What problems do you foresee?

A little preparation upfront can go a long way towards timely closing on your home.

Stacy G. London
Capital Security Mortgage
slondon@houstoncapital.com