ACES Quality Management’s Sharon Reichhardt: What’s Keeping QC Professionals Up at Night? Plenty. [Sponsored]

ACES Quality Management’s EVP of Operations Sharon Reichhardt spoke with several QC professionals to gain insight into the obstacles they’re encountering.

MBA NewsLink: What were the most significant challenges faced by quality control (QC) professionals in 2024, and what is their top areas of focus?

SR: We checked in with several panelists from our ACES ENGAGE event earlier this year to get an update on their current challenges and priorities. These individuals represent a wide range of entities, including independent mortgage lenders, captive lenders, subservicers and mortgage insurance companies. Here’s what they shared with us:

Enhancing Operational Efficiencies for Delinquent Accounts: QC professionals are closely examining the effectiveness of their operational processes that impact customers with delinquent loans. This includes evaluating customer service calls, collection efforts, loss mitigation strategies, default management practices, foreclosure procedures, and bankruptcy management. Many are monitoring customer calls to ensure their service teams are meeting high standards. This proactive approach helps in refining processes to better support customers and ensure compliance.

Shifting Quality Control Earlier in the Loan Process: Some QC teams are moving their initial line of defense earlier in the loan review process, shifting from post-clear-to-close (CTC) checks to pre-CTC reviews. By doing so, they can identify potential issues during the prequalification stage, allowing for earlier interventions that can prevent problems later in the loan lifecycle. This strategic shift is helping lenders catch discrepancies and compliance issues before they become costly mistakes.

Prioritizing Action Planning and Reporting: Looking ahead, QC professionals are emphasizing the importance of action planning and comprehensive reporting to enhance their quality control processes and make better data-driven decisions.

Training Loan Officers on Refinance Preparedness: To prepare for potential market shifts and ensure compliance with the latest refinance guidelines, organizations are prioritizing the training of loan officers. By equipping them with up-to-date knowledge and tools, they aim to improve the handling of refinances and ensure a smooth experience for borrowers.

MBA NewsLink: How important is QC for lenders in the mortgage industry, and what strategies can lenders use to ensure effective QC practices?

SR: QC is essential for lenders to maintain high loan quality and minimize risk. An effective QC program helps detect loan defects early, preventing regulatory issues or demands for loan repurchases.

Effective QC starts with consistently evaluating the integrity of their origination pipelines and servicing portfolios to ensure compliance with all relevant rules, guidelines and regulations. Fortunately, quality control can be greatly enhanced with the adoption of audit and compliance technology, which offers quick returns and is easy to implement. Lenders should frequently review and update their operational and compliance procedures and quality control frameworks, carry out self-assessments to evaluate these updates, and address any findings promptly.

To effectively manage servicing risks, it’s crucial for the risk management team to pinpoint the specific risk areas within the institution. The internal audit team should then verify that appropriate processes and procedures are established to address these risks. Subsequently, the QC team must ensure that the organization’s actions align with its policies and adequately address any associated risks. Relying on outdated methods like manual tracking and spreadsheets increases the risk of errors, making audit technology invaluable. It minimizes mistakes and reduces the amount of manual data entry required by the QC team.

The Consumer Financial Protection Bureau (CFPB) has regularly emphasized the importance of self-assessment and remediation. It’s crucial for lenders to maintain thorough documentation and ensure their internal practices meet regulatory standards and align with official guidelines.

MBA NewsLink: Given the potential changes in interest rates and increased regulatory scrutiny, how should lenders plan to navigate these challenges to ensure both compliance and continued growth?

SR: As our EVP of Compliance Amanda Phillips likes to say, an election year tends to bring uncertainty to the market. If we see a decline in interest rates, the sale of loan pools is likely to increase, which could impact servicing. Additionally, loans might be bundled differently as a result. A decrease in interest rates could lead to higher runoff but might also create a larger pool of loans available for mortgage servicing rights (MSRs).

One area our compliance team is watching closely is state-level compliance, as this group of regulators are expected to enhance their enforcement and consumer protection activities, especially concerning fees. The compliance team also anticipates increased scrutiny on permissible fees, given the CFPB’s frequent and vocal stance on “junk fees.” Lenders should remain vigilant in adhering to state regulations on interest, escrow and any fees that could be considered junk fees detrimental to consumers. If the current administration continues, it seems fair to expect ongoing oversight focused on reducing costs and fees for borrowers.

To prepare, we recommend lenders leverage component reviews and prefunding QC to catch defects early and pay closer attention to the mortgage fees presented to the borrower throughout the origination process.

MBA NewsLink: What actions should servicers take to identify and manage inherent servicing risks?

SR: Servicers need to pinpoint specific risk areas and establish appropriate processes, regularly conducting audits to ensure adherence to policies and procedures. One example of a process improvement is implementing a call monitoring program. Monitoring consumer interactions by phone is a vital aspect of servicing that can be easily overlooked from a quality control standpoint. Regardless of how many safeguards are in place, human interactions, especially in collections and loss mitigation, can increase the risk of non-compliance. A robust call monitoring program helps lenders identify areas needing improvement to safeguard against regulatory and reputational risks.

As financial institutions navigate complex compliance landscapes and market volatility, ACES not only ensures compliance with regulatory requirements but also enhances overall loan quality. By fostering a culture of continuous improvement and leveraging powerful, data-driven insights, ACES plays a crucial role in risk mitigation and operational efficiency.

The importance of effective quality control and management in the mortgage industry cannot be overstated. In a field where accuracy and compliance are critical, ACES is always focused on providing innovation and updates to the mortgage industry. To easily find relevant news and important regulatory dates on mortgage credit and compliance, visit our Free Compliance NewsHub and subscribe to our weekly recap newsletter. We add hundreds of articles and calendar items to the Compliance NewsHub throughout the year. ACES also offers a comprehensive library of resources such as webinars, quarterly QC trend reports and guides.

(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)