StoneHill Insight: 3 Reasons Correspondent QC is Critical
Correspondent lending is back, which is always great news for the housing market. But the return of the correspondent business has also shed light on a growing area of concern, and that is quality control.
The last time correspondent lenders were this busy, QC was merely an afterthought. Today it can make or break their business. Below are three excellent reasons why QC planning is critical to correspondent lenders, and how they can stay out of trouble.
- Quality is no longer the goal—it’s the standard
It’s no longer sufficient to strive for quality in the origination and also in the servicing process. Correspondent lenders must demand quality, because everybody they work with will demand it, too. That includes customers, business partners, investors and regulators.
Like all originators, every correspondent lender needs an up-to-date QC plan. The plan should include , taget defect rates, pre-funding QC, post-close QC, in addition to targeted reviews on specific areas of risk and most importantly management commitment to QC. Correspondent lenders should also perform consistent internal audits that involve all branch activities and staff training, so that everybody is on the same page when it comes to ensuring quality.
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- Credit is expanding fast
The rise in correspondent lending has mirrored the recent widening of the credit spectrum and an increase in jumbo, non-QM and high-cost loans. For the most part, a more diverse product mix is good news for the housing economy. But with more flexible lending criteria comes increase risk, which needs to be offset with more frequent and more thorough QC reviews.
Strong QC protocols are especially important for correspondent lenders selling high cost loans, which are growing in popularity. If your business has expanded to include non-QM and high-cost products and you haven’t yet adjusted your QC plan accordingly, you should do so right away.
- Quality can be costly—without a plan
As competition intensifies in the correspondent/broker arena, both loan file turnaround times and meeting the specific program and delivery requirements of different investors have become huge challenges. In such an enviroment, ensuring quality places enormous pressure on a corresponent lender’s ability to control costs.
By outsourcing QC to a trusted vendor that offers a variable cost structure, quality does not have to cost an arm and a leg—nor will it keep you up at night worrying about unhappy investors. Outsourcing QC can also help correspondent lenders scale business faster. And it can save money when compared to hiring costly staff or tackling QC issues on one’s own.
Of course, QC is important to every organization, not just the correspondent business. Why not make quality your New Year’s resolution? If you have any questions about how The StoneHill Group can help, please don’t hesitate to ask.
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