True or false? Digital mortgages produce better quality loans.
Much to the surprise of many, the answer is “false.” Not only does a digital mortgage file have the same quality problems as all loan files, they can even be more challenging.
When it comes to loan quality in digital mortgage files, here are three critical things to know:
1. Bad data is still bad data. With increasing automation through the GSEs and initiatives such as Fannie Mae’s Day One Certainty, lenders and servicers that are transitioning to digital mortgages can expect audit times to speed up as well as greater efficiency and clarity in the QC process. But that doesn’t mean the battle for quality suddenly ends.
Keep in mind that just because a loan file is digital does not mean the data in the file is correct. At StoneHill, we have seen digital files with a wide range of problems ranging from incomplete disclosures to evidence of borrower fraud.
2. Digital mortgages contain manually entered data. At some point, most data that winds up in a loan file is created or entered manually by a human being, whether it’s the borrower, the loan officer or a third party. Any time data is entered manually, there is a risk for errors, whether it’s mistyped information, an overlooked or misidentified data field, or fraud.
Another problem is that most lenders use multiple systems to manufacture or service loans, and many of these systems lack deep integration, creating additional opportunities for data inconsistencies. As a result, organizations often dispatch staff to rekey or retype data from one system to another, which creates an additional risk.
3. Loan quality expertise still matters. For the above reasons, digital mortgages still require regular QC reviews and up-to-date annual QC plans. Regardless of the type of file, lenders and servicers still need to validate all data collected during loan production for accuracy, both before and after closing. They also need to ensure their QC processes, checklists and annual QC plans address both traditional and digital mortgage processes.
Because digital mortgages present additional loan quality challenges, many lenders outsource QC reviews and plan creation to a third- party expert. If you’re looking for outside help, it’s important to choose a partner with the capability to review loan files in all formats, as well as a partner that can help you create processes that keep quality issues from appearing in the first place.
By all means, digital mortgages represent the future of our industry and we fully support them. But all lenders could switch over to a digital environment tomorrow, and there would still be loan file errors as well as bad actors out there trying to get mortgages when they shouldn’t.
If you find yourself lacking the resources, technology or staff to review digital mortgages for quality issues, reach out to us at The StoneHill Group. We would be delighted to share our knowledge and expertise with you so that your transition to digital mortgages is as successful as it’s meant to be.