As interest rates rise and fall, behold the constant of quality control
I am a planner. I like to think through the various permutations and anticipate how to best address different scenarios. And when we design and maintain a quality control group, we would love to have a constant system: mortgage applications meet forecasted expectations; defects identified and sufficiently coached so the issue disappears; zero percent attrition; and warm chocolate doughnuts delivered every Friday morning.
However as Heraclitus poignantly stated, “Change is the only thing that is constant.” And the doughnuts don’t always arrive on time, though unexpected news always finds a way to hit the headlines hard and interest rates harder.
Going down…? With Britain’s vote to leave the E.U., global financial markets plunged as investors scurried to buy safe assets such as U.S. Treasury Bonds. The high demand for government debt pushed interest rates down to 52-week lows—and led to a surge in mortgage loan applications and refinances.
…or going up? The presidential election results led to an interest rate spike. Believing the new administration will fuel-inject to the economy, investors have flooded the stock market—and this time pulled out of bond markets, thus increasing interest rates and decreasing mortgage loan applications and refinances.
So whether the cause is foreign or domestic, volume fluctuations are the norm. And professionals in quality control (QC) must employ a system that handles change, copes with volume or defect-rate spikes, and provides consistent, credible intelligence to executives and operations.
With higher volumes, many lenders find it difficult to produce a loan that meets credit requirements while fostering a positive customer experience. Lenders must now look in the mirror and determine whether their quality control program can process a surge of applications in an efficient, effective way. In other words: Is it durable enough to maintain a high standard of excellence through the peaks and valleys of the mortgage industry’s perpetual business cycles?
Three lines, five facets: Creating a robust QC program
Most industry participants know of the three lines of defense model. The first line of defense is business operations, where managers control risk through policies and procedures that govern daily activities. The third line of defense is the audit function that independently reviews all operations and internal controls. Gluing the first and third lines of defense together is the second line: the company’s QC program.
Absence of a strong QC program can compromise the quality of business operations, tax the internal audits and prevent effective processing of new loans. But an optimized QC function minimizes operational and credit risks—and enhances consumer satisfaction.
The staples of a strong QC program are the pre-closing QC reviews, post-closing QC reviews and documentation of reviews. To create an effective, flexible and scalable quality control program, five facets prove integral:
- Communicate. Clear, timely, and consistent communication develops trust between all stakeholders—including the client, leaders and associates—involved in the success of the project. It is especially important to ensure active listening as well.
- Standardize a uniform rating system. The quality team must use a completely defined rating system to guarantee consistent results.
- Prioritize objectivity and guideline support. Managers and analysts must use complete objectivity when performing a review. All findings must stem from solid, fundamental principles found within governing documents.
- Eliminate Subjectivity. Inserting one’s own subjectivity into a review nullifies the quality team’s efforts to provide consistent, accurate information. As much as it encourages objectivity, management must identify and coach through subjectivity.
Incentivize high quality work. Team members need encouragement to deliver a high-quality work product by rewarding associates who deliver great results.
Whether you conduct your own QC program or leverage a third-party provider, be sure you have a reinforced QC program that can withstand the expected flood of loan applications and deliver on the expectations of your executives and operations leaders. In the short term, a reinforced QC program will garner customer satisfaction.
When the opportunity to capitalize on mortgage demand comes again, do not miss out because of an obsolete QC program. If change is constant, then nothing beats the strength to stay constant amidst the change.
Jay Hinton is the senior director in corporate quality and compliance at Digital Risk, LLC in Orlando, Florida.