Mortgage lender cuts costs in half by outsourcing post-closing quality control function

Challenge

The mortgage industry has faced a difficult landscape in recent years, with higher interest rates and housing costs dramatically decreasing loan origination volume and profit margins. Yet originators must still conduct required post-closing quality control (QC) assessment and reporting, which has become more complex as Fannie Mae and others have expanded requirements and tightened reporting deadlines.

The post-closing QC process involves reviewing samples (with percentage and type specified) of funded loans to check for data integrity, ensure compliance with appraisal and underwriting guidelines, and reverify assets, credit history, income, employment, and taxes. Because this work can be labor-intensive, mortgage originators often find themselves having to maintain staff levels higher than what their businesses actually need in today’s lower loan volume environment just to meet these requirements—leading to expensive downtime that compromises optimized cost management.

A large mortgage lender recently engaged Guidehouse to help reduce costs and improve constricting margins against a tight deadline. Our team—consisting of seasoned professionals with more than three decades of experience in mortgage servicing and consulting—assessed client operations before proposing and implementing a cost-effective, innovative approach tailored to the company’s specific needs.

 

Approach

We developed a fully outsourced post-closing QC program that would leverage our proprietary workflow management and optimization technology and staff the work with competitively priced Guidehouse employees located in our offshore offices. The solution’s built-in flexibility allowed for adaptation in response to regulatory and investor requirement updates.

Customization was key as we considered the client’s specific product and process nuances. We explored our comprehensive test plan database, which covers a broad spectrum of scenarios, to tailor our sampling and execution calculators for accuracy. By enhancing and focusing the test plans, we maximized tester efficiency through streamlined processes and time-saving shortcuts.

 

Impact

Our highly trained, seasoned offshore employees were well-positioned to flag any existing defects that would necessitate changes to client policies, procedures, or daily QC operations. In our experience handling post-closing QC for multiple clients, we’ve seen frequent errors regarding income allocation, omission of newly opened debt when calculating debt-to-income ratios, insufficient documentation for gift fund transfers, and lack of supporting documentation for appraisals.

Our employees are familiar with these common errors, plus we supplement their work with job aids and on-the-job training to ensure accuracy and optimal productivity. And with testers available in multiple regions globally, we can work around-the-clock for fast results, as we did for this client—resulting in a 50% reduction in workforce costs.

We were then able to provide the company with a strategic business operations review based on insights we had culled from our reviews conducted throughout the engagement. Through our post-closing QC report, which presented an analysis about loan summaries, defect scorecards, and other findings, we were able to identify trends that would enable the client to make short- and long-term operational improvements.

 

Enhancing Outsourcing with Advisory Services

Business process outsourcing engagements like this often lead to discovery of the need for more comprehensive advisory services that can help enhance operating models, prioritize areas for improvement, and mitigate potential risks.

The scope of our advisory group engagements with mortgage servicers can include specific post-closing analysis and development activities such as current-state assessments, risk and control self-assessments, and target operating model transformation.