By John Levonick

As the mortgage origination industry returns, lenders must prepare to defend against potential repurchase claims. Rising loan defaults have forced Investors, GSEs and HUD to create internal audit teams to review loans for any deficiency that would permit them to force the originator into repurchasing a loan. Considering the costs associated with defending and repurchasing loans at par, many mid-market and regional lenders do not have the capital reserves necessary to fulfill a loan repurchase obligation. Any deviation from underwriting guidelines, such as failure to provide supporting documentation to establish the borrower's assets, would be enough to substantiate a repurchase claim. When a repurchase demand is made, the burden of proof is on the originator to establish the basis for a repurchase claim if the specific loan is not accurate.

Lenders must ensure that all of the loans passing through their pipeline meet 100% of all the guideline requirements and create a clear, concise audit trail of the loan circumstances and supporting documentation to best protect themselves. The time has come for lenders to remove manual/inefficient processes and embrace enterprise lending solutions that enable them to more efficiently meet the ever increasing need to reduce risk and prevent repurchases.

Quality Control
With increased attention on loan quality, originators face challenges with enhanced quality assurance testing, which will force a shift away from the traditional notion that discretionary or random loan sampling is an effective means of identifying an institution's overall production quality and risk. The overly onerous traditional manual quality review process that many lenders have relied upon historically has clearly failed the industry. As a result, lenders must rely on an enterprise lending technology as a cost effective solution to reduce the need to hire internal quality auditors, eliminate ancillary software testing vendors and create an atmosphere of pure origination guideline compliance to meet all necessary Regulatory and Investor-specific requirements. When a lender can rely upon its lending platform to validate and verify all necessary guideline and regulatory requirements, the lender can reduce overhead, streamline origination processes and increase overall compliance efficiency.

Create a Virtual Paper Trail
In the world of paper loan files that pass from the loan officer all the way to the closer, errors and lost documentation can easily occur. A platform that creates an electronic file, permits authorized individuals access to certain information and establishes specific accountabilities set into a predetermined pipeline of progressive requirements not only streamlines an operational process but also reduces instances of possible fraud and permits centralized reporting and monitoring. Importing vital documentation directly from verified third parties (such as Bank Statements directly from the Bank or Paycheck Stubs directly from the Employer) into a viewable document "lock-box" can reduce instances of income or asset fraud and permit the originator to have proof that particular guideline requirements were met by originator at the time of the underwriting. Preset operational accountabilities can automatically route electronic tasks to the proper predetermined individuals to authorize credit or collateral decisions, creating a loan history that will efficiently task and track decision making to ensure the proper escalation and remediation of issues or vital decisions.

Reduce Manual Processes
While new Federal and State requirements continue to surface that blur the line between credit decisioning and anti-predatory lending compliance, the use of manual underwriting spreadsheets and checklists expose lenders to significant risk. "Ability to Repay," "Benefit to Borrower," "Net Tangible Benefit," "Tangible Net Benefit," are phrases that may impose particular underwriting considerations and subjective thresholds upon a lender and are traditionally done with a worksheet that remains in the underwriting file (with the hope of being validated by a quality control auditor prior to funding). This worksheet then may or may not make its way into the closed loan file, which is necessary for investors as the loan is sold to the secondary market, to substantiate the decision-making that occurred during underwriting. Managing the content of such calculations, uniformly applying these requirements throughout an organization's various channels, sufficiently documenting the decisioning and gathering this information into a closed loan file has been a thorn in the side of many lenders. The solution is simple; automate the calculations, lock down the logic, implement into your ELS so the calculation is done automatically and export into a worksheet to be drawn as part of your closing documents.

Manage Your Guidelines Via Your ELS
Automating your guidelines permits lenders to maintain a comprehensive achievable library with real-time change management capabilities to create an electronic record of specific guidelines that were in effect on any given day or time. Real-time guideline change management is an absolute must for any institution that wants to ensure timely and accurate adherence to any shift in loan level risk. Whether it is driven by a fluctuating interest rate environment that may see 250 basis point shifts in pricing on an hourly basis or by a particular investor that requires an immediate change in a loan program's qualifying criteria, having the ability to manage pipeline risk from a single dashboard in real-time enhances the efficiency of an origination platform. Implementing and managing these controls instantaneously creates the potential to increase profit margins by millions of dollars.

Conclusion
While profit margins are constantly becoming thinner and enhanced quality requirements on originators are multiplying, the solution for lenders is an enterprise lending platform with the right technology to reduce overhead while increasing operational and cost efficiencies. Cost is traditionally a barrier to implementation of a new lending platform; however, when lenders look at the cost associated with conducting business through the manual legacy systems that have failed in the past, the cost to implement an efficient and risk-averse platform will pale in comparison. The proper technology is available and having the ability to streamline operations to reduce overhead and supplement profit margins will be the difference between the lenders that thrive and those that don't survive in these turbulent times.