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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2015

Putting the Emphasis on Quality

Originating the best products possible requires time and dedication

Henry Ford, founder of Ford Motor Co. and “father” of mass production, famously said: “Quality means doing it right when no one is looking.” This statement, uttered generations ago, is just as relevant today as when Ford first said it, even in the mortgage industry.

Many lenders tout the quality of their products and services, when in reality they try to compete solely on price. Price alone, however, is not a sustainable formula for success in the lending industry. Mortgages are becoming a commodity, with many lenders offering the same products at the same prices. What sets one lender apart from another is the quality of the products and services provided.

The GSEs want more than qualified mortgages; they want loans
that are as close to perfect as possible.

For the most part, people are willing to pay for high-quality products when they believe they are getting a fair price. When two products are priced about the same, customers will naturally choose the one of better quality. In many cases, customers will choose higher-quality products even if they come at a slightly higher price. Why, then, is quality all too often viewed as a necessary evil in the mortgage industry and a hindrance to production and profit?

The mortgage business becomes more like manufacturing every day. Instead of originating, processing, or closing loans, they are often built in assembly-line fashion, starting with the loan application as the foundation, and adding each piece along the way as the loan moves down the line through the production team. Bearing that in mind, it’s essential to have quality-control (QC) checkpoints at each stage of your origination process.

Lenders, like industrial manufacturers, can’t afford to wait to test their products after completion to determine their flaws and potential problems. And, like manufacturers, when flaws or problems are discovered, lenders must immediately halt production to address the issue, correct it and ensure it doesn’t happen again. Otherwise, more than just a single product is at risk of becoming flawed and unsalable.

Understanding quality

Key points

The necessity of high-quality loans

  • Lender's can't survive on price alone
  • One flawed product can lead to more
  • Committed originators improve internal processes
  • Business with GSEs hinges on quality loans
  • Fewer defects mean fewer delays

With the focus on quality that’s occurring in the industry today, there’s a significant need for brokers and bankers to be trained not only in what they must do and how to do it, but also in why it needs to be done. When your employees have complete knowledge of where they fit in the origination process and why they do what they do, these originators will have a much better understanding of the big picture.

In turn, this understanding will help them make better contributions toward the overall quality of the customer’s experience. Originators must understand the importance of taking complete applications, providing required disclosures, spending the requisite time to educate customers and fully explaining the loan process.

This requires a certain dedication to the craft of originating loans and demands a commitment to quality. When brokers and bankers originate properly, providing quality service to applicants and complete applications to their processors, they get more informed homebuyers, more compliant loan files, and more time for processors to focus on loans instead of chasing after missing or incorrect information.

Industry demands

If all of this isn’t reason enough to focus on quality, originators should realize that quality is — as it should be — a major concern of everyone in the industry, and that includes government agencies and the government-sponsored enterprises (GSEs). Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) have all increased their emphasis on ensuring quality mortgage products. The GSEs, for example, want more than qualified mortgages; they want loans that are as close to perfect as possible.

For its part, the FHA is in the process of rewriting their quality control guides to provide more guidance and increased expectations for loan quality. The GSEs, meanwhile, have done the same. In fact, Fannie Mae and Freddie Mac now offer an incentive for the delivery of quality mortgages in the form of representations and warranties relief under two options: an acceptable post-closing QC audit, or an acceptable payment history. Both of these options rely on the clearance of outstanding defects and the expiration of any indemnification period.

•  •  •

For internal and external reasons alike, it’s time to incorporate an element of quality into the loan-production process. The higher the quality of your loans, the more valuable they will become to your consumers. Correspondent and wholesale lenders aren’t just looking for volume; they want high-quality, compliant loans they can package and sell with confidence. Originators who provide quality products are the ones who will continue to get business from these lenders.

Remember the words of Henry Ford and remember that quality is just what might set you apart from the pack. Fewer defects mean fewer delays, smoother closings and faster loan deliveries. That’s not only good for lenders, but also for originators and the industry as a whole. 



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