Author: Nexval.ai

A strong mortgage quality control (QC) function is essential for lenders not only for compliance risk mitigation – it also helps improve loan portfolio performance and inspires greater investor confidence. In the aftermath of the 2008 financial crisis, QC is deeply embedded in the industry’s regulatory framework.

From the Fair Housing Act (FHA) to the Home Mortgage Disclosure Act (HMDA) and the False Claims Act, there are several regulatory prerequisites to bear in mind when evaluating a prospective customer for a mortgage. And, the compliance burden is steadily increasing – for example, Bank of America recently had to pay a $12 million fine for misreporting mortgage data, easily avoidable through the right compliance risk mitigation steps like partnering with an experienced mortgage QC vendor.

Here’s how partnering with a leading compliance risk mitigation and QC firm can help your company:

1. Reduce operational workloads

Mortgage companies need to follow a rigorous checklist from the pre-closing stage to post-closing and mortgage servicing. This entails a substantial amount of manual effort, such as document verification, calculating debt-to-income ratios, collecting borrower information, and reviewing credit reports. In the post-closure stage, there’s effort involved in verifying loan file integrity, document accuracy, and record confirmation.

At a time when lenders’ bottom lines are already stressed due to rising interest, volatile volumes, and other market pressures, the operational workloads associated with mortgage QC can certainly take a toll. In this scenario, a QC partner can step in and provide the staffing and technology assistance needed. It allows mortgage companies to carefully complete their end-to-end QC checklists without cutting corners or making any quality trade-offs.

2. Manage costs

An average loan file will cost several hundreds of dollars in QC reviews, comprising both data verification and appraisal expenses. This cuts into lenders’ revenues, which are already declining. A report found that the average profitability in mortgage went from $18.8 billion in 2021 to $5.8 billion in 2022, making it imperative to find new efficiencies like savings in the compliance risk mitigation process.

A third-party vendor will offer competitive terms like outsourcing to a best-cost location. At the same time, they will ensure the availability of highly experienced, certified mortgage QC executives who can conduct detailed and reliable loan checks at a fraction of the original cost if the compliance risk mitigation process is managed intelligently.

Read more: 7 Factors to Consider When Choosing a Risk Management Platform

3. Benefit from the latest technologies

Due to the effort and data-intensive nature of mortgage processes, it is a prime candidate for technology transformation. Several of the regulatory and mandated mortgage QC steps can be performed by mortgage automation and other digital tools. The rise of artificial intelligence (AI) further increases the potential of technology for quality control. Unfortunately, most lenders lack the skills or resources needed to tap into this transformation.

A compliance risk mitigation partner will bring proven technology expertise to streamline QC processes with optimal effort and investments. For example, AI can sift through massive volumes of information, including raw data on income sources. This improves the quality of QC checks and minimizes the chance of onboarding bad loans into the portfolio. An external partner doesn’t just help lenders stay compliant; they can improve portfolio performance to drive overall business growth.

4. Stay ahead of compliance rules

As the Consumer Financial Protection Bureau (CFPB) increases its regulatory scrutiny with a growing commitment to resolving fair lending issues, lenders need to adapt their compliance risk mitigation practices. In the last couple of years, the CFPB has intensified its questioning of banks regarding their fair lending practices. Mortgage companies can no longer approach compliance as a reactive function and need to stay ahead of changing rules.

In this context, a third-party quality control partner can provide invaluable assistance and expertise. Lenders need not spend on the fixed capital costs of hiring compliance experts but still have an arsenal of compliance experts at hand. An outsourcing partner can help conduct detailed audits against mandatory and recommended guidelines. They can ensure that disclosure timelines are met and the findings are shared with the right stakeholders.

Read more: How to Avoid Mortgage Compliance Issues: An Actionable Guide

Meet Nexval, your mortgage quality control partner

Choosing the right outsourcing partner can be a challenge as lenders need complete trust and visibility into third-party operations, the technology stack, and projected costs. That is why it is important to choose a certified and experienced firm that not only offers a cost advantage but also extensive industry understanding. Further, they need to bring technology expertise to support the growing digitization of mortgage QC.

At Nexval, our team of 1000+ SMEs works closely with America’s top mortgage companies to streamline QC, improve portfolio quality, stay compliant, and continuously improve operations based on the data generated. We ensure that compliance risk mitigation accrues maximum value for mortgage providers at both pre-fund and post-close stages.

To learn more, speak to our mortgage QC experts.

As servicing costs continue their upward trend, businesses need to adopt mortgage process automation services from experienced vendors such as Nexval to offset the impact on their bottom line.

This has never been as important as it is in 2024. In the last four years, the cost-to-service ($ per loan) has increased by over 9%. Servicing expenses for distressed loans are particularly high, going from $1,226 in 2020 to $1,994 in 2022. On top of that, the mortgage servicing rights (MSR) market is going strong, adding to servicers’ operational burdens.

By taking proactive steps to drive servicing efficiency, especially for first-time buyers and delinquent loans, mortgage companies can maintain their productivity and increase the value generated from each customer relationship. Efficient servicing processes are also easier to adapt to different regulatory regimes and staff constraints in bearish periods.

To achieve this, Nexval offers a wide range of mortgage process automation services and digital solutions:

1. Integrated mortgage process automation services and ecosystem

One of the key reasons for servicing inefficiency and rising costs is the siloed nature of data and operations. When information resides in disconnected systems and workflows run independently of each other, it results in duplications, redundancies, and errors. This is mainly because mortgage companies rely on a sizable legacy stack and, at the same time, want to benefit from new-age infrastructures like the cloud.

That is why mortgage transformation partners like Nexval help create an integrated ecosystem where disparate components can exchange data through application programming interfaces (APIs). This allows events and actions to act as triggers for mortgage process automation and servicers can benefit from a single pane of glass when it comes to mortgage data access.

Read more: ChatGPT and the Future of Mortgage Servicing: A Look into Intelligent Chatbots

2. Maintaining documentation hygiene for mortgage servicing rights

MSRs can provide an additional source of revenue to lenders and offset some of the natural production costs associated with a typical mortgage. Unfortunately, MSR transfers are riddled with inefficiencies of their own, including difficulties in capturing fair value, tax accounting, collecting and updating documentation, etc. With mortgage companies still relying on manual documentation processes, accruing sufficient value from mortgage servicing rights can be challenging.

To address this, Nexval offers advanced document management solutions powered by the same technology that informs our mortgage process automation services. It uses AI techniques like optical character recognition to reconcile different data formats, both structured and unstructured. It provides a centralized repository for audits, accounting, and reporting requirements related to mortgage servicing rights so that companies can maximize their revenues from MSR transfers.

3. Business intelligence systems for better decision-making

Actionable business intelligence allows servicers to make smarter, more cost-efficient decisions – however, this can be difficult in the absence of an integrated data stack, such as a data fabric. Servicers should be able to fetch, ingest, process, and analyze information from origination systems, risk mitigation portals, CRMs, modeling tools, and more to preempt and prevent revenue leakage. BI can also act as the foundation for mortgage process automation services by executing actions based on data triggers.

At Nexval, we offer intelligent data extraction tools with multi-screening information validation to enrich servicing business intelligence and converge disparate data sources for proactive analysis. Servicers can benchmark performance, capture leads, identify servicing risks, and improve their portfolio performance through data-driven decision-making.

Read more: How Servicers Can Modernize Communications with Default Borrowers

4. Digitally enabled best-cost support solutions

Several bullish and bearish periods have followed the 2008 recession, making it difficult for servicers to maintain an optimal headcount. Today, systems (18%) and customer service (17%) are the two most significant contributors to servicing costs, and optimizing headcount through either mortgage process automation services or outsourcing to best-cost locations can provide some relief. In this context, selecting the right outsourcing partner can also make a difference to the bottom line.

Nexval offers end-to-end support across the servicing value chain, covering core servicing, loss mitigation, default operations, REO support, records management, and servicing QC and audits. By paying special attention to non-performing loans, it is possible to reduce one of the key contributors to servicing costs today. As interest rates remain high, outsourcing will be an important alternative for servicers looking to manage distressed loans efficiently.

Read more: Reshaping Mortgage Servicing: Embracing a ‘People First’ Digital Framework

Towards a Digitally Powered Servicing Function That Prioritizes Cost Reduction

Despite overall economic growth, the housing market and the mortgage servicing industry has come under various kinds of cost pressures in the last few years. This has taken a toll on productivity – for example, the average number of loans serviced per employee shrunk from 900 to 723 between 2019 and 2021. As employees try to engage customers and prevent delinquencies in a challenging market, servicers are feeling the pinch.

Given that corporate and admin costs make up nearly 20% of servicing expenses, mortgage process automation services can play a major role in avoiding non-value-adding, non-production expenses. Additionally, Nexval’s offerings for documentation management, data extraction, risk and compliance can also amplify the value obtained from mortgage servicing rights. Ultimately, this relies on a strong digital bedrock comprising cloud infrastructure, access to technical skills, and next-gen data systems.

Speak with Nexval’s mortgage servicing experts to know more.

2023 saw a significant increase in delinquency rates, with commercial mortgage delinquency, in particular, rising in December for the third month in a row. Changes in property market fundamentals and shifts in home buying patterns have resulted in the continued risk of high default rates in 2024. As a result, lenders must invest in proactive risk management in the servicing stage to manage their bottom line.

Read More: 7 Factors to Consider When Choosing a Risk Management Platform

Bear in mind that rising origination costs and staffing expenses are already adding to mortgage risks. Without proactive risk management, default servicing scenarios risk ending in foreclosures, which, in a strained property market with high interest rates, can be cumbersome for lenders to navigate. For this reason, proactive steps combined with mortgage quality control from the offset are crucial for maintaining sustainable levels of risk and profitability. Some of the strategies to achieve this include:

1. Strengthening mortgage quality control

Mortgage quality control is the first and most important bulwark against default risks. With rigorous background checks, complete documentation, and an error-free approval workflow in place, you can minimize the risk of poor-quality undertakings and minimize risk exposure.

Most of the activities involved in mortgage quality control will occur at the loan’s beginning of life stage. Despite the increased preference for digitization and chatbots among young home buyers, reliance on paper documentation continues to be high in 2024. A robust mortgage quality control function will bridge the gap between legacy and digital information assets through technologies like OCR, automated document management, and centralized audits.

Ongoing mortgage quality control throughout the life of the loan involves monitoring escrow levels, following up on additional payments, and issuing refunds, while maintaining an audit trail and tracking the end-to-end process. This could substantially mitigate the risks in default servicing by ensuring proper compliance and hygiene throughout the loan lifecycle.

2. Leveraging cutting-edge default risk prediction models

Proactive risk management, to a great extent, relies on the accuracy of how you determine default risks. For commercial real estate (CRE) this could mean leveraging credit ratings issued by Standard & Poor’s (S&P), Moody’s, and Fitch Ratings. For individual consumers, FICO credit scores may be taken into account. However, in a dynamic business environment marked by economic volatility, such lagging indicators may not be enough.

Highly conservative models may exclude certain consumer segments from mortgage eligibility, such as those with non-traditional income sources. The same applies to small businesses applying for CRE loans. In contrast, artificial intelligence and machine learning have a greater potential to process unstructured, multivariate data to surface more accurate predictions.

For example, IMF’s 2022 analysis of mortgage probabilities of default (PDs) and loss given default (LGDs) relies on an advanced micro-macro simulation model. Also, Fannie Mae estimates that the use of AI/ML in mortgage has increased from 42% in 2018 to 73% in 2023. Of course, the use of such cutting-edge models in proactive risk management deserves additional scrutiny, especially for bias, but remains an essential lever for measuring defiant risks in 2024.

Read More: How to Mitigate Risks Affecting Your Mortgage Operations

3. Overhauling loan modification solutions

Appropriate loan modification solutions can be immensely helpful in default servicing, allowing servicers to preserve their customers’ properties, wherever possible. A timely modification such as an extension of the length of time for repayment or switching to a different type of loan may provide relief to borrowers and enable proactive risk management for lenders by preventing foreclosure scenarios.

However, the ability to manage loan modification requests smartly and efficiently often requires a systems overhaul. Lenders need the ability to integrate servicing data, automate the ordering and fulfillment process, monitor liens against losses, and provide borrowers with flexible signing solutions, such as mobile notary.

In 2024, as origination volumes slowly increase, a streamlined loan modification solution can help you manage risks in the servicing process. It will allow lenders to accommodate greater volumes while minimizing risk, comply with changing regulations, and adapt to any flux in interest rates while improving the borrower experience.

4. Emphasizing self-service

As lenders take on an unprecedented degree of risk in today’s economy, the power of self-service to engage with borrowers cannot be overstated. Today, individual borrowers and businesses may face a variety of financial stressors influencing their ability to make payments, from natural disasters and climate change to economic disparities in different parts of the country. Self-service allows borrowers to participate in proactive risk management by reaching out to lenders in their times of need.

Self-service channels are a convenient way for borrowers to request more convenient repayment plans,  Federal Housing Administration (FHA) partial claims, Government Sponsored Enterprise (GSE) payment deferrals, and, as previously explained, loan modifications. The ability to reach out to lenders on time, may stave off a default scenario altogether and reduce the reliance on third-party collections.

Read More: How to Mitigate Risks in Default Servicing?

At Nexval, we recognize the close relationship between the US mortgage industry and the country’s economy as a whole. Therefore, proactive risk management in default servicing is not just important for the business bottom line but can help maintain individual financial well-being, business continuity, and economic stability. Our technology and outsourcing solutions help make the servicing process more efficient and agile by empowering borrowers and lenders with the tools they need to avoid negative outcomes.

Speak with our tech experts to know more.

As the mortgage industry gears up for 2024, it is vital to pay attention to the emerging trends of this year. As inflationary pressures ease, nearly a third of the American population expects mortgage rates to fall in 2024. This could lead to a rise in origination volumes, in stark contrast to this year. Digital mortgage platforms can help lenders maximize this opportunity. At the same time, loss mitigation measures are necessary so that businesses can keep pace with a dynamic economy.

Here are the trends, technology movements, and potential threats for mortgage lenders to address in the next 12 months:

Trend 1. Mortgage lenders plan to increase headcount

Despite significant macroeconomic headwinds, mortgage companies plan to increase their headcount in 2024, optimistic about housing demand and origination volumes. In a recent survey, 47% of mortgage executives said that their employers are planning to hire in the next few months. Increased staff can also help manage growing complexities in compliance and servicing, especially as inflation drives many borrowers toward delinquency.

Strategy for 2024: Mortgage lenders can complement their hiring efforts with investments in automation technology. Digital mortgage platforms and AI-powered tools can help streamline several of the time-consuming processes involved in origination. Connected workflows can also help build a digitally equipped servicing function.

Read More: Safeguarding the Future: Cybersecurity Essentials for Mortgage Tech Companies in 2024

Trend 2: Artificial intelligence will become more common

AI in mortgage is already a reality, and advancements like generative artificial intelligence are opening up new opportunities. Research shows that 60% of mortgage companies will have AI tools in place this year. Indeed artificial intelligence can supercharge digital mortgage platforms by introducing capabilities like optical character recognition (OCR). It can aid in loss mitigation by providing more accurate risk models. However, this also means that 32% of executives are afraid that tech and AI will replace their jobs.

Strategy for 2024: Lenders need to invest in reskilling and upskilling, especially focusing on digital literacy and soft skills. At a time when origination volumes still remain volatile, skilled mortgage executives can help retain existing customers and lower acquisition costs. With training, servicing executives will also find it easier to navigate the regulatory landscape while keeping borrowers engaged.

Trend 3: Young homeowners will shape the market

As Gen Z comes of age, they are expected to be an important driving force for the housing industry. For example, this digital-native generation is more likely to complete their end-to-end home purchasing journey online, which means that lenders need to build, strengthen, and fortify their digital mortgage platforms. Young homeowners are also more likely to be price-sensitive as a result of high inflation and increasing property prices.

Strategy for 2024: Lenders need to enable product differentiation through smarter loss mitigation strategies that employ innovative underwriting models. These can offer a new generation of homebuyers from non-traditional backgrounds (e.g., crypto investors) competitive rates and terms. Technology interventions in the mortgage process flow such as automated document management, chatbots, and mobile platforms can also play a role in attracting young adults, 90% of whom still see owning a home as central to the American Dream.

Read More: Safeguarding the Future: Cybersecurity Essentials for Mortgage Tech Companies in 2024

Trend 4: Commercial real estate (CRE) demand will be unpredictable

The CRE segment has seen significant flux in the last few years, with the office market being the worst hit. 90% of respondents in Mortgage Bankers Association’s (MBA) 2024 survey said that the CRE market remains somewhat to very unsettled. In 2024, borrowing and lending volumes are expected to increase, with easing inflation, a rise in valuations, and changes in base interest rates showing their impact. Mortgage lenders need to be prepared for this inflection while paying heed to loss mitigation needs.

Strategy for 2024: As CRE uncertainty lessens, mortgage companies must adapt their digital lending platforms and underwriting strategies for small to mid-sized businesses. They also need to aim for greater efficiency to tap into new CRE demand for emerging companies and unicorns. This means removing bottlenecks like approval delays, data silos, and paper documentation.

Trend 5: Home insurance will be a notable pain point

Volatile home insurance negatively influenced the mortgage industry in 2023, and this will be an important trend for this year. In 2023, 79% of lenders reported an uptick in issues related to home insurance. 68% said that the lack of insurance options and high premiums caused problems related to borrowers’ debt-to-income (DTI) ratio. In 58% of the cases it delayed loan closing. Some of these trends may persist in the upcoming months, which lenders may find difficult to navigate.

Strategies for 2024: Lenders will have to partner with insurance marketplace aggregators and other third-party firms to be able to recommend the most suitable offerings to their borrowers. With the help of digital lending platforms, it may be possible to put together bundled offerings. Lenders must also take special note of climate change and its effects on insurance premiums so they can enforce loss mitigation standards without losing out on business opportunities.

Read More: Creative Strategies to Drive the Market in 2024

How Nexval can help

While market conditions are relatively more bullish in 2024, the mortgage industry still has a few complex months ahead. Interest rates are likely to remain high as the base rate will fall below the 6% range only towards the end of this year. As we look forward to a gradual decline, robust technology capabilities can help lenders come out on the winning side – by removing costly inefficiencies, unlocking new opportunities, and preventing compliance violations.

At Nexval, we help companies bolster their digital lending platforms with secure and functional innovations. Our solutions are backed by decades of experience in the mortgage industry and extensive research into the latest trends and policy changes.

To know how Nexval can help you navigate 2024’s mortgage industry trends, speak with our tech experts.