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CASE
STUDY
Industry:
Mortgage Banking
Client: Department of Housing
and Urban Development (HUD)
Service Offering: Business
Process Improvement and Risk Analysis
QAD Business
Environment
Procedures and
practices pertaining to HUD’s single family
loan origination program(s) have undergone considerable
change over the last five years. The changes
have been both programmatic and organizational,
including significant changes in loan underwriting
requirements and the transfer of virtually all
aspects of single family production and program
monitoring form HUD staff to lenders under the
oversight of HUD’s Home Ownership Centers
(“HOC’s). HUD’s four “HOC’s
– which include Atlanta, Denver, Philadelphia
and Santa Ana – in conjunction with the
Office of Lender Activities and Program Compliance
(OLAPC), share the responsibility for lender
oversight and monitoring.
All FHA approved
single-family lenders are eligible for monitoring
by HUD’s Quality Assurance Division (QAD).
Lender reviews are performed both remotely and
onsite, at the mortgagee’s offices nationwide,
to ensure that approved lenders follow all of
HUD’s regulatory and statutory requirements,
as well as, identify lender non-compliance and
possible corrective actions. Depending on the
severity, findings of non-compliance are referred
to other offices within HUD for disciplinary
action.
These offices
include:
- HUD’s
Mortgagee Review Board (MRB)
- Departmental
Enforcement Center (DEC)
- Office of
the Inspector General (OIG)
- Office of
Fair Housing and Equal Opportunity
External referrals
also may be made to various licensing agencies
such as the Secretary of State, State Bar Associations,
State Real Estate Commisioners and Department
of Real Estate. Over the last several years,
the FBI has also begun to play a more active
role in monitoring the fraudulent activities
of both borrowers and lenders.
QAD’s
Role and Function within HUD
HUD’s Quality
Assurance Division perform on-site monitoring
reviews of direct endorsement lenders to identify
and correct poor origination practices. The
reviews are heavily influenced by the units
business operating plan numeric goals for managing
risk risks to the single-family insurance fund.
The reviews target both low and high risk lenders.
QAD monitors the quality of direct endorsement
lenders via its post-endorsement technical review
process. This involves a sampling of cases (after
insurance endorsement) to ensure compliance
with FHA underwriting and appraisal requirements.
The QAD Guide
list the following risk factors to be utilized
in selecting lenders for review:
- Early loan
default
- Complaints
and internal referrals
- Late mortgage
insurance premiums
- Volume of
business
- Sudden increases
in mortgage origination activity
- High risk
programs and loan products
- Length of
time elapsed since the last review
- GNMA data
QAD headquarters
staff select the 15 percent of FHA lender reviews
for random targeting. Individual field monitors
target most of the remaining 85% of reviews.
Monitors use their own judgment to determine
what factors or criteria to use in the selection
decision and how much weight should be given
to each of the aforementioned risk factors.
The selection criteria used by each monitor
varies.
What
was the added-value provided by IES to QAD?
IES staff conducted
a thorough business process review of QAD’s
to evaluate the effectiveness of work methods,
processes and policies. IES staff also provided
QAD management practical recommendations for
improvements in QAD operations. Some of the
major recommendations that QAD staff acknowledged
were of value include, but are not limited to,
the following:
- QAD should
consider modifying its existing targeting
model to identify high-risk TitleII servicers.
- QAD should
engage a data mining practitioner to access
FHA data more efficiently and expeditiously,
as well as, to assist QAD developing an algorithm
for Title II servicers
- IES suggested
to QAD that it develop a secondary risk model
based on loan level data in relationship to
default and claim rates and other statistically
identified risk factors.
- IES recommended
the development of a web-based tool (the “QC
Review System”) with connectivity to
the Neighborhood Watch System.
- To better
optimize use of new automation, IES recommended
that laptops with the necessary software be
acquired for field monitors.
These were just
a few of the recommendations made by IES that
provided added-value to QAD Operations.
Long-term
benefits provided to QAD by the IES Team
- IES has established
an operational blueprint to assist QAD in
achieving enhanced operational efficiencies
and enabled management to better understand
the appropriate courses of action regarding
the use of their data and the modernization
of QAD’s IT infrastructure.
- Assuming
many of IES value-added recommendations are
implemented, QAD will no longer need to manually
select loans for conducting reviews. The secondary
risk model will provide QAD with automation
and validity for selecting loans for review
based on pre-determined risk metrics.
- Automation
of the processes will allow QAD to make assignmentsto
reviewers and track their workload as well
as provide them with online access to findings
and comments to create standardized memos.
- By making
many of the processes associated with performing
the reviews more efficient – QAD staff
will improve its customer service and satisfaction
due to the fact that lenders will receive
more consistent findings from HOC-to-HOC.
- The automatic
generation of findings letters will also provide
consistency across all HOC’s.
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