Ever feel like you’re stuck in a time loop? Over the last 30 years, we’ve witnessed the mortgage industry struggle with essentially the same quality issues across multiple cycles, busy and slow markets, good times and bad, over and over. Our backgrounds in process improvement and mortgage technology have given us the perfect window to observe how the industry’s approach to quality has failed, and how it can be fixed.
“We need more eyes on every loan to ensure quality” is a constant refrain heard from our conversations with mortgage lenders. Ironically, this mindset has created overly complex quality control processes where specialists check other specialists, who in turn check yet more specialists. We shoulder some of the blame too in building these processes but have concluded this fundamental assumption about quality control is flawed.
The simple truth is that when everyone assumes someone else will catch mistakes, nobody takes full ownership of quality. This pattern continues to playout in daily mortgage operations. The processor thinks, “The underwriter will catch any issues.” The underwriter assumes, “QC will find any problems.” And QC believes, “Post-closing can fix whatever we miss.”
Our collective experiences have helped us develop a better approach by better enforcing the policies that define quality while the person is performing the work. Instead of treating quality control as a separate function that happens after the fact, we’ve found success by utilizing business rules to ensure quality while the task is still in the worker’s queue.
This isn’t just a whiteboard exercise; we’ve helped lenders implement this approach to deliver step change improvements in both quality and efficiency. Based on industry benchmarks, lenders can save an average of $773 per loan through labor savings in Fulfillment and Production Support alone. These savings come directly from less rework, limiting non-value-added activities, and reducing the cost of errors. Even lenders with smaller volumes stand to gain significantly – a mortgage originator processing just 2,000 loans per year can save over $1.5 million by implementing these decisioning practices.
But change doesn’t always come easy; the industry still embraces the idea that every individual task requires a dedicated specialist whose entire job is only that task, that training would be a “nightmare” if people handled multiple responsibilities, and that the only way to maximize production is to let operations run as fast as possible and fix mistakes later. These beliefs persist despite ample evidence to the contrary.
Let’s take a closer look: Whether you’re reviewing an appraisal, checking flood certification, or validating insurance documentation, the functional steps of any task are fundamentally the same. You’re gathering specific data, typically from documents and systems, and determining if certain conditions are met according to established rules. The “skill” isn’t required to take any of these specific steps – it’s in understanding how different business rules apply, specifically in complex situations, loan after loan, as context changes for each loan.
The upshot: Let the system enforce quality. By capturing decision logic into easily understood decision models, we can transform specialists into empowered generalists who can handle multiple tasks with confidence. Automation of complex decision logic eliminates the need for specialists to memorize specific business rules and allows processors to focus on what humans do best – applying judgment and handling exceptions. The contrast in performance is stark – according to Freddie Mac, the top 25% of mortgage lenders average just $6,900 per loan in cost versus $16,500 for the bottom 25% performers, with a significant portion of that difference attributed to process efficiency and automation.
We get it. Change is hard. But the economic reality is compelling: average origination costs have increased by 35% over the past three years alone, according to Freddie Mac’s calculations. In today’s challenging mortgage environment, with rising costs and depressed revenues, the old approach of waiting for the market to improve is no longer viable.
We’re not advocating another efficiency initiative. This is a fundamental rethinking of how to approach quality in mortgage operations. By moving quality checks upstream and empowering employees with automated decision support, more resilient operations that can scale up or down without sacrificing quality can be built.
After years of seeing success in making these changes, we can say with confidence: the future of mortgage QC isn’t in checking the checker – it’s in preventing errors at their source. The technology exists. The methodology is proven. The only question is: how quickly will your organization embrace this change?
JUSTIN PATTERSON
Justin serves as Sales Engineer, North America, for Sapiens Decision. Justin brings over 15 years of mortgage experience in mortgage lending and 10+ years’ experience decision modeling. He provides an industry perspective as well as a client’s perspective.
ROLAND PHILBIN
Roland Philbin, Senior Decision Consultant, North America, has spent 25 years consulting and advising on the topic of Process Improvement and how that applies to financial institutions, especially mortgage companies. He specializes in applying Decision Management as the breakthrough solution to many intractable mortgage process problems.