Quality Control in Loan Appraisal Review
The strategic value of QC process in the mortgage industry
THE STRATEGIC VALUE OF THE QUALITY CONTROL PROCESS IN THE MORTGAGE INDUSTRY (2003) The mortgage industry has originated record loan volumes month after month for the last three years. The sub-prime segment in particular has greatly benefited from the boom in the housing market buoyed by interest rates that have approached historical lows. However a second condition is critical to explaining the dramatic expansion of the sub-prime segment: the unprecedented access to large amounts of financial resources which has been leveraged to fund lenders’ growth. Institutional investors reacted to equity markets far more unpredictably than in the bubble years by redirecting a greater share of their resources to mortgage-backed securities. Lenders understand that this was the perfect storm for the mortgage industry and that the competitive landscape will change soon. In the next stage of the industry life-cycle, lenders are likely to face fiercer competition for both market share and for investors’ financial resources. As a consequence, those who are getting ready for the times ahead by solely developing superior market capabilities will solve only half of the growth equation. Future industry leaders will be those that are able to increase marketing effectiveness and as well as to deliver higher value to institutional investors in terms of both the quality of the loans underwritten and the investing experience (what does “investing experience” mean?). To solve the second half of the growth equation lenders need to design effective and efficient business models that address investors’ needs for quality and service by integrating QC and post funding operations in the production pipeline. This enhances both the loan quality and service level without compromising production performance. GAIN A COMPETITIVE ADVANTAGE USING QC: A SUB-PRIME MARKET EXAMPLE A leading sub-prime wholesale lender, took full advantaged of the boom
THE STRATEGIC VALUE OF THE QUALITY CONTROL PROCESS IN THE MORTGAGE INDUSTRY (2003) The mortgage industry has originated record loan volumes month after month for the last three years. The sub-prime segment in particular has greatly benefited from the boom in the housing market buoyed by interest rates that have approached historical lows. However a second condition is critical to explaining the dramatic expansion of the sub-prime segment: the unprecedented access to large amounts of financial resources which has been leveraged to fund lenders’ growth. Institutional investors reacted to equity markets far more unpredictably than in the bubble years by redirecting a greater share of their resources to mortgage-backed securities. Lenders understand that this was the perfect storm for the mortgage industry and that the competitive landscape will change soon. In the next stage of the industry life-cycle, lenders are likely to face fiercer competition for both market share and for investors’ financial resources. As a consequence, those who are getting ready for the times ahead by solely developing superior market capabilities will solve only half of the growth equation. Future industry leaders will be those that are able to increase marketing effectiveness and as well as to deliver higher value to institutional investors in terms of both the quality of the loans underwritten and the investing experience (what does “investing experience” mean?). To solve the second half of the growth equation lenders need to design effective and efficient business models that address investors’ needs for quality and service by integrating QC and post funding operations in the production pipeline. This enhances both the loan quality and service level without compromising production performance. GAIN A COMPETITIVE ADVANTAGE USING QC: A SUB-PRIME MARKET EXAMPLE A leading sub-prime wholesale lender, took full advantaged of the boom