Audits are automated verification processes that occur each time a worksheet is processed in the DocMagic software. The purpose of an audit is to confirm that data entries are within predefined parameters. Audits help to minimize errors from the outset of the document preparation process. There are virtually no limits on the amount or type of audits that can be implemented to address any data element.

DocMagic Audits

Many audits are built into the DocMagic software - from basic verifications to complex state specific high cost calculations. According the Operations Manager, Alan Brisbane, "Many audits have been implemented in our system to prevent mishaps."

When a customer file is audited, incorrect data may result in a "warning" or a "fatal" error message. A warning alerts the user to a possible issue but allows the user to process the worksheet. An example of a warning is "No Title Company Entered." This warning message is fairly self-explanatory: the audit looked for a title company but did not find any information entered for this service provider type. Despite the warning message, the user may process the worksheet and print the documents.

A fatal error message, however, prevents the user from proceeding until the error has been corrected. For example, if a user omits a borrower name, a fatal error message results and lets the user know that at least one borrower name must be entered. If the user does not correct this error, he will not be able to process the loan package.

Loan Originator Audits

In addition to the DocMagic audits, many loan originators (i.e., brokers and lenders) request customized audits to meet their specific needs. For example, a lender may require the use of an approved appraiser but not allow an appraisal fee in excess of $700. To ensure that these requirements are met, audits can be added to verify that the appraiser is on the approved appraiser list and that the fee is not greater than $700. This type of audit could be set to result in warning or fatal error message. In this scenario, a warning is recommended unless there are absolutely no exceptions to this rule. Other popular audits include having a high cost audit result in a fatal error rather than a warning and creating warnings to limit state-specific prepayments.

Investor Audits

DocMagic maintains tens of thousands of loan plans for approximately 1,000 different investors. The category of investors includes primarily wholesale lenders and loan purchasers on the secondary mortgage market. In connection with DocMagic's maintenance of investor loan programs, it is not uncommon for investors to request that DocMagic implement custom audits in connection with their specific loan plans. By using audits, an investor can drastically minimize, and perhaps even eliminate, common problems in loans presented to them for funding or purchase from loan originators. This is an obvious benefit for both the investor and the loan originator - the investor has greater assurance that the loan delivered for funding or purchase complies with the investor's requirements, while the loan originator has greater assurance that the loan will indeed fund or be bought when presented to the investor.

For example, DocMagic recently added six Home Equity Line of Credit (HELOC) plans for a large institutional investor. The investor in this case has three different draw and repayment period lengths and the option of an initial discounted "teaser" rate. To accommodate these parameters, DocMagic created six new investor-specific HELOC plans based on, among other things, the length of the draw, repayment and amortization periods and the length of the teaser rate period. To address investor concerns, all of these plans contain fatal audits to require that the draw, repayment, term, and amortization period mach the plan requirements. For example, the 5-year draw/10-year repayment period with a three-month teaser period confirms the following data:

1. The draw period must equal 60 months;
2. The repayment period must equal 120 months:
3. The term must equal 180 months;
4. The amortization period must equal 180 months;
5. The start rate must equal the index (without a teaser rate, the start rate would equal the index plus margin).

Additional audits we implemented confirm, among other things, the amount of the initial advance (all six of the plans require an initial advance of at least $10,000 (warning)) and the ceiling rate (must equal 18% unless there is a state specific limitation (fatal)). In either case, the warning tells the user exactly what value must be entered.

Conclusion

By implementing audits with specific verbiage in the error message, the user is given the information needed to continue with the processing of the loan. DocMagic audits help to minimize errors and rejected files and to better serve the customized needs of brokers, lenders, and investors.

Renee M. Smith is Assistant General Counsel of Document Systems, Inc. and a member of its Compliance Department.