By Bonnie Sinnock
It doesn’t sound like agency mortgage repurchase requests are going to end any time soon, even though many originators are doing their best to batten down the hatches. Instead, word is these requests continue to increase.
“More and more, the GSEs are requesting put-backs,” said Melanie Feliciano, chief legal officer at DocMagic, in a phone interview with this publication.
In addition, repurchase requests have been becoming “broader in scope than reps and warrants,” she said.
The key to mitigating this risk is to have processes in place aimed at catching fraud and other imperfections in the origination process that can lead to repurchases before loans close. So this is what investors should analyze when reviewing originators and their third-party service providers who help with operational and compliance issues.
“One of our objectives is to catch any noncompliance issues early on in the process,” said Feliciano.
Audits throughout the process are an important preventative measure both in terms or preventing fraud and meeting evolving regulatory requirements.
For example, Feliciano said, “as Dodd-Frank regulations are finalized, I think compliance auditing will be increasingly important.”
DocMagic’s software automates numerous audits as customers process loans, Laurie Spira, DocMagic’s chief compliance officer, told this publication in a phone interview.
Audits can be done as early in the process as at application and can help identify what the likely issues with the loan could be, she said. They were designed with efficiency as well as quality control and compliance in mind, said Spira.
The audits are done “at certain designated milestones in the process” such as verifying the appraisal once it is completed and just prior to the loan’s closing, Feliciano said. Checking the loans at various points in the process not only helps prevent fraud and other compliance lapses, but also adds protection against data degradation, she said.
Lenders can as an overlay to the auditing system designate certain points where a data check also is a trigger point for workflow, Feliciano said. For example, the system might require that an appraisal be completed before allowing the file to move forward, she said.
Automation also can help users analyze data in terms of how it stacks up relatively to similar regulatory requirements that might have different thresholds for compliance.
The different “high cost” loan tests required at state and federal levels of government as well as by the government-sponsored enterprises are one example, as a loan may pass one and fail the other, Spira noted.
“The system indicates if a loan is failing one or more of high-cost tests and can help the customer pinpoint which fees might be causing the loan to fail,” said Feliciano.
Such data comparisons throughout the origination process also help in terms of lenders’ compliance with regulations surrounding the good-faith estimate and the waiting period required under the terms of the Mortgage Disclosure Improvement Act.
With the aim of making the flow of all this data even more efficient, at press time the company was working on a near-term integration with some loan origination systems, she said.
Some LOS executives have said they prefer companies with specialized compliance expertise handle document services/doc prep.
As featured by Origination News, June 2012.