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64 and the increasing focus on purchase loans, which are inherently costlier to manufacture. While rising rates will reduce the number of refi opportunities, the Mortgage Bankers Association in December predicted lenders would originate a record $1.61 trillion in purchase loans in 2022. Purchase originations will obviously require higher scrutiny, but the types of loans lenders are increasingly gravitating toward will require even more. Spiking home prices and cash investors have pushed housing affordability out of the reach of many first-time buyers. In fact, according to Fannie Mae's most recent Home Purchase Sentiment Index, only one in four people believe it's a good time to buy a home. As a result, more lenders will be looking toward non-QM and jumbo products to drive growth. ey'll be aided by Wall Street trading firms and banks who are eager to expand investments in the housing market through bank statement loans and other products. However, non-QM products also make underwriting and due diligence reviews more complex and expensive. Servicers, of course, have their own unique set of challenges. Regulatory enforcement on servicing activity is widely expected to grow this year as forbearance plans expire and more borrowers enter permanent loss mitigation plans or wind up in default. In fact, Fitch Ratings warned investors in January that foreclosures could rise this year as forbearance options draw to a close and rising interest rates restrict refinancing opportunities for troubled homeowners. Because so many borrowers have been refinancing, servicers as a whole haven't been very diligent with quality control over the past couple of years. To be fair, the CFPB gave servicers a bit of a break so they could help homeowners with forbearance plans. However, during President Biden's first year in office, we've seen the CFPB take greater effort to scrutinize servicing practices, which is fueling the need for servicing QC (quality control)— especially given timeline and communication requirements associated with foreclosures. e problem with the CFPB is that they regulate by enforcement, not by publishing new rules. Loan boarding is another high-risk area, especially in an increasingly active market for MSR trades. Servicers will need to pay greater attention to detail while onboarding loans, as they will risk legal action or bad publicity for failing to provide borrowers with accurate information. Each MSR trade carries an impact for homeowners, and inadvertently sending mortgage statements to the wrong address could result in a late payment ending up on a customer's credit report. In other words, there is more than enough risk for everybody. But there are ways mortgage organizations can avoid trouble. CHOOSING PREVENTATIVE MEDICINE ere should be little doubt at this point that quality control and risk management must take center stage this year. Fortunately, most lenders are aware and servicers are handling quality and compliance issues fairly well. But without a more thorough strategy, even the most conscientious organization may see minor issues blossom into major headaches. For lenders, this means post-closing QC alone is no longer sufficient, nor is performing only the minimal reporting that regulatory agencies require. In order to reduce compliance and repurchase risk—especially as riskier products enter the market—originators will need to learn to manufacture quality from the very beginning of the origination process, as well as focus on in-line QC, pre-funding QC, and targeted discretionary reviews. It bears keeping in mind that most loan manufacturing errors are the result of staff juggling too many tasks at one time, which is likely to happen a lot in the coming year. We call these "errors of convenience," and while they traditionally accounted for only about 20% of loan defects, they now make up approximately 85% because originators have been overwhelmed with volume. For servicers, there will be a growing need for strategies that improve borrower retention rates and shift consumers to digital channels for more cost-effective operations and a better borrower experience. A sound risk management plan might include investing in technology or a partner that is equipped with AI and machine learning tools, which can be used for multiple purposes when servicing loans. ese technologies are increasingly being Feature By: Patrick Gluesing These technologies are increasingly being leveraged to streamline the loan boarding process and improve document classification, indexing, and auditing when ingesting portfolios.

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