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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 46 March 2024 F E A T U R E S T O R Y T he old saying, "when it rains, it pours" perfectly captures the current mood among mortgage originators. Not only has loan volume fallen significantly over the past couple of years, but mortgage lenders are also dealing with a storm of new quality control requirements—including new repurchase demands from Fannie Mae and Freddie Mac. Unfortunately, tighter guidelines for pre-funding audits and faster post-clos- ing reviews from one of the GSEs come at a moment when lenders are already struggling with thinner profit margins. In fact, according to the latest data from the Mortgage Bankers Association (MBA), independent mortgage bankers lost an average of $1,015 per loan during the third quarter of 2023. This situation has created a precarious balancing act that has lenders reassessing their business operational strategies and looking for anything to tip the profitability scale back in their favor. Yet, necessity often proves to be the mother of invention. For lenders willing to adapt, there are ways to navigate today's tur- bulent market safely and comply with GSE and investor requirements. And few tools are proving more effective than AI-powered business outcome automation. How We Got Here S ince the 2008 crisis, the mortgage industry has undergone a significant transformation to meet ever-changing regulations and expectations involving loan quality. Most recently, it's been Fannie Mae and Freddie Mac that have tightened their quality control (QC) requirements, pushing for more stringent audits and for lenders to evaluate loan quality sooner rather than later. However, while these new stipulations have created a hill to climb, they also represent an opportunity for sellers/ser- vicers to leverage automation to verify and validate loan quality from loan application through close and secondary market sale. For example, Fannie Mae now requires pre-funding QC audits on at least 10% of loans or up to 750 loans per month sold to the GSE. Lenders must also complete post-closing reviews in just 90 days, compared to the previous 120-day window. At a time when many lenders are already wrestling with rising loan defects and heightened fraud risk, these new require- ments are timely but may also be straining already limited operational capacities. The GSE's decision seems to stem from concern over the quality of the enor- mous amount of loans originated during the height of the pandemic, when lenders were dealing with massive capacity issues. Indeed, the agencies' noticeable uptick in repurchase requests reflect that, but may also be an indication that both are concerned about counterparty risk and the financial stability of some institutions in the current market. Going forward, seller/ servicers need to uncover quality issues sooner and pay meticulous attention to a host of variables in their loan production processes that could potentially trigger a defect or repurchase demand. As expected, many lenders have had to cut back on staffing amid lower origination volumes. In fact, according to the MBA, the average number of produc- tion employees for independent bankers fell from 362 to 331 between the first and second quarter of 2023. While a neces- sary expense measure now, cutting staff and then rehiring when market volumes return should be a way of the past. Instead, there is an opportunity for sellers/servicers to leverage automation much more pervasively across their pro- duction processes. This way loan quality HOW BUSINESS OUTCOME AUTOMATION CAN SHIELD LENDERS FROM RISK Dave Parker of LoanLogics details ways to take advantage of machine learning and other emerging technologies to streamline loan production, loan acquisition and QC processes. B y DAV E PA R K E R D A V E P A R K E R is CEO at LoanLogics, responsible for overseeing all company operations, technology and software development, and leading strategies that will increase the value of the company's technology automation and services to the mortgage industry. As an industry innovator with 30 years' experience leading start-up, growth, and mature product and service companies, Parker has effectively led teams that bridge the gap between technology and the business goals.