With record volume and increased fraud risk, how do you alleviate origination stress?
Updated: Sep 10, 2021
Exceedingly high origination volume is fueling our industry by providing jobs during the pandemic recession, offsetting mortgage servicing runoff and default costs by adding new loans to the balance sheet, and helping provide expanded homeownership based on greater affordability – But, it also creates significant stress for originators, who are struggling to stay on top of processing timeframes amidst changing regulatory requirements. At this juncture there is little relief in sight in terms of mortgage origination volume. The Mortgage Bankers Association estimates that total origination volume for 2020 will be $3.39 trillion, which represents a 50 percent increase over last year. This is the highest reported volume threshold since 2003…. but just around the corner, 2021 is queued up to have the second highest volume on record for the past 15 years.
Origination volume continues to be fueled as the industry enters the month of December, breaking yet another historic low for 30-year mortgage fixed interest rates. This acceleration in origination volume includes both purchases and refinances, with the obvious significant share of volume being in refinance transactions. However, purchase volume remains quite strong as existing home sales continue to surge. The National Association of Realtors reported an increase of 4.3 percent in October, which was originally forecast to show a decrease.
During this flurry of origination volume, loan defects have remained steady, which is a good thing. Yet, the fraud risk associated with purchase volume has increased month over month, adding additional stress for originators who have little time to take additional precautionary measures. In a recent DSNews post, Odeta Kushi, Deputy Chief Economist at First American, noted, “More important for fraud risk is the continued sellers’ market, which may pressure homebuyers to misrepresent information on their loan application to win the bid for a home.” Purchase originations have typically evidenced greater incidences of fraud. For one, there are more participants, which opens up further avenues for fraudulent activity. Additionally, as interest rates rise, the likelihood that mortgage defects will increase becomes greater as the percentage of purchase volume moves toward outpacing refinances.
Understanding the impact of various market influences is not foreign to originators but working under the pressures of a pandemic during record breaking origination volume is new territory for sure. Rolling regulation and investor guidance while staff work remotely, grappling with children at home and instances of COVID, gives new meaning to the word “distraction”. It is therefore no real surprise that a recent STRATMOR workshop called out processing as the number one bottleneck in operations. Regrettably, it seems that much of the industry continues to process and close loans without innovative or even current technology. This has resurrected the historical approach to excess volume, whereby more staff is hired continuously to meet surmounting work, and then layoffs begin as soon as the market lulls. It is for this reason that originators need to take the time to identify how and where they can strengthen and automate processes.
With diminished capacity at the top of every origination back office list of concerns this holiday season, there are some immediate improvements that can be made…. In lieu of having processing staff chase verifications or income and employment, this process can be automated instantaneously. Using a secure, data-driven platform that supports email, overnight and postal communications between your processing team and the employer, landlord or other entity will immediately improve sluggish processes. Not only are you able to automatically initiate verification requests but status outstanding requests, and most importantly receive responses in a secure environment that protects your applicants personally identifiable information. This approach significantly reduces errors and misrepresentation that can lead to loan defects, as well as fraud risk, while expediting receipt of information vital to securing underwriting approval.
You may have heard of alternative solutions to this dilemma, especially as one of the primary temporary COVID-19 requirements/flexibilities specifically addresses timelines and processes tied to the verification of income and employment. QC Verify stands out in this area as it is a proven secure, end-to-end solution that has already been released to industry quality control clients.
Amidst today’s convergence of record low interest rates, increasing home sales despite lack of inventory, historically high origination volume, expanding “temporary” regulation, and the unprecedented impact of a pandemic, don’t add to your operational stress and risk.