Quality Control: Independence and Oversight

Jonathan Foxx, Ph.D., MBA Chairman & Managing Director

December 8, 2022 Question I am the compliance manager at a lender in the Midwest. We downsized our Quality Control department recently due to market conditions. However, we still have a quality control manager and two other QC employees. Frankly, we may outsource all the quality control soon.   I am interested in keeping stability in QC, whether we keep or outsource it. To do that, I need to know two things: (1) how to maintain QC independence and (2) what kind of audit will provide oversight of the QC department and functions.   We have solved the second item since we are using your firm for the QC Tune-up. But I still don't know how to determine if our QC department is truly independent. Last year, our regulator told us that our QC department was not operating independently. We expect them back soon for another examination, and I'm sure this will come up again.   How should we maintain QC independence?   And, what are some audit features for overseeing the QC department? Answer Our QC Tune-up reviews of post-closing frequently find that the Quality Control department and functions are not independent of the originations and production lines. I will add that the same is the case for prefunding, as the prefunding process sometimes doesn't operate independently of production.  We've even encountered situations where the head of underwriting is also involved in managing QC. That's about as big a violation of independence as imaginable! I have a business card from somebody that says she's the "VP / Underwriting and Quality Control." Regulators go ballistic when they come upon such inappropriate situations. And investors, such as Fannie, forbid it.   If you're serious about preserving the integrity of the QC process, all your post-closing QC employees (including those related to establishing, monitoring, and enforcing procedures) must be independent of the production, underwriting, and closing departments. Furthermore, the reporting lines should not be blurred and must reflect the independence of the audit QC process at all levels.  FEATURED  COMPLIANCE TUNE-UP QC TUNE-UP MORTGAGE QUALITY CONTROL

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