Cogent QC Systems have been used to guide the QC reviews of trillions of dollars in mortgage originations and millions of servicing records. Our clients are lenders of all sizes, including some of the top banks and mortgage companies in the nation.
Cogent Case Study #1: Midwestern Bank
Midwestern Bank is one of the largest loan originators in the country. They cope with massive volume on a daily basis, and have incorporated several new acquisitions. They use Cogent QC Systems to address their volume without strain and save hundreds of thousands of dollars in audit review costs alone.
“We needed an automated process that would take some of the burden off the quality control department, and a system that would provide clear, reliable insights into our origination quality,” said Midwestern’s QC Manager. “And given the size and complexity of our operations, we weren’t just looking for a system vendor, but a partner in designing and implementing a modernized, upgraded methodology.”
Highlighters Run Out of Ink
When she took over as QC Manager, Midwestern Bank’s quality control procedures were largely manual and paper-based. “Even though we had already received a reprieve from Fannie Mae and Freddie Mac from reviewing 10% of our loan volume,” she said, “we were still required to review 5% of a monthly loan volume of 15,000 loans per month. This meant reviewing 750 loans per month. And we knew this number would grow.”
At the time, the process involved printing a three-inch stack of loan records, having an analyst highlight every twentieth record, and sending the stack to a file repository center to retrieve the files for audits. File auditing was driven primarily by checklists, and management reports consisted of additional stacks of paper that simply listed loans with any kind of exception. The process was inefficient and labor-intensive, and the resulting information was opaque. With an anticipated doubling of volume on the horizon, the highlighter would run out of ink. Clearly, something had to change.
In a previous role, the QC Manager had been involved in the implementation of several automated underwriting systems. Based on her experience with implementing software, she understood that a software system was only as good as the company behind it. She also understood that purchasing the software was only the first aspect of an implementation.
“Software bells and whistles are fine,” she says, “but if you can’t get the system implemented properly, or if it can’t adapt to your processes, or maintenance is a nightmare, you may as well not have the system at all. It’s going to cause more aggravation – and a lot more money – than it’s worth.”
Having researched the market, she spent weeks calling users of each major loan quality control system on the market and asked them about their experiences with their software and vendors. After compiling and reviewing her data, she made a presentation to her colleagues advocating the implementation of the Cogent ProductionQC and ComplianceQC systems, based on both the versatility they offered and the extensive customer support that came with the software.
Her counterpart on the compliance side was the Compliance Audit Supervisor, and she was of the same mind. “It was important to us that we tightly coordinate our processes,” she said, “and using the same platform clearly presented advantages. Cogent was the only vendor that offered a complete QC solution for the entire mortgage origination process, including production, compliance and servicing.” The decision was made to implement the Cogent ProductionQC and ComplianceQC systems.
Can You Do It In 60 Days?
In selecting Cogent, Midwestern Bank recruited a partner with three important knowledge bases: wide experience in the mortgage industry, solid understanding of quality control processes, and deep skills in software design and architecture. All three would be critical to customizing and evolving a system to suit Midwestern Bank’s needs. And Cogent’s partnering style of system development was well suited to Midwestern Bank’s needs.
The Midwestern Bank QC staff had to settle important questions about what functions they wanted their system to perform, and the Cogent development team had to quickly and accurately explain when and how they could deliver. New practices, policies and procedures would have to be introduced. New workflow, new methods and new terminologies needed to be integrated into the process. And staff would have to be trained on a new system. Furthermore, this transition had to occur smoothly, without disrupting the normal operations of the business. And it all had to happen within 60 days, before the IT department’s end-of-year system freeze took place.
Cogent’s development team was up to the task. Together with the QC management at Midwestern Bank, they hammered out a coherent picture of what the system ought to look like, and began to turn that vision into a reality. Midwestern Bank and Cogent completed the implementation in the allotted time, and got the system up and running with minimal problems.
Building on Success
After implementation of the Cogent ProductionQC and ComplianceQC systems, Midwestern Bank’s production QC department still reviews approximately 750 loans every month. The difference, however, is that their loan volume has doubled. These 750 loans no longer comprise a 5% sample, but rather a 2.5% sample. Meanwhile, the compliance department successfully achieves better and more reliable results with a 1% sample than it previously did with a 5% sample.
Since that time, Midwestern Bank has also implemented the Cogent ServicingQC system. In the future, as the company continues its expansion, Cogent will continue to be there to assist in streamlining their QC processes throughout the enterprise.
Cogent Case Study #2: Western Mortgage Corporation
Western Mortgage Corporation is one of the nation’s largest privately held multi-channel mortgage companies . Their story demonstrates how Cogent can help to dramatically improve the efficiency of a QC department and enable QC managers to produce meaningful results for branch managers and senior executives in a timely fashion.
At the turn of the millennium, Western experienced a substantial increase in its origination volumes, with dramatic implications for its quality control department.
The QC Manager at Western took time from her schedule to explain the course of developments in her organization that led to the deployment of the Cogent ProductionQC System.
“We don’t like to talk about the past too much. We call it BC – Before Cogent.”
When Western’s Risk Management department created a Quality Control unit, production levels were low enough that the department’s staff members could audit 10% of their monthly production volume, examining 70 to 100 loans a month.
Within three years, production volume had increased to over 10,000 units a month, and auditors were attempting to manually process more than ten times their previous workload. The 6 in-house auditors worked 8 hour shifts at the office and then actually took files home to complete.
Despite the availability of a support staff, timely reverification proved impossible. Some months were never completely reviewed because the production volume simply exceeded QC’s capacity to audit. The result was sporadic reporting that consisted primarily of massive amounts of unorganized data.
The company considered dissolving the QC department and outsourcing its functions, but discovered that they would be unable to achieve the results they wanted without spending an exorbitant amount of money per file reviewed. And even in this instance, they needed to retain personnel to process the review data, create the proper reports, and to interface with the outsourcing firm.
As a result, senior management encouraged research into a software system. The QC Manager performed the necessary work to demonstrate that Western met the agency criteria to allow statistical sampling, and began shopping for a system that would help to turn the situation around. Her manager, the VP of Risk Management, was enthusiastic about the idea, as was Western’s senior management, who were eager to see QC be more efficient and effective. After careful consideration, Western decided to implement the Cogent ProductionQC System.
“It’s hard to compare apples to apples, because things are so different now.”
Before Cogent, the company was auditing on average 800 loans per month. Audits began 60 days after the end of the production month, and reports were released months later.
After implementing Cogent, production levels were approximately the same as the previous year, but the company had to audit only 124 loans for June, 174 for July, and 145 for August. Audits began 7 days after the end of the production month, were finished within 30 days, and reports were furnished to investors and agencies within 60 days.
These audits included more than just statistical samples. They also encompassed targeted reviews, designed to isolate potential problem areas and produce results in the short term. As the QC Manager explains, “One of our challenges is building credibility with the various branches, and so targeted reviews enable us to provide them with timely feedback that saves them money. One of our auditors found a loan for a property that did not exist, and we checked the pipeline to find 8 more loan applications from the same loan officer and appraiser. We performed a targeted review, and discovered that this appraiser was often overvaluing single family homes by as much as $200,000. We forwarded the information to our Fraud and Legal departments, as well as the branch, and they were able to prevent further losses. Every month, I receive e-mails thanking us for the work we’ve done on behalf of the branches.”
The QC department’s accomplishments are even more impressive considering that their staff size has been reduced dramatically. The old QC department had 14 staff members with 6 active auditors. After implementing Cogent, QC accomplished its goals with 8 people, and only 4 auditors, one of whom worked part time!
“Every day we get a little closer to being the type of department we’re striving to be.”
Developing credibility with production units can be challenging. The QC Manager believed that she and her team were up to the task. “One of the positive features of the Cogent system is that it is user friendly and easy to learn, and so I am working on promoting one of my auditors to a senior position so that I can shift my responsibilities more towards interfacing with other departments. In addition, I have a member of our support staff training to become an auditor.”
The QC department’s goal is to build its credibility, develop its relationships with other departments, and eventually reach the point where it can efficiently perform pre-funding reviews and catch problems before they impact the company’s bottom line. Using the Cogent system’s Feedback functions is just one of the ways that the department plans to pursue this goal.
In a very short amount of time, Western managed to turn its QC outlook around 180 degrees. Sound management, coupled with a sense of initiative and a desire to excel produced this change. Cogent’s top-notch technology and support were there to help realize it.
Cogent Case Study #3: Able Mortgage Insurance
A few years ago, Able Mortgage Insurance (AMI) settled on the Cogent ProductionQC System to manage
their MI underwriting QC audits. At the time, their needs were basic – efficient sampling, streamlined
auditing, and effective, actionable reporting – and quarterly statistically valid QC audits covering two
lines of business (non-delegated underwriting and delegated underwriting with validation). In short
order, these needs were met by the initial deployment of Cogent.
AMI later decided to introduce delegated without validation, introducing the need for a 3rd statistically
valid QC audit, and one that required that the QC department work directly with lenders to request files
and share audit results. The tracking, management and exchange of documents required automation
beyond the standard workflows of the Cogent system. At AMI’s request, Cogent’s Professional Services
group developed a Lender Correspondence workflow solution to branch off the existing Cogent
sampling and document ordering process, streamlining the entire process. Included in the solution were
1. Product-specific and/or lender-specific email template editing and generation screens for File
Request, Past Due Notice, Preliminary [QC] Findings, Final Findings, and 12-month Summary.
2. Screen to Process Receipt of documents requested.
3. Tracking of documents requested and received, and updating of first, second and final reminder
request lists for attachment to outgoing emails.
4. Post-review reporting, singly or in batch, on errors, cures, and policy rescissions, as well as 12-
month summary and trend reports indicating lender performance vis-à- vis AMI program
5. Product-specific Tracking Configuration screens, enabling user-specified time frames for various
actions, including monthly/quarterly file request due dates, second file request due dates,
preliminary findings feedback and more.
This new functionality was delivered and deployed in multiple phases, and has automated much of AMI
QC’s lender correspondence process.
But the changes keep coming. The latest phase involves a QC audit of the closing of loans approved by
AMI via its non-delegated business line. The functionality that Cogent delivered to manage the 3 rd audit
(described above) is being leveraged to provide similar efficiencies for this new endeavor.
Going forward, AMI may ask Cogent to automate parts of this process that were deliberately left out of
scope. For example, the actual receipt and storing of incoming documents was kept deliberately manual,
as was the updating of database tables reflecting document receipt; the updating of lender contact
emails, as well as CC and BCC fields, is manual; and so is any updating of lender names. Although AMI
does not wish to automate these processes today, things may change tomorrow. It wouldn’t be the first