Cogent QC Systems Archives - Page 2 of 2 - Cogent QC: Award-Winning Loan Quality Control & Compliance Software

Do You Know Your Defect Rates?

November 1, 2013 By James Robinson

Fannie Mae announced new quality control guidelines on July 30, 2013 that include a requirement for lenders to track defect rates:

https://www.fanniemae.com/content/announcement/sel1305.pdf
https://www.fanniemae.com/content/tool/qc-defect-rate-tutorial.pdf

Do you know your defect rates? If not, you will have to implement a process to track them in order to sell to Fannie Mae after January 1, 2014.

Surprisingly, Fannie’s new guidelines say that lenders should report both a “gross” defect rate and a “net” defect rate, (meaning “net” of defective loans that can be fixed.) Really? Loans that can be fixed after closing still cost the lender substantially more than loans done right the first time. And what about all the similarly defective loans in the population that weren’t sampled? Consider that an error that can be fixed 30-60 days after close may not be so fixable if the loan goes delinquent 10 months after close and is now a repurchase candidate. This means you can’t reliably extrapolate from a “net” sample defect rate to “net” population defect rate (interval).

Fannie’s new guidelines also say that lenders should track defect rates by severity, such as “moderate defects” vs. “significant defects”. This confuses ‘defects’, which are loan-level ratings, with ‘errors’, which are audit question-level ratings. This is more than just semantics. The final rating on a loan review should be a binary one: acceptable or defective. This is a requirement if statistical sampling is to be used.

Cogent has long asserted that the focus in QC reporting should be on the gross defect rate; this is the rate used to calculate sample sizes in our applications. Ultimately, the objective of quality control is not to fix defective loans in your samples, but to understand where the defects are coming from and fix the process.

Cogent clients are able to track gross defect rates with the standard functionality built into both the ProductionQC and ServicingQC applications. In Cogent’s applications, at the conclusion of each loan review, the QC auditor must assign an overall QC Decision. The descriptions of the available QC Decisions are controlled by the System Administrator, but each will result in a Final Decision of either Acceptable or Defective, as shown in the screen shot.

Assigning this Final Decision enables users to generate the Cogent Management Reports, which show gross defect rate trends and comparisons, and also to calculate and select properly-sized statistical samples based on the recent 3-period average defect rate for each sample type.

Cogent Quality Trend Reports Demystified – Infographic

October 23, 2013 By Kaan Etem

Cogent QC Systems ship with numerous standard reports, organized by category. Loan Status reports help managers to track the progress of audit activities; Audit Findings reports show audit findings from various perspectives, from granular detail to summary overview, but always for a particular period; and Feedback and Letter reports are designed to track specific audit activities.

In contrast, most Management reports show quality trends across multiple periods for specific sample groups (such as the Statistical Sample or the Stratified Sample, each of which have specific definitions in Cogent.) In addition, and perhaps most importantly, Cogent’s Quality Trend reports show quality levels for particular sample periods and specify the precision with which these may be inferred to the population.

It’s one thing to report the audit results of a selection of loans sampled from a population of loans (“we found 2 defective loans out of the 30 we audited, for a defect rate of 6.7%”); it’s another thing to make inferences, based on the results of the sample, to the population as a whole (“we are 95% confident that the population from which we sampled has a defect rate of 6.7%, plus or minus 2%.) In order to make valid statements like this, sampling and auditing and reporting must be controlled to eliminate bias and maintain statistical integrity. Cogent QC Systems do this for you automatically (while providing leeway to separately do non-random, non-statistical sampling.) The results are presented in Cogent Quality Trend Reports.

Since most clients do not live the dream of statistical analysis on a daily basis, like we do at Cogent, it’s possible that statistical terminology is not top of mind. So we have created this infographic to help with the interpretation of Cogent’s Quality Trend Reports (click on the image for a larger version). Please pass the link around among users of Cogent in your organization. We welcome insights and feedback at support@cogentqc.com.

Categorize Audit Questions for Streamlined Reporting of Regulatory Data

September 30, 2013 By Kaan Etem

Sometimes it makes sense to organize audit questions by regulation. Compliance audits are often organized this way, with names of regulations comprising audit category names and audit questions clustering within those categories. This organization can be reinforced by audit category codes such as TIL, ECOA, CLA, FCRA and so on (hence, question number ‘TIL-012a’). This approach makes it quick and easy to report on regulation-specific audits using Cogent.

But frequently, audit questions are organized by category of defect, such as Assets, Credit, Liabilities, and Income. Traditional post-closing audits continue to be organized this way, as confirmed by FNMA recently (see recent blog post) In such a case, how do you report on specific regulations when a regulator comes in for an audit? The answer is via Categories.

Cogent’s loan audit software allows any audit question to be tagged with one or more Categories. Standard Categories include ‘area tested’, ‘regulation’, and ‘federal/state’. Additional Categories may also be created. With Category tagging, it is a simple matter to include in a report only those audit questions that are relevant to a regulatory audit. Access Category tables via your system’s Audit Lookup Table Manager under Administrator Tools.

Cogent Clients Feature Among Fannie Mae STAR Servicers

August 27, 2013 By Kaan Etem

Fannie Mae has just revealed its Servicer Total Achievement and Rewards list (STAR), profiling the servicers who rank high when tested on customer service and other key metrics. Four of the seven top-ranked servicers are Cogent clients, which means that either Cogent is in good company or vice versa! Either way, it’s validation of Cogent’s focus on best practices in the increasingly important servicing quality control function.

The top-ranked servicers include: Green Tree Servicing, Nationstar Mortgage, Ocwen Financial Corporation, PHH Mortgage Corporation, PNC Financial Services Group, Inc., Seterus, Inc., and Wells Fargo Bank.

Among other sources, Housing Wire cites the news at https://www.housingwire.com/articles/26473-fannie-mae-ranks-top-servicers, where you’ll find more info and links.