Lenders and servicers who differentiate themselves by having better quality control can achieve not only cost reductions, better market pricing, and regulatory advantages, but also better customer response and retention.
What is the Goal of Quality Control?
In financial services, as in other industries, the goal of quality control is to ensure that company and customer requirements are met. This means ensuring that things are done right the first time, in compliance with investor, insurer, and regulatory guidelines, in each origination and servicing function from loan application to loan payoff.
Quality is important not only to investors, insurers and regulators, but to consumers as well. So lenders who differentiate themselves by having better quality control can achieve not only cost reductions, better market pricing, and regulatory advantages, but also better customer response and retention.
How Does Quality Control Add Value?
The proposition that better quality means higher profit margins has been well accepted in many industries for a number of decades. But it is only recently that the principles of quality control have been applied to financial services. Now, the industry as a whole is waking up to the fact that quality matters, and that properly managing quality control can mean the difference between success and failure.
Loan origination and servicing are highly complex processes with countless opportunities for both minor and significant errors. Lenders and servicers need effective quality control for both short and long term cost control:
(1) to minimize the current costs of defects, which may be reflected in higher rejects, repurchases, claim denials, re-work, and/or price discounts; and
(2) to minimize the risk of future costs due to poor portfolio performance and/or non-compliance. The high potential costs of poor quality mean that effective quality control is essential to profitability.
Immediate Cost Savings
Immediate cost savings can be realized from improving the efficiency of the QC process itself by minimizing random sample sizes and by improving employee productivity.
Savings from using statistically calculated sample sizes instead of a fixed percentage can be estimated by assigning an average cost per review of $100 to $150 per loan, depending on the scope. For example:
10% Sample |
Cogent Statistical Sample |
|
| Loan Population | 19,000 | 19,000 |
| Sample Size | 1,900 loans (10%) | 318 loans (1.7%) |
| Cost Per Audit | $125 | $125 |
| Total Audit Cost | $237,500 | $39,750 |
Increased productivity per QC employee due to more efficient workflow can also result in significant cost savings. Many Cogent clients experience productivity increases of 50% or more.
These two sources of immediate cost savings can be translated into FTE reduction, or into broader coverage of risks, or a combination of the two.
Longer Term Cost Savings
The full value from improving quality control is realized over the longer term, as better operational quality results in lower overall cost per loan, streamlined regulatory exams, and better investor pricing.
Since each lender’s origination and servicing processes are unique, so are their opportunities to improve quality. But both short term efficiencies and long term quality improvements are possible for most lenders, and these improvements can have a significant, measurable financial impact.
The key to realizing this value is establishing an effective quality control program, utilizing the best people, the best QC methodology and the best technology available.
What Do Cogent QC Systems Provide?
Cogent QC Systems provide lenders and servicers with a sophisticated and robust statistical QC methodology, designed specifically for loan origination and servicing, embedded into easy-to-use workflow applications for quality control and compliance departments. The software is continuously improved, highly customizable, and strongly supported by our technical staff to ensure that your quality control remains flexible, efficient and effective.