Loan growth: Quality is as important as quantity
Enterprise-grade audit technology can mitigate loan defect risk.
According to the latest survey from Cornerstone Advisors, mortgage and auto loans are No. 1 and 2 on credit union executives’ list of lending priorities for 2021, and it’s easy to see why. Auto lending has always formed the core of credit unions’ consumer lending strategy. Even with mortgage interest rates rising from 2020’s historic lows, rates are still low enough to encourage purchase business in 2021. However, when the goal is lending growth, prepare to manage the associated risk of loan defects.
Take mortgage lending, for example. Utilizing post-closing quality control data derived from more than 90,000 loan files analyzed by the ACES Quality Management and Control™ benchmarking system, ACES Quality Management tracks the industry’s critical defect rate by quarter in its Mortgage QC Industry Trends Report, and the numbers don’t lie. When the market shifts from refinances to purchase transactions, which are far more complicated, there is typically, though not always, a corresponding shift in the critical defect rate.
The explanation for this is simple: human nature. When tasks grow more complex or the number of tasks to be completed increases, errors are bound to occur. Even the best loan underwriters or teams using the most sophisticated decisioning technology will inevitably make mistakes.
As any seasoned lending executive knows, perfection in loan origination is a moving target, and one that few, if any, will ever hit. The goal should be to implement the appropriate fail-safes and checkpoints into consumer lending operations to catch these errors before they become a financial, regulatory, or reputational issue. Given the demands of the current regulatory environment, technology should form a critical component of lenders’ risk management and quality control strategies. This can ensure lenders are keeping pace with changing regulatory and investor requirements while achieving the speed and efficiency needed to identify threats to loan quality as early as possible.
While some audit platforms are channel-specific, ACES Quality Management and Control™ software is built to leverage credit union systems to improve loan quality and performance across multiple lines of business and throughout the enterprise. Using the platform’s Flexible Audit Technology, credit unions can easily manage and customize ACES to meet their individual business needs or scale the system to match demand without having to rely on internal information technology resources or outside vendors. In addition, ACES Audit Packs™ combine out-of-the-box quality insight reports and managed questions to address specific loan types, allowing credit unions to dig deep into areas of concern and uncover the root causes of defects to reduce risk and improve loan quality.
Maintaining quality and reducing risk are critical to loan growth and fulfilling the ultimate mission of helping members succeed financially. With ACES in place, credit unions can achieve both.
AMANDA PHILLIPS is executive vice president of compliance for ACES Quality Management.