The key to quality forensic loan review is … quality. Our process has multiple quality steps to ensure that the loan review will stand up under the strictest scrutiny. Each stage of the process has a quality review built in.
We start with qualifying the loans that are being reviewed: are they subject to the litigation that is being contemplated? Are the loan-underwriting guidelines available for the loans to be reviewed? How do the guidelines compare to one another or how do they change over time?
We employ a state of the art automated underwriting system that ensures that the underwriters consider and retain all the relevant factors that are part of the underwriting guidelines. The computerized system also organizes the underwriting process so that it asks the questions relevant to the type of loan being underwritten and only permits responses to be recorded that are relevant – no stray, undecipherable entries.
We perform a double-blind quality control on all underwriting, so that 10% of the loans to be reviewed are assigned to a second underwriter. Neither underwriter who has the same loan knows that the loan is under a second review, so “sharing” of information is impossible. Once the loans have been reunderwritten, they are compared and any differences are adjudicated. Quality control helps determine when a particular item is confusing, requiring stronger guidelines on how that item should be handled. Quality control also identifies underwriters who need retraining to help them improve their performance.
Finally, data from the system is available at any time and can be replicated to a statistical system for analysis. A good statistical system will also analyze the responses in the forensic loan review for inconsistent responses to obtain clarification before the final product is certified and handed off to an analyst.
The forensic loan review captures errors in underwriting, misstatements, improper calculations for items like DTI and LTV, red flags like documents showing that the property is not owner-occupied, and records what documents are missing that are required in the original underwriting guidelines. At the end of the process, an underwriter is asked to consider whether the loan has no defects, has defects that are offset by compensating factors, or is materially defective and outside the guidelines. This independent determination ensures that an underwriter takes into account all the information about the loan and borrower to give due credit to all the information in the loan file.