Mortgage Due Diligence

Mortgage Due Diligence and QC

Non-Performing “Distressed” Asset Review (NPL).

Certainly, as a third-party review firm specializing in mortgage due diligence, we offer a dedicated service for Non-Performing “Distressed” Asset Review (NPL). Here’s an outline of the services we provide under this offering:

Portfolio Assessment:

• Comprehensive evaluation of non-performing loan portfolios to assess the overall quality, composition, and risk profile.
• Analysis of loan characteristics, including delinquency status, loan-to-value ratios, and borrower demographics.

Loan File Review:

• Thorough examination of individual loan files to identify key issues contributing to non-performance.
• Review of loan documentation, payment history, and borrower communications to assess compliance and documentation quality.

Collateral Valuation

• Appraisal of collateral properties to determine current market value and assess potential recovery prospects.
• Analysis of property condition, location, and market trends to estimate collateral risk and value preservation strategies.

Loss Severity Analysis:

• Estimation of potential loss severity for non-performing loans based on collateral values, foreclosure timelines, and recovery expectations.
• Calculation of loss reserves and provisioning requirements to support risk management and financial reporting.

Default Reason Analysis:

• Investigation into the root causes of loan default, including borrower hardship, economic factors, and underwriting deficiencies.
• Identification of patterns or trends in default reasons to inform loss mitigation strategies and portfolio management decisions.

Payment History and Collection comments Review

• Validate the accuracy and completeness of borrower payment histories, including tracking payment dates, amounts, and any instances of delinquency or default.
• Trained reviewers carefully analyze the collection comments to gain insights into the borrower’s financial circumstances, reasons for delinquency, and responses to collection efforts. They assess the accuracy, completeness, and consistency of the collection comments, looking for patterns, trends, and areas of concern.

Regulatory Compliance Review:

• Assessment of non-performing loan servicing practices and foreclosure procedures to ensure compliance with regulatory requirements and investor guidelines.
• Review of loss mitigation efforts and borrower communications to verify adherence to consumer protection laws and regulatory mandates.

Investor Reporting Support:

• Preparation of detailed reports and presentations summarizing findings from the non-performing asset review process.
• Assistance with investor reporting requirements, including data analytics, risk assessments, and performance metrics tracking.

Performing/Re-Performing Asset Review (RPL)

• Portfolio Analysis and Assessment: Conduct comprehensive reviews of mortgage portfolios to assess the performance, quality, and risk associated with individual loans and the overall portfolio.

• Payment History Verification: Validate the accuracy and completeness of borrower payment histories, including tracking payment dates, amounts, and any instances of delinquency or default.

• Loan File Audits: Review loan documentation and underwriting files to ensure compliance with regulatory requirements, investor guidelines, and internal policies.

• Collateral Valuation and Due Diligence: Evaluate the value and condition of collateral properties securing mortgage loans, including appraisal reviews, property inspections, and title searches.

• Credit Risk Analysis: Assess the credit risk of mortgage borrowers based on factors such as credit scores, debt-to-income ratios, employment history, and asset verification.

• Loss Mitigation Evaluation: Evaluate loss mitigation strategies and foreclosure alternatives implemented by mortgage servicers to mitigate losses and assist borrowers facing financial hardship.

• Regulatory Compliance Review: Ensure compliance with applicable regulatory requirements, including consumer protection laws (e.g., RESPA, TILA), mortgage servicing rules (e.g., CFPB regulations), and investor reporting standards.

• Data Analytics and Reporting: Utilize advanced data analytics tools and techniques to analyze mortgage loan data, identify trends, patterns, and outliers, and generate comprehensive reports for stakeholders.

• Quality Assurance and Peer Review: Implement quality assurance procedures to validate the accuracy and reliability of review findings, conduct peer reviews and internal audits to ensure consistency and adherence to best practices.

Compliance Only Review

• Regulatory Compliance Audits:Our team conducts detailed audits of mortgage loans to assess compliance with relevant laws, regulations, and industry standards, including but not limited to the Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), Home Mortgage Disclosure Act (HMDA), Fair Housing Act (FHA), and Consumer Financial Protection Bureau (CFPB) regulations. Our expert team audit loans to determine whether loans comply with all federal, state, county, and local statutes.

• Policy and Procedure Reviews: We review and evaluate existing policies, procedures, and internal controls to ensure alignment with regulatory requirements and industry best practices. We provide recommendations for enhancements or updates to mitigate compliance risk effectively.

• Documentation and Recordkeeping Analysis: Our experts scrutinize documentation and recordkeeping practices to verify the accuracy, completeness, and integrity of compliance-related records. We identify areas for improvement and assist in implementing robust documentation management processes.

• Training and Education: We offer customized training programs and educational workshops to empower your team with the knowledge and skills necessary to navigate complex regulatory environments confidently. Our training sessions cover topics such as regulatory updates, compliance requirements, and best practices for mortgage professionals.

• Risk Assessment and Mitigation Strategies: We conduct comprehensive risk assessments to identify potential compliance risks and vulnerabilities within mortgage operations. Based on our findings, we develop tailored risk mitigation strategies to strengthen controls and minimize exposure to regulatory violations.

Credit and Collateral Review-

When conducting a credit review of a borrower, whether for a mortgage loan or any other type of credit facility, it’s crucial to gather comprehensive information to assess the borrower’s creditworthiness. Here’s an overview of the steps typically involved in a credit review process:

• Credit Report Retrieval: Obtain the borrower’s credit report from one or more of the major credit bureaus (Equifax, Experian, TransUnion). Review the report to examine the borrower’s credit history, including payment history, outstanding debts, credit utilization, and any derogatory marks such as late payments or defaults.
• Payment History Analysis: Analyze the borrower’s payment history to assess their track record of making timely payments on existing credit accounts, including credit cards, loans, and mortgages. Delinquent payments, collections, or charge-offs may indicate financial distress or inability to manage debt responsibly.
• Debt-to-Income Ratio Calculation:Calculate the borrower’s debt-to-income (DTI) ratio, which compares their total monthly debt payments to their gross monthly income. A high DTI ratio suggests that the borrower may have difficulty repaying additional debt obligations and could be at risk of default.
• Credit Score Evaluation:Review the borrower’s credit score, which is a numerical representation of their creditworthiness based on the information in their credit report. Credit scores range from 300 to 850, with higher scores indicating lower credit risk. Consider factors contributing to the credit score, such as payment history, credit utilization, length of credit history, and credit mix.
• Income and Employment Verification:Verify the borrower’s income and employment status through pay stubs, tax returns, W-2 forms, or employment verification letters. Stable income and employment increase the borrower’s ability to repay the loan and reduce credit risk.
• Asset Verification:Assess the borrower’s assets, including savings, investments, and real estate holdings, to determine their financial stability and ability to cover down payment, closing costs, and reserves.
• Credit Policy Compliance:Ensure that the borrower meets the lender’s credit policies and underwriting guidelines, including minimum credit score requirements, maximum DTI ratios, and acceptable credit history standards.
• Property Inspection:Conduct a physical inspection of the property to assess its condition, including the structure, interior, exterior, and any improvements. Look for signs of damage, wear and tear, or structural issues that may affect the property’s value or marketability.
• Appraisal Review:Obtain a professional appraisal of the property to determine its fair market value. Review the appraisal report to ensure that it complies with industry standards and provides an accurate valuation based on comparable sales, market trends, and property condition.
• Title Examination:Conduct a title search to verify the property’s ownership status and identify any encumbrances, liens, or easements that may affect the lender’s lien position or the borrower’s ownership rights. Review the title report to ensure clear title and address any issues that may arise.

MSR Loan Review

Reviewing Mortgage Servicing Rights (MSR) involves assessing the value and performance of the rights associated with servicing mortgage loans on behalf of investors. Before onboarding Mortgage Servicing Rights (MSR) through flow or bulk purchases, conducting due diligence on all or a portion of the files is crucial to assess the associated risk factors. Our MSR loan review inludes-

• Data Collection:Obtain comprehensive data on the MSR portfolio, including loan-level information, servicing agreements, investor guidelines, financial statements, and servicing performance metrics.
• Servicing Agreement Analysis:Review servicing agreements between the servicer and investors to understand the terms, rights, and obligations associated with servicing the mortgage loans. Evaluate compliance with contractual agreements, including servicing standards, fee structures, and performance metrics.
• Loan-Level Analysis:Conduct a detailed analysis of individual mortgage loans within the MSR portfolio. Review loan characteristics such as loan type, interest rate, maturity, loan-to-value ratio, borrower credit profile, and payment history.
• Cash Flow Analysis:Evaluate the cash flows generated by servicing activities, including servicing fees, late fees, ancillary income, and expenses. Assess the stability and predictability of cash flows over time, considering factors such as prepayment risk, default risk, and interest rate fluctuations.
• Valuation Modeling:Utilize valuation models and methodologies to estimate the fair value of the MSR portfolio. Consider factors such as the net present value of future cash flows, servicing fees, amortization schedules, prepayment speeds, and discount rates.
• Regulatory Compliance Review:Ensure compliance with regulatory requirements governing the servicing of mortgage loans, including Consumer Financial Protection Bureau (CFPB) regulations, investor guidelines, and industry best practices. Assess adherence to consumer protection laws, loss mitigation requirements, and foreclosure procedures.
• Performance Benchmarking:Compare the performance of the MSR portfolio against industry benchmarks and peer groups. Evaluate key performance indicators such as delinquency rates, foreclosure rates, loss mitigation outcomes, and customer satisfaction scores.
• Risk Assessment: Identify and assess risks associated with MSR ownership, including interest rate risk, credit risk, prepayment risk, liquidity risk, and operational risk. Evaluate the impact of macroeconomic factors, regulatory changes, and market conditions on MSR valuation and performance.
• Quality Control and Audit: Implement quality control procedures and internal audit processes to ensure the accuracy, reliability, and integrity of MSR valuation and reporting. Conduct periodic reviews and reconciliations to identify errors, discrepancies, or exceptions requiring resolution.
• Documentation and Reporting:Document the results of the MSR loan review process, including findings, analysis, and recommendations. Prepare reports and summaries for internal management, investors, regulatory agencies, and auditors.