The Importance of Internal Audits for Your Mortgage Company
Internal audits are an important line of defense for mortgage companies. Lenders can protect themselves from risk on a variety of fronts, including:
- Business units
- Support functions
- Internal audits
In mortgage circles, you may hear an internal audit called the third line of defense.
Internal audits provide lenders with independent assurance. It also enables them to assess the effectiveness of their policies, processes, personnel, and control systems.
Keep reading to learn more about the importance of internal audits for your mortgage company.
Eye on the Industry
Some lenders have already incorporated internal audits to manage their operations. However, others are only just starting to fully develop their internal audit process.
Now, lenders of all kinds face increased scrutiny. Select regulatory agencies along with the Department of Justice are keeping an eye on lenders’ strategic, credit, operational, and compliance risks.
With this in mind, it’s important for you to understand the state of your control environment. You must know where there are potential strategic, credit, operational, and compliance risks within your firm.
Embracing the Internal Audit
Understanding your risks is an excellent reason for developing an internal audit function. Still, there are more reasons for you to invest in an internal audit process.
A mortgage audit will provide you with independent, objective assurance. It will also assess the effectiveness of your mortgage company’s risk management, control, and governance processes.
An internal audit will also help you to understand the key risks that your company faces. More importantly, internal audits will enable you to qualify to service government-sponsored enterprises like Fannie Mae.
Getting It Done
If you issue mortgages, it’s a good idea to hire a reputable firm to conduct your internal audit. Internal audits are an excellent quality control measure for private lenders. They’re also ideal for publicly traded mortgage companies that must report to regulatory agencies.
An auditor will review your application, review, and funding processes. They’ll make sure that your company follows all relevant laws.
The auditor will also ensure that all your information is accurate. In addition, they’ll make sure that your company takes acceptable credit risks.
Many lenders typically have an internal mortgage audit performed each year. However, some mortgage lending companies even have internal audits performed every quarter.
Working With a Professional Auditor
A mortgage audit company will usually begin the process by reviewing your criteria for approving new mortgages. For example, they’ll make sure that none of your practices are discriminatory.
The auditor may also provide you with a list of minimum requirements for future loans. These requirements might include:
• Appraisal value
• Debt-to-income ratio
The auditor might also provide you with other metrics that you could use to evaluate potential lenders.
The internal audit service will also include a review of the credit reports that your company used to approve loans. The mortgage audit company will also compare the income from your documentation to the income used in the approval process.
An internal audit service will also review the assets tied to your loans. For example, they’ll analyze appraisals, mortgage insurance and perform title searches on properties that are collateral for your existing loans.
It’s important to understand that you’re relying on your auditor to expose any weaknesses in your company’s lending procedures. In this way, the mortgage audit company will protect your mortgage company from risk. Accordingly, you’ll want to work with a firm with an exceptional reputation in performing mortgage quality assurance audits.
Learn More, Do More
Hopefully, this brief overview of the internal audit process has helped you to better understand the benefits of the practice.
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