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The residential mortgage origination process is very complex and origination and underwriting mistakes can be very costly, so lenders need to make sure they’re mitigating every possible risk related to the borrower and property. That’s why due diligence is a critical element of every mortgage transaction. The purpose of due diligence is to protect lenders by reviewing and verifying all information provided by borrowers to eliminate fraud and other concerns.

The process includes several components and can require teams of people to conduct each. As a result, like other phases involved in servicing home loans, due diligence can be time-consuming and complex. It can also be costly to lenders who try and handle the task in-house.

This is why many originators are outsourcing to third-party review providers the responsibility of conducting the risk and data analysis. If you’re interested in partnering with a third-party review provider, here are five things to consider.  

1. Experience and market acceptance

Whether a home loan is for tens of thousands, hundreds of thousands or millions of dollars, lenders can’t afford to have anyone managing due diligence who isn’t an expert in the field. There are too many factors involved. Providers employ top talent with proven specialized expertise in a wide range of loan servicing solutions, including risk management and due diligence. Plus, most can offer services for a lower rate than it would cost a lender to maintain a full-time licensed internal staff.

Find a provider that not only specializes in due diligence but has a successful track record of working with other lenders. Make sure they also can scale to your specific loan needs. That way they can assist you whether your business volume is up or down.

In addition, to the extent that the home loan may ultimately be securitized, ensure that your provider is fully affirmed by and has deep experience working with nationally recognized statistical rating organizations.

2. Product diversification

There are multiple types of residential loans available, from non-QM, jumbo, business purpose and single-family rental to fix-n-flip, reverse mortgages, agency, non-agency and many more. Each has its own unique intricate requirements.

Reach out to a review provider who can conduct a comprehensive examination of assets for the specific loans you offer. They should also work on all types of transactions needed for a loan review, like portfolio trades, securitization, mortgage servicing rights trading and warehouse lending.

3. Accuracy and compliance

Of all the factors required for a due diligence review, accuracy is the most critical. Any mistake or missed detail can potentially lead to post-closing problems later. At that point, issues are costly to repair and could jeopardize or default the loan.

This is another reason why finding a provider with substantial experience and knowledge is important. The right provider has a proficient team that delivers an exhaustive evaluation of every related financial record carefully. They will validate the quality of each document to ensure its accuracy before moving to the next.

Accuracy also helps lenders meet government compliance. A successful provider employs people who not only ensure accuracy but also fully understand mandated federal, state and local requirements. They will also work with your legal department to ensure you are adhering to all of them.

4. Expedited service times

The due diligence process can be very time-consuming. How long it takes varies based on the size and complexity of the loan. While this isn’t a phase that should be rushed due to the need for accuracy and quality, it should be completed as quickly as possible so that the lender can sell or securitize the loan.

In most cases, a proficient and efficient review provider can complete due diligence on the shorter end of the average time frame. Since they have years of experience providing due diligence, they have streamlined the process so they can better expedite delivery.

5. Technology and transparency

One reason why a provider can accelerate a due diligence review is technology. The company leverages tools and platforms that further simplify the process by automating certain steps, including artificial intelligence (AI) for processing data, analytics and document recognition.

The use of technology helps maximizes returns and minimizes risk by guaranteeing accuracy, quality and compliance. Some providers also offer fully interactive client portals that provide transparency throughout the loan review process.

Selene Diligence is ready to handle your due diligence needs.

If you’re ready to partner with an experienced third-party due diligence provider, talk to Selene Diligence. Selene performs comprehensive and dynamic reviews customized to address different asset types and client needs.

Their experienced team reviews in detail all loan attributes, documentation and third-party data sources to identify and mitigate risk. Selene Diligence is also fully affirmed as a third-party review (TPR) firm by Moody’s, Kroll, SP, DBRS and Fitch.

Selene provides industry-leading loan servicing, diligence and title solutions to meet the needs of its borrowers, clients and shareholders. All reviews are customized depending on the transaction and cover all aspects of the loan, including:

  • Credit Underwriting
  • Property Valuation
  • Regulatory Compliance
  • Mortgage Fraud
  • Data Integrity
  • Legal/Modification Documents
  • Payment History
  • Collection Comments
  • Servicing Activity

For more information on how Selene can help lenders with due diligence and other residential servicing solutions, click here.