To make implementation smoother, quality control teams should be involved in the planning process for TRID> Many companies have underestimated the resources needed and the cost to implement the new TILA-RESPA Integrated Disclosures (TRID) rules. Budgets have been thrown out the window, and management has implemented a “get it done, on time, at any cost” approach. As the implementation costs mount, project managers and subject matter experts are under pressure to make quick policy and procedure decisions for systems that aren’t fully operational. This means the decision-makers can’t possibly identify every possible angle or pitfall that needs a backstop – nor can they truly assess the most efficient process. Like any new process, you don’t know what you don’t know.

The case for QC auditors for TRID

What’s so striking is the lack of involvement of quality control (QC) departments while all of this is going on. Many lenders simply don’t think QC auditors need to be involved until the process is finished. After all, why should that group care about proposed procedures versus final procedures? Isn’t the compliance check good enough during the procedure review? This method was fine for simple changes like RESPA 2010. (In hindsight, implementing that regulation was a cake walk). TRID 2015, on the other hand, is a total rewrite of the assembly line, which means QC brains need to hear all of the “what if” and “if this, then that” scenarios to detect where gaps may occur in the final workflow.

A few shops have included QC auditors in the decision-making discussions. In one case, this wasn’t planned. It was simply because the compliance manager is also the QC manager. QC thinking is not the same as compliance checking.

QC should be involved in every aspect of the project, including system programming. For example, decisions are being made to determine the filtering of application dates prior to – and then on or after – the Aug. 1 deadline. The application date on the 1003 seems like the perfect filter to point the workflow to the new forms on the right day. It’s the QC brain that will recognize the gaps that can occur in this filter. Documentation in the loan may indicate that the application date under the Truth in Lending Act (TILA) actually occurred earlier or later. Corrective action in these cases will depend upon the circumstances. Managers will need guidance on what can and cannot be done to resolve the errors. By having the QC group involved while process decisions are being made, the team members will have the background to develop their checks in a meaningful and productive way.

QC experts as change managers

Companies can also benefit from the QC group’s expertise by leveraging them as the change managers for TRID. This group can use the same QC management systems that are used for the loan process as a whole. Granted, the idea of having QC involved earlier and more often in the loan process can spark fear in the minds of business unit owners. They toss and turn over errors and omissions reporting becoming a merry-go-round of rebuttals and counter responses that lead to a loss of productivity and expense. The key to avoiding this black hole is to do the following:

• Develop a training plan for the existing team and new hires;
• Complete an assessment of capacity;
• Improve QC workflow management;
• Develop effective tracking and reporting;
• Identify the root causes; and
• Develop and follow up on corrective action plans.

This should sound familiar. These items are basic QC management steps with a few modifications. Take these steps and apply them to a very specific TRID QC plan. These steps will be the safety net to the newly designed process. Training planning should include the following:

• Development of FAQs as a reference tool for the teams;
• Access to subject matter experts in both compliance and IT;
• Content should be delivered via multiple delivery methods (Webex, classroom, e-learning); and
• Content should be organized by “hot topics,” and hot-topic sound bites should be included in blogs or posted audio format in the learning management system. This will enable teams to quickly address procedure changes or to reinforce topics as weaknesses are identified in the new process.
• Prior to implementation of TRID, the QC subject matter experts play a role in reviewing the supportive job aids.

The evolving nature of QC

There are many management philosophies about the purpose of QC. Involvement in training plans and job aid reviews are not often thought of as part of the process. It’s common to hear a company’s desire to meet the minimum standards in the QC plans – no less, but also no more, than as required by the agencies. It may implement a few extra checks for credit overlays, but nothing that adds cost. The QC and quality assurance (QA) steps identified in any plan must produce results that give the right information, at the right cost. This is sound reasoning when a company has a stable process. TRID implementation will have a very unstable phase. QC involvement can help stabilize the process faster.

There are many management philosophies about the purpose of QC. Involvement in training plans and job aid reviews are not often thought of as part of the process. It’s common to hear a company’s desire to meet the minimum standards in the QC plans – no less, but also no more, than as required by the agencies. It may implement a few extra checks for credit overlays, but nothing that adds cost. The QC and quality assurance (QA) steps identified in any plan must produce results that give the right information, at the right cost. This is sound reasoning when a company has a stable process. TRID implementation will have a very unstable phase. QC involvement can help stabilize the process faster.

Early involvement of QC in TRID planning can also help reduce the trailing costs that result from more findings in QA and QC reviews. The highest cost at many shops is the expert staff needed to complete the reviews and the time they take from the front-line experts (underwriters and managers) to resolve the feedback. A QC reviewer can spend up to one-and-a-half to two hours on a full file review, including compliance and collateral. How much longer will this take during the first months of new TRID loans? The manager of a disclosure process, in turn, may have an average of an additional 10 to 60 minutes responding to various QC and QA errors. Do you know the average time spent by team members on QC and QA responses today? How is this going to change with TRID?

The time staff spends on QC – whether it is the QC review or other operations impacted by the QC processes – must consider multiple factors in the review. The staff members’ performance is based on their knowledge, the tools they have to work with, the process, and the management and leadership of the team. TRID is new and not second nature. Team members will not identify the resolutions to problems or system glitches as quickly. Today, a good originator can visualize the lines on the good faith estimate without looking at the screen. It will be many months before the teams have this level of ingrained knowledge. The faster the QC feedback loop, the sooner the steps and forms will become second nature. Capacity will need re-evaluating, based on the new tasks and slower response times. Performance metrics will need adjusting to account for the change. QC will be impacting these areas, as it determines severity codes and risk levels for every new checkpoint.

QC workflow

The workflow for the QC process can offer efficiency, or it can be a process drag without producing the feedback necessary. The cost of pre-closing or pre-funding reviews may not be avoidable, but the reviews should produce results that bring value to those doing the job. The value should be measured through improved quality, which can then reduce costs. The costs are reduced through the lower percentage of reviews required, less time spent to review the loans and less time on rebuttals.

Automated QC workflows that include well-defined, customized and well-worded checklists and an effective rebuttal process are essential. For example, the first closing disclosures will be dependent on new data entry steps and procedures to determine the start of the three-day clock. In a scenario where there is uncertainly whether the clock started Tuesday or Wednesday, there is risk of a loan not closing on time or closing before it should. A pre-closing QC review will identify the right date, but the closer, originator and managers may have different opinions and understandings of a policy. The teams end up going back and forth assessing the situation. They will focus on solving that one loan to meet specific expectations of that scenario. The root cause may be known, but without a clear checklist, documented rebuttal and root cause analysis, change management doesn’t occur. Therefore, the problem reoccurs and causes delays again.

Using QC staff as change managers for TRID should take the root cause back to the drawing board. Most cases won’t be isolated, as is the assumption in a stable process. In an unstable process, training needs are more likely to occur across a group. Root causes may be multi-layered, such as when a process is difficult or without comprehensive system backstops. In these cases, the change management process is reviewing system, procedure and skill solutions requiring involvement of upstream and downstream managers. Backstops in the system can also be too tight in the first round of programming.

QC staff acting as change managers can more quickly assess the risks involved in modifying a hard stop in the system when they have been involved from the start. In the workflow diagrams, steps should be clearly marked that require review by QC or compliance prior to any modification. This saves time for managers who may want to make a small change in a step that has no impact on compliance.

The TRID QC team

At some point, the project manager for TRID implementation will begin to step back as the QC teams begin to run on all cylinders. The skill set of the QC team will determine if they are the right fit to also assist in managing the changes or if the project manager stays on the payroll. QC will issue findings and severity codes as they do today – but with a new and long list of things to check, the team should be proactive in tracking that the right parties are involved in identifying the long-term solutions. Operations managers aren’t off the hook – nor is QC stepping on their turf. Operations managers remain responsible for the performance of the team and executing the agreed-upon corrective action plan. The TRID QC team is there to ensure the right managers are involved and the right steps are identified, along with timetables for clear accountability.

The loans on the bubble of late July and early August will be coming in faster than some corrections can be made. Good planning and effective QC systems will minimize the likelihood of severe problems getting through and can actually help to improve the bottom line along the way.