System and method for auditing loan portfolios and loan servicing portfolios6643625Abstract A computer-assisted method of auditing of loan portfolios and loan servicing portfolios wherein the loans are of a plurality of types by keying questions which determine compliance with a large, complex, and constantly changing set legal requirements to a set of selectable audit types. When an audit type is selected, the system uses sampling methods to select a set of loans of that type to audit and generates a checklist comprising a set of questions keyed to the particular type of audit. Claims What is claimed is: Description BACKGROUND OF THE INVENTION
TABLE I
AUDIT TYPE (criteria)
Portfolio Escrow Analysis
Portfolio Reconveyance
HUD ARM Loans
HUD Payoff
VA Payoff
VA ARM Loans
HUD MIP Billing
Conventional ARM Loans
Conventional Payoff
Conventional Balloon Mortgage
Portfolio Escrow Tax
Portfolio Escrow Insurance
Portfolio Customer Inquiries
Portfolio Credit Bureau
SBC Call Monitoring
STL Call Monitoring
Conventional Perferred Client
Portfolio New Loan Setup
Portfolio Service Release
Portfolio Cash Operations
HUD Workouts
HUD Foreclosure
HUD Claims
HUD Late Stage Collections
VA Late Stage Collections
VA Early Stage Collections
HUD Early Stage Collection
VA Claims
Loan to value ratio greater than 80% with cashout
VA Workouts
There are typically at least 3,000 unique questions in the list from which a checklist for a particular type of audit is constructed by this system. Questions are added or inactivated each time a legal regulation, investor requirement, or policy reason requires it. For each question in the list, a date field, an audit type field, and an exception statement are provided. Thus the questions are in effect rules which are called up when an included type of audit is requested, but are otherwise not called up so they are not included in the questionnaire when inappropriate for the selected audit. Upon selection of the audit's criteria 16, and sampling criteria 10, the software program controlling the computer processor on the server generates an audit sample subset of loan records 17 from the full set of records 11 and 12 and transmits an appropriate file to the workstation of the auditor. A query of records in the portfolio matching the review description is obtained and imported into the system where they are stored on a database. The database is comprised of tables that are updated when new records are imported. A unique "key" is then assigned to each new record as means of identification; any update or entry pertaining to the specific record is associated by the system to the record "key". The auditor may be at a different location than the server or the various people inputting records and the like. By use of client server methodology, preferably using a global computer network such as the Worldwide Web with appropriate password protection, the subset of records 17 can be presented at the auditor's workstation very readily and efficiently. Based on the legal regulations which apply to each loan or loans servicing record, either current legal regulations 13 or historical legal regulations 14, investor-specific parameters 15, and other criteria 16 are referred to by the processor in generating a checklist 18. The checklist is customized to the aforementioned criteria, regulations, and parameters. In the prior art, standard checklists were used for any audit, and it was sometimes up to the auditor to decide which of the questions in the standard checklists applied to the particular type of audit being conducted, as well as any investor-specific parameters to be considered. The present invention has an advantage over the prior method in that it insures that all questions pertaining to the type of audit being conducted by the auditor are answered, so that a statistically accurate error rate can be determined. Due to the complexity of loan servicing operation, checklists are customized to serve different purposes, so each review should have a unique set of questions directly pertaining to the scope of the review. To illustrate, HUD 235 and HUD Pay Off reviews will have different questions applying to each. Checklists are also stored on tables on the database. These tables are updated through the user interface and no additional programming is necessary. The security level assigned to the user restricts access to this database. The interface supports addition, editing and deletion (inactivation) of a checkpoint within the checklist. "Additions" to the checklists are stored and recognized by the system by assigning a new item ID to the entry. "Editing" is allowed for existing checkpoints. Should the need to delete a checkpoint arise, "Deletion" removes that item from the active checklist. Since historical data may have been stored for a specific checkpoint, the system does not replace the reference code once the checkpoint has been deleted. The checkpoint is placed on a list of deleted (inactive) checkpoints, which could be made active if necessary. Therefore, the checklist is prepared by the system for the auditor to use during the review, and the checkpoints or items on the checklist are particular to the sample being reviewed and are the correct currently applicable ones based on current or applicable regulations and other rules. Although the active checkpoints on a checklist may vary, the historic information for that checkpoint is not lost. Using the checklist and either the paper, or microfilm, or scanned documents in the loan or loan servicing files, the auditor may find exceptions 19 when one or more of the checklist items cannot be answered yes and must be answered no. The system (program) uses the checklists and specifically the checkpoints within them to calculate the Exception Rate by using the following premise: ##EQU1## The checkpoints are stored permanently even though they may not be active, and this allows for historical information display and reporting. The system enables detail reporting of exception significance, providing ability to study trends and risks assessment of operations. The question ID is also used by the system to arrange any exception found in such order so that one recommendation is provided for the exception, which in turn will appear on the management report. Table 2 is an example of a checklist generated for a HUD-35 audit
TABLE 2
AUDITOR CHECKLIST FOR HUD-235
SORT_ORDER QUESTION_DESCRIPTION
1 Was the HIP cost determination information accurate?
2 Did the Escrow Analysis reflect accurate MIP
disbursement projections?
3 Were current loans with terminated assistance without
subsidy funds?
4 Were unapplied/excess subsidies returned to HUD?
5 Were suspense monies(full payment) applied timely?
6 Did government subsidy accounts indicate distributed
funds?
7 Was the gross annual/monthly income accurately
calculated?
8 Was the gross monthly income accurately disclosed on
the Payment Notice?
9 Was employment accurately verified?
10 Was payment information consistent on the loan
servicing system?
11 Was escrow analysis at recertification documented on
LSAMS?
12 Did subsidies received match subsidies
billed/recertified?
13 Was occupancy/social security number adequately
verified?
14 Were earned subsidies applied on loans in foreclosure?
15 Was the lesser of 2 premiums from the insurer used in
the calculation of subsidy?
16 Was systems escrow analysis concurrent with
recertification analysis?
17 Was prior years recertification/histories complete?
18 Was overpaid assistance (OPA) calculated accurately?
19 Was the eligible minor deduction entered in the
mortgage recertification?
20 Was assistance computed accurately?
21 Was assistance properly suspended, terminated, or
reinstated?
22 Was escrow shortage/overage handled appropriately?
23 Was family composition accurate?
24 Were subsidies received credited to the borrower's
account?
25 Was the loan amount on recertification accurate?
26 Was the FHA Case Number accurate?
27 Was HUD billed for assistance between the 5th and
20th day of the month?
28 Were Forms HUD 93101-A or HUD 93102 accurate?
29 Was Form HUD 93102 submitted before the 20th day
of the month?
30 Were billing forms adequately supported?
31 Was the Formula II factor used in calculation accurate?
32 Were late charges properly assessed?
33 Was recertification completed within the allowed
timeframe?
34 Was the Formula One total payment used in
recertification accurate?
35 Was the payment notice consistent with LSAMS/file
information?
36 Were monthly handling charges properly collected?
37 Was information about assistance amounts on year-end
tax and interest statements present?
38 Was the field office alerted concerning possible
mortgagor fraud?
39 Was HUD billed for assistance only when mortgage
assumptors were eligible to participate in program?
40 Did overpayment result from something other than
mortgagor fraud, misrepresentation, or failure to meet
contractual obligation?
41 Was the overpayment caused by something other than
an error by mortgagor/mortgagee?
42 Was a full refund of overpaid assistance, handling
charges, and interest penalties remitted?
43 Was repayment of overpaid assistance arranged with
the borrower without causing a default?
44 Were mortgage payments adjusted when borrower
income increased $50.00 or more?
45 Was accounting of all assistance paid for each
mortgagor accurate/timely?
46 Was recapture accomplished as required?
47 Was self-employment income computed accurately?
48 Was notice sent before 10 days prior to due date of
first payment following recertification?
49 Was the escrow portion, the borrower's portion and the
total payment amount accurate on the mortgagor's
Payment Notice?
50 Was annual escrow account disclosure statement sent
within 90 days following reinstatement from
delinquency?
54 Were applicable guidelines applied to the case?
60 Were borrower inquiries containing requisite
information acknowledged within 20 business days and
responded to in writing within 60 business days of
receipt?
81 Was re-certification of HUD 235 eligibility handled
timely?
As can be seen from Table 2, a large number of items are presented to the auditor in a typical audit. The reason for the discontinuity of the sort order is that some items are inactive because they do not currently apply to this type of audit. The computer system also stores a set of recommendations which may be included by the auditor when corresponding exceptions are found. The recommendations 20 can be very complex, as demonstrated by the examples of stored recommendations shown in Table 3.
TABLE 3
AUDITOR RECOMMENDATIONS
SORT.sub.-- QUESTION.sub.--
ORDER DESCRIPTION RECOMMENDATION
2 Was the foreclosure The Department should ensure that
initiated timely? foreclosures are referred to the attorney
within the specified guidelines. An
aging report could be utilized by
management to flag accounts in
foreclosure that need to be referred to
an attorney immediately. The report
could be created to identify accounts
that have been passed from other
departments late, subsequently affecting
the foreclosure process.
2 Was the foreclosure The Department should ensure that the
initiated timely? foreclosure is initiated timely. The
servicer should refer the mortgage to an
attorney to begin foreclosure
proceedings no later than 45 days after
the date it issued the breach letter.
(FNMA Servicing Guide, VIII, 102.04)
9 Was the case file The Department should ensure that the
received by the case file is received by the assigned
attorney within 24 attorney within 24 hours of the referral.
hours of referral? Close monitoring of the referral process
should be conducted to avoid any
foreclosure processing delays.
20 Was a BPO ordered The Department should ensure that the
30 days prior to the BPO is ordered 30 days prior to the
foreclosure sale foreclosure sale as specified in FNMA
date? guidelines. Management has
communicated that procedures to
ensure compliance have been
implemented. The Quality Control
Department will monitor and trend this
exception.
30 Was the foreclosure The Department should ensure that
completed within Foreclosures are completed within the
the state required required state time frame. Close
time? monitoring should be conducted to avoid
any foreclosure processing delays.
Indemnification against attorneys or
oursource vendors should be pursued, if
applicable.
33 Were the bidding The Department should ensure that
instructions for the bidding instructions are sent to the
foreclosure sale Foreclosure Attorney at least five
within the specified business days prior to the scheduled
guidelines? sale date. Management should
generate a report to identify all sales
scheduled during the next 30 days to
ensure the bidding instructions are sent
to the attorney timely.
36 Was the hazard The Department should ensure
insurance policy that the hazard insurance is
canceled (forced cancelled 15 days after the foreclosure
placed) 15 days is completed and it has been
after the foreclosure determined that no damage has
sale or within 15 occurred to the property. Management
days of the property should communicate this function with
becoming vacant? the REO Department in order to
streamline this process in detail. This
will ensure recovery of funds on
unearned premiums
The auditor may make recommendations other than standard, stored recommendations. All of the recommendations and exceptions are stored in the computer system 22 and are processed to generate management report 21. Management reports can comprise the sampling criteria, and exception rate pertaining to the subset, a list of any loans in the subset which have exceptions and the exceptions pertaining to each such loan, and any recommendations for cure of each type of exception found at the sample subset. This automatically generated the management report 21 can be automatically e-mailed to appropriate managers. The report can be in hypertext markup language (HTML) and the e-mail can include hyperlinks to the reports. The manager can be given an automatically generated temporary password to allow access to the report, and the expiration date of the password can act as a time limit for the manager's response to the report. The manager may respond 9 to the exceptions which are stored in the audit trail record, and such responses are also stored in the audit trail record. For example, the manager may disagree with an exception found by an auditor. A report as to in-process audits and time expended by auditors 8 in auditing each subset of records can be generated and stored in the audit trail record. Such reports can be used by managers to evaluate the performance of auditors and quality of audits and evaluate the cycle time and evaluate the impact of changes, as illustrated in FIG. 7. Historical exception rates trends, root causes of exceptions analysis, and a wide variety of analysis can be automatically put in report form 21 and reported to management. An example of a claim trends analysis report is illustrated in FIG. 3, and a graphical representation is illustrated in FIG. 4. A root cause exceptions analysis report is illustrated in FIG. 5, and FIG. 6 illustrates a root cause exceptions analysis of a period a root cause of exceptions analysis for a period including the previous year and current year-to-date. The calculation of historical exception rates is very useful for many reasons, among which are that sample size criteria can be adjusted based on historical exception rates. For example, if exception rates are lower, the number of records in a sample can be reduced. The system of the invention also permits calculation of rebuttal rates, i.e., managers' demonstrating an audit error regarding an exception, and use of such rebuttal rates to evaluate the performance of auditors. Rebuttal rates are calculated from the data on rebuttals which are entered by managers in cases where exceptions found by auditors are disputed. The historical trends of exceptions which are calculated by the system can also be used to determine changes in quality of loan origination and/or servicing activities, which are very important functions in this industry. Referring now to FIG. 2, the client-server computer system of the invention can include one or more processor 28 and one or more server 27 connected to a global communication network 31. The clients and servers can communicate via internet protocol. The loan record database 29 can include a plurality of databases which may or may not be at the same location as the server 27. The audit trail database 30 may also be at a different location than the server. A plurality of client workstations are typically included in the system, among which are one or more loan record input workstations 33, legal regulations workstations 24, auditor workstations 25, and manager workstations 26. The server 27 has access to the records for each loan origination and loan servicing in the portfolio as well as the rules which comprise each current and historical legal regulation and any investor-specific parameter applicable to each type of loan or loan servicing. The system also includes a set of selectable audit criteria and a computer program adapted to automatically select an audit sample subset of loan records or loan servicing records which meet the selected audit criteria and to automatically create and transmit to an auditor/client workstation a checklist appropriating to the selected audit criteria. The program is adapted to store in an audit trial database the auditor's answer to the checklist, including any exceptions due to failure to satisfy a checklist item, and any auditor's recommendations pertaining to any of the exceptions. The recommendations can be either selected from a stored set or can be flexible, i.e., tailored by the auditor to a particular situation. The records can include both alphanumeric data as well as images of loan documents which may have been scanned and stored in the system's memory so that when the auditor's client workstation calls up a loan record, it can also call up the graphical images of the original loan documentation which are typically used by the auditors in performing their checklist function. While the invention has been described and exemplified in detail herein, it will be appreciated that various modifications, variations, and improvements of the invention can be made by those skilled in this art without departing from the spirit and scope of the invention.
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