Editor’s note: This interview is edited for length and clarity.
Sarah Wolak: Broadly speaking, how would each of you describe the current state of quality control in the industry compared to years past?
Phil McCall: We’ve been through a couple of tough years in the lending industry, and with it, we’ve seen a lot of downsizing, downsizing, etc. In 2025, we started to see stability within the workforce on the QC side.
In terms of origin, I think everything is filtered down to the lowest cost to get these from. You’ll have quarter-to-quarter changes in what’s happening in the market, in your industry, and where you’re repairing. Sometimes we get a little drop, and suddenly you have a little refi surgery.
So there is a big business development coming there. And so, you often find that surgery will cause fewer disability issues. When rates are eased, assuming they don’t trigger another round of layoffs, disability rates tend to return to the normal range.
Wolak: That makes sense since lenders rely heavily on people to absorb changes in volume, and without better measurement methods, the more volume you have, the more likely it is to make a mistake.
Trevor Gauthier: The mix of mistakes is also a big part of the story. We’ve had some revenue and employment issues as we’ve moved forward, but there are some sectors that are starting to grow a little bit. There’s eligibility, there’s collateral, regulatory issues and the like. I think that the topic of everything, although it is low, these errors, types and focus can change really quickly.
Wolak: Can you share how defaults generally affect lenders and servicers, especially when there are buybacks of the GSEs involved?
McCall: As long as you bring the foreclosed loan to the secondary market, there is buying power. And again, I see those ebbs and flows very much pointing to the GSEs as a starting point. The requirements and disclosure and transparency of defect reporting have become clearer over the past decade, which has helped lenders better understand what they are dealing with and how to handle defects when they arise.
A few years ago, [when] indemnifications were flying left and right, I heard a lot from the lending community. The GSEs eventually realized they couldn’t continue down that path forever, so there was another shift in fees and pricing that reflected the severity of the damage and its impact on overall loan performance.
From the lender’s point of view, [the focus has been on how they] it can manage internally, put in place lines of defense and identify the mistakes that really create the risk. Employment and income problems are increasing. Certain pockets in the US suffer a little bit when it comes to calculations, and if you start to run into measurement problems in the areas that are on the downward slide a little bit here, in terms of values, those can be very vulnerable. And you want to manage your quality in that sense of understanding where those risks are. What can I do to reduce the risk, especially in those high-risk areas?
Rating is something we see a lot. You can’t afford to make a big mistake, because if you know you’re hitting where you are, and you see a 5% drop in value next year, boy, that mistake can start to cost you a lot.
Wolak: Are there any other areas where you see a lot of mistakes or pain points for lenders that arise when dealing with disabilities?
McCall: Measurement is one aspect that continues to amaze us all forever. There have been all kinds of automations created, such as AI engines for how to properly calculate employment income. But it’s still a big problem, after nearly billions of dollars have been invested in it.
We are in a changing market, so there are new products coming out. It is the operational side of your mortgage lenders in tight communication with your risk side and that quality control. So as products are introduced, as new areas are introduced, there are strong relationships there, and operations have a greater understanding of quality and making sure that they have real processes in place.
When you keep your QC team strong with your duties and working together, we see such great success from the lending community in the way their overall quality improves.
Wolak: I wanted to ask about the recent BaseCap acquisition that ACES announced this week. How this deal helps lenders manage quality control and what areas the acquisition impacts?
Gauthier: We are very excited about BaseCap. We have been going down the path of effective and efficient quality control. And what that means for us is that the ACES platform is already deep, but we wanted to get earlier in the process and be able to explore broad parts of their portfolio, or their entire service area, and do just a few specific fields or or be able to track changes in specific fields.
BaseCap has built a great platform that is well connected to ACES. It will help with data cleaning and the ability to do population-level testing, so that QC teams can really start identifying those pockets of risk early in the process.
McCall: We have had concerns as we have had one downgrade [lenders saying that] we need technology to help us balance these changes in business — and we need to do more with it. I can’t think of a single customer or lender I’ve spoken to who has said anything about wanting to cut staff. It’s about how they can do more.
I think that’s the piece that we’ve had on our road map, and our vision is to deliver the technology. BaseCap really equips us to deal with large data sets and to be able to do the most automated testing possible.
Gauthier: I think another important point there – and you think about the marriage of ACES and BaseCap – is that it’s not just about identifying errors. There are many platforms looking to enter that space. But what do you do when you manage a large population or portfolio of help, and you have 46,000 problems showing up on your doorstep?
The good thing about marrying BaseCap with ACES is that we have a platform that can help them manage errors, communicate with them, do all the reporting and have automated workflows. Otherwise, people will be frustrated.
Wolak: The mortgage industry has generally been slow to adopt technology. Do you think that contributed to why lenders tend to hold defaults until the loan closes, or do you think there is another reason?
Gauthier: It’s a challenge because I think there’s frustration on both sides. Purchasing is indeed challenging, but it is highly regulated, and the data that people deal with is very sensitive. And because of all of those things – and the regulations that are being pushed down on them, and the fact that it’s such sensitive information – it puts the industry a little bit further from being able to use this technology, which is likely to make mistakes.
They are already worried about manual errors. Now you’re going to introduce technology into it that you can do at scale – there’s an element of fear there. I think the truth is that this technology has gotten better. Those mistakes will be in favor of technology, which means we do a better job, but I think it took time for people to get used to that.
Technology is changing rapidly, especially with AI. I think everyone would like to use it, but there is an element of fear about it. The highly regulated nature of the market we play in doesn’t really allow for bleeding-edge technology, and it will be slow to come in many areas. It’s not just a QC area – it’s across the board.
