A Bit Of TLC: Loan Quality Adoption Weakens Legacy Barriers To Profitability

*Loan Quality Adoption Weakens Legacy Barriers To Profitability*
**By Mary Kladde**

***One need only sample the last week’s media coverage of servicers tripped up by the details in foreclosure-related documents to understand that the mortgage industry is in a precarious position. The servicers’ predicament gained hyperbolic proportions for many reasons such as ill-informed opinion leaders or players with an axe to grind.

****More important to note, I think, is that it was in the crucible of an election season that the situation took on a life of its own. Make no mistake, even when the mortgage economy stabilizes, there will be politics to bring it back into the court of public opinion, where conspiracy theory often passes for rationale debate.

****Be on notice: “Don’t Sweat the Small Stuff” and “It Will All Come Out In the Wash” are not bumper stickers for mortgage lenders to sport.

****As I’ve preached from this and other pulpits before, the Fannie Mae Loan Quality Initiative (LQI) might not be the perfect solution for what ails the industry, but it could change some minds. What I mean is that LQI encourages a shift in perspective that will benefit individual lenders, borrowers and mortgage investors – all of which have suffered in the collapse of a house of cards.

****Even though Fannie Mae seems to have backpedaled on LQI and its sibling, EarlyCheck (for reasons that are officially opaque but more translucent if you think about it in last week’s context) the tools they provide and the procedures they recommend are instructive. Further, if followed, the LQI-suggested protocols offer “evidence” of lenders’ intent to embrace loan quality as a standard.

****I guess you might say that adopting LQI and LQI-like loan level quality protocols is good PR, as well as good risk management. An interesting thing happens when good risk management and good PR converge – opportunity emerges.

****From my perspective both as a career mortgage industry professional and as a high volume outsource services provider to mortgage lending entities, loan quality is the only future for our industry. When we embrace that as a value and implement it throughout our operations, we’ll see the real barriers to profitability fall.

****Through the lens of LQI, one cannot help imagining a mortgage economy in which what matters at the end of the day is loan level compliance and quality. The next time, let’s talk about some mortgage lending profitability barriers that could be eliminated by adopting LQI as your lending SOP.