The idea that “there’s a fool born every minute,” long accredited to circus icon, P.T. Barnum, is still true today. Even after the days of creative financing, the foreclosure scams and “too good to be true” programs that the industry has suffered through, it appears many lenders are still looking for a “quick fix.” Take the idea of risk management for example. Now that the regulators and agencies have deemed this activity an important part of the industry solution, lenders are eagerly seeking to find something that gives them an answer when they are asked, “Do you have a “risk management” function?”
The development and implementation of a risk management program is not a small undertaking. The activities involved in sound risk management practices are extremely complex and require people who have many years of experience in these areas to effectively manage it. After all, we are talking about RISK! This stuff could put a lender out of business, cause massive financial failures or bring down the wrath of the regulators on the organization’s head. It is so specialized that just a few years ago, there were only a very small cadre of companies that were willing and able to provide such guidance. Yet suddenly, every company is a “risk management” expert.
Take the recent mailing I received from a company that has been doing QC reviews for several years. The headline on the mailer stated they were now a risk management company and able to take care of all my risk management needs. Really? A company that previously had trouble even meeting file review requirements let alone producing reports that were something other than data dumps is now prepared to handle the entire enterprise risk structure of my organization? I find that very hard to believe. Yet it is happening more and more. The majority of QC and due diligence organizations, legal firms and appraisal management companies are now selling themselves as risk management companies. New technology is being touted as the solution to risk management concerns. Unfortunately, I have neither seen nor heard anything that gives me confidence that these companies are doing anything other than what they were doing before. Just calling it something different.
Although as commercial organizations we are supposed to be smart enough to avoid falling for this type of fool’s paradise, the reality is that the new world of risk management is something most of us are not familiar with. We need to recognize that risk management solutions do not come from a box or off the shelf. Common sense says that each company should view the risk management/control environment required by the new regulations and define for themselves what they need to bring it to fruition. Taking the time to analyze, define, prescribe, implement and test a risk management structure yourself, will, in the long run be much more effective. Ask questions of vendors that purport to offer these solutions and find someone you trust. Look at their experience in the field; have they done this before? Are they offering anything that is different than what they have offered in the past? If not, don’t fall for the ad; make sure the medicine works. And be careful you don’t become another one of P.T. Barnum’s fools.
About The Author
rjbWalzak Consulting, Inc. was founded and is led by Rebecca Walzak, a leader in operational risk management programs in all areas of the consumer lending industry. In addition to consulting experience in mortgage banking, student lending and other types of consumer lending, she has hands on practical experience in these organizations as well as having held numerous positions from top to bottom of the consumer lending industry over the past 25 years.