The MBA held its annual Risk Management and Quality Assurance conference recently. With all the new CFPB requirements in place or soon to be released, I expected to hear lots of news about how quality is getting better and what new technology is coming soon to make that happen. But what I found was… “nothing.” Unfortunately it was just a rehashing of old technology and new terms for old problems.
As the recent Bank of America settlement stated in no uncertain terms, the quality of the loan files that were at the heart of the crash was horrendous. But, we say, it wasn’t that QC didn’t work or the job wasn’t done, it was that the QC reports had no value. Their findings and warnings were minimized and ignored. And still there is nothing happening to change that; to give management the results they need on a timely manner and in a format that blatantly states in reliable terms “Hey you, here is a big problem that you better fix or you’re in for all kinds of trouble!”
Oh sure, Fannie Mae, Freddie Mac and HUD have now discovered “manufacturing quality” and are eager to use words like “process” and “improvement,” but at the end of the day, nothing has really changed. The term “material violation” is now being replaced with “defect” and a taxonomy of defects is being developed so QC personnel can point to something that shows that a mistake has been labeled a serious problem, or at least is one according to the chart. However, it still takes 90 days to get the information out, it is still only a sample and a biased one at that and it still doesn’t tell us if the “defects” were the result of an operational failure or if they have any impact on the overall quality of the loan. So once again, management, attempting to take the results seriously, spends a lot of time and money trying to fix random mistakes and ends up with nothing. So what can they do but minimize the results and/or say the problem was fixed even if they don’t know.
Technology companies, you have let us down. The issues here are complicated and complex, just the right stuff for a great technology program. We need to address the fact that, one, we don’t know this risk, and two, we don’t know how to measure processes to allow us to mitigate the risk! Somehow we need a real-time analysis of each process and identification of the variations as well as the ability to understand on a statistically valid basis, whether the variations will have an impact on the riskiness of the loan.
So, here is my challenge to all technology companies! Design and develop a QC program that is imbedded in the LOS and/or Servicing systems to automatically conduct QC on EVERY loan during EVERY part of the process! We need a scoring model to evaluate whether a variance has the potential to increase risk. And we need a reporting approach that is timely and focuses on the risk that company processes are failing on a systemic basis. I know it won’t be easy, nothing worthwhile ever is. But once accomplished, it will have the greatest impact on the industry because then we will be able to measure every risk and give the secondary market valid risk-based information. If anyone is interested in taking on this challenge, I will be glad to help. Just give me a call.
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.