Rebecca Walzak has an outstanding track record of developing, implementing and rejuvenating all phases of risk management. For example, as one of the first employees at Prudential Home Mortgage, she developed the national closing program, the risk management and reporting program for third party correspondents and restructured their regulatory compliance and quality control programs. Moving to national bank-owned mortgage operations provided the opportunity to implement innovative programs in quality control and provide leadership in developing risk management programs. She is a true visionary. Here’s how she sees the future of mortgage lending:
Q: You are probably one of the most well-known women in the industry but rarely recognized for your contribution. Why do you think that is? Do you see the role for women changing in the industry?
REBECCA WALZAK: I think one of the primary reasons is that women have not been recognized for their contribution. The people that get recognized are in production. We have had two women be MBA president, so it is very clear that women are not recognized as leaders. Women are in the back room. They are the underwriters. They are the QC people. They are the people behind the scenes that make things worked. I was told point blank that the reason that people don’t pay attention to QC is because it’s run by women. As a matter of fact, we now have a lot of women in production, but they are not in the senior positions. The people in the senior positions are baby boomers and they were brought up to believe that the man is in charge. That’s how our generation works. Women have stepped forward to try and change that, but stepping forward isn’t always in our makeup. Also, production makes the money. So, if the women are in underwriting and QC, we’re working to make sure things don’t happen. We can have good, healthy production and do things the right way. However, I do think we’re getting there. I may not get recognized, but the women that come after me might get recognized.
Q: You have been in the business for a long time, a large part of that time in Risk Management. What changes have you seen in the area of risk management?
REBECCA WALZAK: People didn’t know what risk management was when I started. People did not create their own risk appetite, they just followed Fannie and Freddie. People now understand that if you don’t produce loans the way you say you’re going to, you’re going to be in trouble. The industry has grown and matured. Mortgage was a department in a bigger company. We’ve seen the growth of wholesale and other channels. Consumers also recognize that you don’t have to go to a traditional bank to get a mortgage. Also, when I started you didn’t securitize, the bank that originated the loan held it and serviced it. The industry has gone from a cottage industry to a national industry.
Q: You hold a CQM (Certified Quality Manager). What exactly is that and how does it influence the way you view the business?
REBECCA WALZAK: A CQM is a certification for learning the discipline of producing quality services. It’s about understanding risk, testing for risk, etc. You have to look not at the product, but at the process as a whole as to ensure that the products are being produced a certain way. Quality management is much broader. It goes into rationale, supply chain management and everything that goes into ensuring that the product is produced a certain way. When I got my certification, it was very auditing focused. You would look at one loan or one loan product at a time, isolate things that need to be fixed and send it back. This approach has created an adversarial relationship between QM and production and it doesn’t solve the overall problem because you are not analyzing the process that went into making that loan. When I was at MBA, I asked to see their quality management curriculum and they had nothing. They had just one course. The reason why the private market isn’t coming back as it should is because they don’t have confidence in how the loans are being produced and the reps and warrants. So, if we can get this right, I think it will be a great thing for the industry.
Q: You have been a strong supporter of quality control for many years. What influence do you feel you have made in that area?
REBECCA WALZAK: There are days when I want to beat my head against the wall and say that my career has been a waste. However, if I wasn’t out there talking about a different way of doing things, we wouldn’t even have what we have today. We wouldn’t have the networking for QC people to reach out and talk to other QC people. There is now a subcommittee within the MBA. So, I think we are going to see change. We are going to see a movement toward this methodology.
Q: What are your disappointments?
REBECCA WALZAK: My biggest disappointment is that I still have to fight in a production environment to make management understand the value of QC. Management still see it as a cost of doing business and not a real value proposition. Lenders want to know how much money they are saving for every dollar that they are investing, but you can’t put a price on QC. We’re starting to see QC people move into senior positions. I give Chase and Prudential a lot of credit, but some lenders are so production based and they’re outsourcing QC just to say that they are doing it. I would also like the GSEs to reach out to me and others to see what works best. I asked them how many people they’ve terminated because they don’t have QC. If they focused more on action, instead of just making pronouncements, the QC would change.
Q: What is your focus these days?
REBECCA WALZAK: The mantra these days seems to be review, review, review and then review some more. This is counterproductive and contrary to the objective of a quality manufacturing process. I have been developing a QC program that is focused on reducing costs and identifying ways to make the results meaningful. For example, every manager wants to know “How do I compare to other lenders” so I have developed an industry benchmarking tool available to everyone that normalizes the information and allows subscribers to actually compare themselves to others in numerous ways.
My second focus is educating QC people. The idea that you are educated and certified shouldn’t be foreign. There should be increased gratification for those that know their craft. It’s not just six sigma alone. You have to be trained on the process before you can do a root cause analysis on every loan. That’s ludicrous. You have to understand the process and statistics behind everything. From there you have to formulate a correction where we put forth a solution, decide on a change and put forth a change for management to consider. If we had well educated, knowledgeable people working QC, you’d have a better process emerge.
Q: What do we need to change to make risk management better and prevent some of the cyclical crashes in the market?
REBECCA WALZAK: I find it interesting that Fannie and Freddie are coming out with new rep and warrants. One of the things that caused the crash was when we said, forget about the rules. Fannie and Freddie’s focus is making sure that every loan meets the guidelines, but it’s not focused on if the loan will perform even if it doesn’t meet the guidelines. If we can correlate certain things to performance, we’ll understand what we have to do to get more people into loans that actually perform. Extending reps and warrants gives lenders immediate relief, but it doesn’t solve the problem. At some point, you have to understand what isn’t working and fix it instead of just extending warranties. For example, everyone hates pay option arms, but not all of those loans defaulted. So, why didn’t they default? We have to do the hard work to understand the relationship between the loan and the default rate.
Q: Some of the articles you have written have really challenged the industry to look at things differently. Has any of that come to fruition and do you think it will?
REBECCA WALZAK: At the time of the Pirates/Cubs playoff my son said that he hoped the Cubs won since in the second Back to the Future movie, there was a sign in Wrigley Field congratulating them on their 2015 World Series victory. He just wanted to see one thing from that movie actually happen. I would be very happy if any of the ideas I have put forth in those articles came about.
Q: What worries you about the future of the industry?
REBECCA WALZAK: There are not enough people who understand the mortgage industry from top to bottom. Not many people have actually worked in all the areas including production and servicing, so they don’t know how things relate to one another. The collective knowledge of what we do and how we do it will be lost as us older folks leave. There is no one to replace us. While “book learning” for the CMB is good, it does not replace the knowledge that comes from experience.
Rebecca Walzak thinks:
1.) We are in a rising interest rate environment that may slow down the rate of growth, but it won’t have a devastating impact because Millennials are looking to buy a house and settle down.
2.) I also think that baby boomers are going to want to dispose of their home to move into a condo, which will add new housing inventory and a demand for financing around other types of housing.
3.) Regulations will have more of an impact on the secondary market. I’d like to see the CFPB be more definitive in the new rules that they produce. You can’t have regulation by litigation.
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 year.