I grew up in western Pennsylvania. This is the part of the state west of the Allegany mountains and formerly the coal and steel center of the nation. Because of the mountains, most communities were small towns located in the low lying areas known as the “hollows” or as some say “hollers”. Towns named Crabtree, Red Onion and Hunker were located in my “neck of the woods” and those of us raised there were used to “reding up”, using “gum bands” and taking our lunches to school in a “poke”. Not only did I attend high school in this area, but graduated from a university is the same area. This was the American culture I knew, the shared values and patterns of behavior learned through the socialization process of that region.
Upon receiving my degree, I moved to the Washington D.C. area. It might well have been the moon for me. Every belief I had was challenged, the language was different and people inhabiting the area were from many different backgrounds and regions of the country. Their culture was totally different than mine and it took a while to learn to evaluate and appreciate the values, intellectual beliefs and moral faculties presented to me. Eventually however, the culture of the area became mine as well.
Then I received an invitation to attend a high school class reunion and was shocked to discover that many of my fellow graduates still lived with the same cultural beliefs that were prevalent years ago. They still held to the beliefs, concepts and social structures that existed in that region of the country in the 1950s and 60s. After several discussions, and I admit, frustration on my part, it occurred to me that while they were aware of the changes in American society and the world, they had adapted only to those that were comfortable for them within their beliefs and behaviors. In other words, their culture.
This got me thinking. Could the same thing occur within a specific organization or industry? Could an occupation such as teachers or an industry such as mortgage lenders have developed their own “culture”. Would this culture have characteristics, knowledge and behaviors that are unique to it? What if this culture’s beliefs were different than society’s as a whole? If so, can that culture be changed if necessary?
The answers to these questions required some research and I started by searching the internet. On a site called “Live Science” I found this definition of culture “The characteristics and knowledge of a particular group of people…” and this as well, “Shared patterns of behavior that are learned by socialization.” It also included this rationalization of how cultures develop; “…the growth of a group identity fostered by social patterns unique to the group.” Merriam Webster defined culture as “A way of thinking, behaving or working that exists in a place or an organization.”
Where do we look to determine what an organization’s culture is all about? What will tell us about the industry, who belongs, what values they have and how they interact with others? One way is to become involved with them by joining the group, interact with them on a professional level or using the services they provide. Another way is to review what they have done, what has been written about them and what they claim are their standards and values. If we did this what would we find out about the culture of mortgage lenders?
One thing is certain, we would find a lot of negative information based on the past 10 to 12 years. It is likely that not only would the problems of the mortgage crisis be heavily discussed, but it is very likely that much of the effort put into fighting regulations that came from that period would be included as well. Let’s face it, in the eyes of most consumers, mortgage lenders have not yet regained a trustworthy status. If asked, many consumers would indicate that they believe lenders are only interested in making money and many lenders, like the example given by Dan Ariely in his book Predictably Irrational, are representative of the industry itself. In this example a large bank was given the option of offering consumers a “self-control” credit card in order to prevent them from overspending and accumulating large amounts of debt. In doing so however, the bank would lose approximately $17 billion in interest paid on these accounts. The bank refused the offer putting the interest income above the benefit that could be gained by the consumer.
Do these examples really reflect the mortgage lending culture? Are we more likely to focus on the $300 Million loan package sale to an investor than the $100,000 individual loan? Are the loan officers we employ ignoring potential applicants asking for smaller loans or are products that are part of affordable housing programs in order to concentrate on larger loans? Even from an insider’s viewpoint the answer to this question seems to be yes. While the “originate and sell” focus that was so berated during the crisis investigation has been mitigated to some extent, it appears that the culture that created it has not changed much at all. Have we progressed in changing the culture that created the crisis in the first place? Have we endorsed the changes brought about by regulation and refocused on consumer interests? In the period since the mortgage crisis have we taken steps to change this culture?
Consumers and regulators must acknowledge that if looked at closely they would also see an industry that is trying to make itself more efficient by using technology to perform many of the tasks associated with its product as well as address the perception that consumers’ needs and concerns are not critical to the success of their industry. They would also discover that while there has been a tightening of credit in many products, there are still many options available to address their specific needs. They would see an industry that has added more staff to review loan files to make sure the regulations that were enacted are met. So do these changes reflect a better industry whose focus is the consumers’ satisfaction and investor confidence instead of their own profitability?
Rather than asking if these statements and examples accurately portray our culture, maybe we should instead ask ourselves what we want our culture to be? Are we truly interested in focusing on consumers; putting them first; meeting all the regulatory requirements, ensuring the quality of the loans by developing individual QC programs that accurately measure product quality, analyzing what issues really impact loan performance and developing better communications and loss prevention strategies? Haven’t we done enough already to change the culturally image of the industry? And if this negative culture still exists how do we go about changing it?
Based on previous experiences it appears that changing a culture is not something done quickly or by adding some new technology? All we have done to date is comparable to simply rearranging the deck chairs on the Titanic. If we want to make progress in the lending culture more effort is required. Several years ago I worked with the MBA to rewrite the Code of Ethics for members of the industry. That may be a place to start. However, what we really need is the development of strong statements and actions that reflect our focus. We have to tear apart the very fabric of what we do and how we do it and in order to do that we must have some knowledge about the products and services we provide. Yet we have never taken the time to conduct a real analysis. For example, with all the defaults in Pay Option arms, there were some that performed yet there was never any analysis done on the loans that performed to identify what made the difference. Maybe if we had we would be able to identify if there are actually some opportunities for consumers to benefit. We have not analyzed our processes to determine what aspects of them, if done incorrectly, are more likely to result in a loan default. We make pricing decisions based on perceived risks such as product type, occupancy, property type, DTI and LTVs, yet those data points have not been analyzed in the context of process issues. As for Fair Lending, has anyone ever truly analyzed the HMDA data to determine if there are actual patterns or opportunities for expanding homeownership. For example, we are continually assaulted with the fact that approval rates for whites are higher than African Americans yet when you delve into the data the results show than almost 50% of the applications are for female borrowers and female borrowers of all races and ethnicity are denied at higher rates than their male counterparts.
Servicing actions have also come under greater scrutiny which resulted in the perception of the servicing culture as one of “just get the money or foreclose”. While the changes in the loss mitigation efforts implemented through the new regulations and government policies initially indicated that there was not a significant change in performance, little has been discussed or analyzed about the impact in an improving economy.
Becoming a respected and valued industry in American society and its economy is something that we all want to achieve yet our efforts to date do not seem to be improving our culture. Technology, while important, cannot and will not address the problems that are generated from the culture that continues to exist today. Only thorough digging deep into the issues and making changes based on the knowledge that comes from real analysis will we be able to make some real progress in lending. One need only look at the auto industry to see what can happen. This industry was regarded as “dead” by many Wall Street analysts because of its approach to producing cars that was made them profitable. Once they realized that this culture was the primary source of their problems and they made radical changes in the approach to the design and product of their products were they able to recapture their prominence in the American economy. It is a lesson that could benefit mortgage lenders.
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.