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QC Player Is Ready For Day 1 Certainty

ACES Risk Management (ARMCO), a provider of financial quality control and compliance software, has updated its flagship ACES Audit Technology with new functionality that aligns with Fannie Mae’s Day 1 Certainty (D1C) initiative. With this update, ACES now includes additional fields for assessing asset, income, employment and collateral data according to Fannie Mae’s D1C initiative. The company also updated its rule-based technology to assist auditing these loans according to the D1C initiative.

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ACES users continue to use ACES Intelligent Questionnaire technology to customize questions and scripts according to their own unique needs and objectives. ACES’ direct import of D1C data enables users to preserve the integrity of their QC processes, while also aligning with D1C parameters.

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“Lenders can gain added protection under Fannie Mae’s Day 1 Certainty initiative, but they have to follow certain protocols,” says Phil McCall, COO of ARMCO. “We updated ACES so our clients can automate their auditing process to account for the different checkpoints associated with D1C. Our clients know that ARMCO’s mission is protecting their businesses. They know they can rely on us to stay on top of all guidelines, initiatives, regulations and trends, and they know we will continue providing the tools that help them grow and protect their businesses, not just for now, but also for the long haul.”

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The recent ACES software enhancement went into effect for all clients June 12, 2017.  Clients and interested parties can get further information on this update via the proprietary ACES Knowledge Center, or by visiting the ARMCO website (www.armco.us) for a demonstration of the latest software.

Progress In Lending
The Place For Thought Leaders And Visionaries

Fair, Unfair And Deceptive

With the announcement, earlier this year about the latest data additions to be included in all future HMDA reporting, the industry has been heavily focused on making sure that the necessary data is available within loan origination systems. Furthermore, the loan application form, commonly referred to as the 1003, has been updated to ensure that all this data can be collected from the borrower(s). This additional information, in conjunction with what is already collected, form the basis of regulators Fair Lending reviews.

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Fair Lending, is the federal regulation that requires all lenders to treat every applicant equally. For depository institutions, their lending patters must demonstrate that they offer mortgage opportunities in the communities in which they accept deposits. Additional analysis is also conducted on the areas in which a lender typically lends. This has traditionally been known as the lender’s footprint and is measured by racial population distributions within specific metropolitan statistical areas or MSAs. In other words, if an MSA is 50% Hispanic, regulators would expect to see that 50% of your applicants are Hispanic. This they believe demonstrates the “fairness” of your lending practices. There are however some very “unfair” issues associated with this analysis, many of which will more than likely be exacerbated by the collection of additional data and the scrutiny of the CFPB.

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The most obvious of these is the poor quality of the data. Although the submission process includes quality and validity checks, inaccurate and/or inconsistent data is rampant. While most lenders work diligently to ensure good data, there have been instances where manufactured and calculated data have been used. Furthermore, until this past week’s announcement, there has never been a way to identify if all required lenders have even submitted their data. If data is submitted late or corrected and resubmitted, the changes never make it into the overall HMDA database for the year. Imagine one lender’s surprise upon finding out that the entire LAR they submitted one year was not included at all.

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Unfortunately, even the bad and or missing data included in the HMDA database is used to analyze lenders. For example, not all applications have the monitoring data completed and since it is the borrowers’ prerogative to complete, few, if any lenders have all the race gender and ethnicity data for every application. This can lead to some very unfair conclusions. Recent comparisons of the number of loan applications compared to these completion of monitoring data found that these numbers just don’t add up. For example, if a lender has 10,000 applications but the breakdown by race shows that only 37% were minority, does that mean that 48% are white? If so, and the population is the MSA is 52% minority does this mean the lender is failing to meet regulatory standards? Without knowing the race of the remaining 15% of the applicants, it is impossible to tell. Yet this is a major part of the regulatory review. Isn’t this a bit deceptive on the part of the regulator?

Finally, regulators and lenders alike must reconsider the use of comparative footprints in conducting this analysis. When lenders and banks were primarily regionalized this may have made sense but with the expansion to nationwide lending and the use of electronic applications, this model is unreliable and in fact deceptive when reaching any conclusion. This must be changed if we are truly to identify any discrimination practices.

The issues identified here are clear indicators that the regulators are not accurately measuring a lender’s Fair Lending, but instead are conducting unfair and deceptive analytics themselves. To protect themselves, it in in every lender’s best interest to know more about their HMDA data then any regulator does.

About The Author

Rebecca Walzak
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.

Former Fannie Mae Exec Joins The StoneHill Group

The StoneHill Group has hired T. Gail Callueng as the company’s new quality control manager. In her new role, Callueng will be responsible for directing quality control services for The StoneHill Group as well as overseeing QC reviews on behalf of clients.

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Callueng has more than 25 years of experience in the mortgage industry and is skilled at servicing and subservicing reviews, managing large loan and servicing portfolios, leading operations and servicing teams, and conducting training and staff development. Prior to joining The StoneHill Group, she worked at Fannie Mae for eight years, most recently as the GSE’s senior relationship performance manager. Before joining Fannie Mae, Callueng served in a variety of executive and consulting roles in the banking industry, including assistant vice president at Fidelity Bank and vice president at Gainesville Bank & Trust. She graduated from Jacksonville University with a degree in Business Administration.

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“Quality has never been more important to the mortgage industry or to our clients, so we are delighted to have someone of Gail’s caliber leading our QC efforts,” said David Green, founder and president of The StoneHill Group. “Gail’s experience at Fannie Mae makes her a particularly valuable resource for our many clients who partner with the GSEs. As demand for loan quality continues to soar, we are confident Gail will deliver the results lenders and servicers need to excel.”

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“I am thrilled to join The StoneHill Group, one of the mortgage industry’s most trusted providers of QC services,” said Callueng. “Having worked on both the seller and purchasing sides of the mortgage industry, I know how challenging it can be for lenders to create and maintain quality throughout the loan cycle. I look forward to leveraging my knowledge and skills to help our clients and make The StoneHill Group the first name in the mortgage industry when it comes to loan quality.”

Progress In Lending
The Place For Thought Leaders And Visionaries

Guess What’s New

Hey, guess what’s new? According to Richard Parsons in his August 17th commentary, there is a boom in bank lending. Banks such as Suntrust and JPMorgan Chase are experiencing increases ranging from 15.5% to 23%. Likewise, real estate values are going up and up. The trifecta of this development is of course the re-emergence of loan products that we never thought we would see again.

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What in the world is driving these trends? Well for one thing the inventory of previously owned homes is still rather low while builders are introducing new community developments in all areas of the country. For another, there are now down payment assistance programs either already available or under discussion and banks and investors are hungry for more yield in this continuing low interest rate environment.

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The primary result of all this news is that banks and investors are expanding their risk appetites, and because they believe that loan quality is once again healthy, they are willing to add more risk to their portfolios. This is evidenced by the increasing volumes of lending activity. Of course, the lending activity reflected in the bank’s number do not necessarily include those loans originated and funded by non-bank lenders which would increase those numbers even more. So should lenders break out the streamers and champagne? Are we back to the early 2000s with another round of increased borrowing just around the corner?

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Whoa! Wait a minute. Aren’t we still suffering under the regulations that were piled on after the collapse of 2008? While the obvious answer to that is a qualified yes, in reality the industry is starting to realize the opportunities available from these reversals of fortune. The question is not should we take advantage of these opportunities, but have we learned enough to avoid the same cataclysmic result. Let’s take a look at the issues.

Credit risk, in the form of both underwriting policy and product development prior to the crash, was expanding to include some very hazardous policies. Stated income loans had been offered as early as 1988 to employees of companies that moved and were eligible for their relocation programs. In less than 12 months it became evident that even these stellar borrowers were having difficulty making payments on stated income loans. Yet any additional reviews of the potential for inaccurate income to be used in these loans was either never done or not published. Furthermore, credit criteria in the form of debt-to-income ratios were also pushed ever higher without any acknowledged analysis taking place. Now of course, the ATR and QRM requirements are in place for federally regulated institutions but what about those who are not?

Regardless of these issues, the most significant process failure prior to the meltdown was Quality Control. If nothing else was gained from this catastrophe we learned that the program dictated by the agencies was less than useless. Even though the steps were followed, lawsuits focused on this failure has run into the billions. Yet the agencies have done little to change the requirements despite the fanfare surrounding the new dictates.

So, now we find ourselves in an environment with rising home prices, low interest rates and banks taking on more risk. History tells us this does not look good. It would wise for all of us to remember, “those who fail to learn from history are doomed to repeat it.”

About The Author

Rebecca Walzak
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.

Good Headlines?

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Hey, guess what’s new? According to Richard Parsons in his August 17th commentary, there is a boom in bank lending. Banks such as Suntrust and JPMorgan Chase are experiencing increases ranging from 15.5% to 23%. Likewise, real estate values are going up and up. The trifecta of this development is of course the re-emergence of loan products that we never thought we would see again.

Featured Sponsors:

 

 
What in the world is driving these trends? Well for one thing the inventory of previously owned homes is still rather low while builders are introducing new community developments in all areas of the country. For another, there are now down payment assistance programs either already available or under discussion and banks and investors are hungry for more yield in this continuing low interest rate environment.

Featured Sponsors:

 
The primary result of all this news is that banks and investors are expanding their risk appetites, and because they believe that loan quality is once again healthy, they are willing to add more risk to their portfolios. This is evidenced by the increasing volumes of lending activity. Of course, the lending activity reflected in the bank’s number do not necessarily include those loans originated and funded by non-bank lenders which would increase those numbers even more. So should lenders break out the streamers and champagne? Are we back to the early 2000s with another round of increased borrowing just around the corner?

Featured Sponsors:

 
Whoa! Wait a minute. Aren’t we still suffering under the regulations that were piled on after the collapse of 2008? While the obvious answer to that is a qualified yes, in reality the industry is starting to realize the opportunities available from these reversals of fortune. The question is not should we take advantage of these opportunities, but have we learned enough to avoid the same cataclysmic result. Let’s take a look at the issues.

Credit risk, in the form of both underwriting policy and product development prior to the crash, was expanding to include some very hazardous policies. Stated income loans had been offered as early as 1988 to employees of companies that moved and were eligible for their relocation programs. In less than 12 months it became evident that even these stellar borrowers were having difficulty making payments on stated income loans. Yet any additional reviews of the potential for inaccurate income to be used in these loans was either never done or not published. Furthermore, credit criteria in the form of debt-to-income ratios were also pushed ever higher without any acknowledged analysis taking place. Now of course, the ATR and QRM requirements are in place for federally regulated institutions but what about those who are not?

Regardless of these issues, the most significant process failure prior to the meltdown was Quality Control. If nothing else was gained from this catastrophe we learned that the program dictated by the agencies was less than useless. Even though the steps were followed, lawsuits focused on this failure has run into the billions. Yet the agencies have done little to change the requirements despite the fanfare surrounding the new dictates.

So, now we find ourselves in an environment with rising home prices, low interest rates and banks taking on more risk. History tells us this does not look good. It would wise for all of us to remember, “those who fail to learn from history are doomed to repeat it.”

About The Author

Rebecca Walzak
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.

A New Way To Automate Quality Control

DocMagic, Inc. has launched its fully integrated ‘eQC’ solution that automates due diligence for investors and correspondent lenders. eQC provides a complete closed loan MISMO 3.3/UCD XML data file, an automated compliance report, and a detailed audit trail with a document integrity certification that certifies that the XML data provided and documents match prior to investor delivery.

The automated compliance component of eQC includes a complete electronic record of compliance that arms investors and correspondent lenders with a detailed audit trail that eliminates concerns over future TRID audits and violations.

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Moody’s Investor Services, Inc. compiled a report that revealed more than 90 percent of loans reviewed by third party due diligence firms were not TRID compliant.  Since that time, outstanding issues with TRID have been adversely affecting the secondary market’s appetite to purchase loans.  Concerns over potential assignee liability can result in loans remaining on warehouse lines for longer periods, extending lock periods, placing loans into suspension, and even potentially affecting the credit rating for mortgage bonds that are included in future RMBS pools.

“The CFPB requires all parties involved in the mortgage finance transaction to demonstrate evidence of TRID compliance,” asserts Tim Anderson, director of eServices at DocMagic.  “Our new eQC solution gives investors and correspondent lenders warranted electronic evidence of compliance with TRID and other critical regulations, and ensures that the audited data is exactly the same data that appears on the documents disclosed to the borrower. This is really the holy grail of automated due diligence compliance.”

eQC also provides compliance data on federal regulations like high cost, QM, ATR, as well as applicable state regulations. It works by leveraging DocMagic’s sophisticated audit engine, which determines if a condition is out of compliance.  The audit engine immediately flags the causes of any issues for the user, directs the user to a link with information on where and how to fix it, and then verifies that the error was corrected.  A full date and time stamped audit trail is created by following a consistent data validation process that runs over 10,000 compliance rules and edits designed to verify and validate legal compliance throughout the loan origination process.

This audit trail also provides full date and time stamp tracking of all borrower disclosures, a complete record of the compliance checks and conditions performed on the loan, and the complete MISMO 3.3/UCD XML data file.  The XML data file can be used to electronically board and re-verify compliance at any time in the futurethrough a tool set API that enables high speed access to this due diligence functionality.

“With over 8,000 originators running millions of closed loans through DocMagic’s compliance portal each year, eQC leverages the long-standing industry acceptance of our compliance solutions to bring our correspondent lenders and investors true automated proof of compliance,” said Dominic Iannitti, president and CEO of DocMagic.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Making Appraisal QC Easier

Platinum Data Solutions, a provider of valuation data and analytics solutions, has launched RealView QB (Quality Bridge), an appraisal quality technology that allows users to authorize access and share information with third parties, including lenders, AMCs, appraisers and investors.

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RealView QB is a workflow feature in RealView, an appraisal quality technology. It enables a single, centralized system of record for appraisal quality control. With RealView QB, users can invite virtually any relevant party to access their appraisal quality and underwriting process on a limited, user-defined basis. These third parties simply log in to RealView, review appraisal QC results and immediate take action. Examples of these actions include resolving issues, providing explanations or revisions, asking questions, such as clarification on comp selection, and much more.

By sharing a single system of record, RealView QB can eliminate some of the most time consuming, error-prone activities in the mortgage process, such as rekeying appraisal information, communicating findings and requesting additional information.

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“The back-and-forth nature of the appraisal QC process slows the mortgage process and costs companies thousands of dollars each year. Plus, when lenders, AMCs, appraisers and investors operate in silos, it’s difficult to achieve transparency,” said Phil Huff, president and CEO of Platinum Data. “RealView QB’s real-time information sharing reduces mistakes and repetitive tasks while bringing transparency to appraisal QC. All parties benefit from lower costs and protected margins, and the industry as a whole gains the transparency it needs.”

About The Author

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Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

A Cautionary Tale For Lenders

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becky-walzakOnce upon a time, long, long ago in a century past, there lived many, many people who wanted to buy a home for their family. However, they knew it would take more money than they had. Fortunately for them there also lived in the land, people who wanted to invest their money with people who wanted to own their homes. So to make this happen the good mortgage lenders of the land agreed that they would be the intermediary between these groups of people. But everyone wanted to know more before they agreed. “How will you protect us from buying a house that we cannot afford?” asked the people who wanted to buy houses. “How will you protect our money from going to people who won’t pay us back” ask the investor people. The good mortgage lenders answered the buyers this way: “We will only have loans that have consistent payments so you won’t be surprised when you get your bill. To make sure you can make those payments we will have guidelines that evaluate your ability to make the payments. Finally, to make sure we are doing this correctly, we will have a quality control review to ensure the reliability of our lending process.” Upon hearing this, the home-buying people cheered and rushed to find a home they wanted to buy. However, the investor people were still not happy since they could not see what the good mortgage lenders were going to do to protect them. So they said to the investor people, “When we told the home buying people about our QC that was also for you. You will know that the guidelines used to ensure they can make payments will be tested by QC as well and any problems that they find we will take action and make changes to ensure that the loans are good.” Once the investors heard this they were happy because they knew that having QC would protect them. And so all the home buying people in the land bought their houses and the investor people got loans that paid. Everyone was happy.

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Well, almost ever body. There was also in the land an evil sorcerer named Greedy that was very unhappy. He wanted to make lots of money from these good and happy people, but everything was working too well. So Greedy created some new loans that were very bad and caused the good home buying people to stop making their payments. He also infected the good mortgage lenders with his greed potion and whispered into their ears that QC was BAD for them. “Why”, they asked. “Well”, he answered, “They see how poorly you are following the credit guidelines and are stopping you from making all the loans and lots of money.” So he cast a spell on the good mortgage lenders which caused them to ignore what QC was telling them. This made Greedy very happy.

Unfortunately, the happy times didn’t last. The good home-buying people couldn’t pay these new loans and they lost their homes. The good investors lost their money and were very mad. Finally, the ruler of the land said “Enough already! We are going to change this and make our QC people very strong and make sure that lenders listen to them. This will give us back what we lost because of the evil sorcerer.” And so it happened and everyone was happy again. Or were they? The evil sorcerer is still out there. Does he have more devious ideas? Will he bring back those loans that caused all the problems? Will he stop QC from doing its job? What will happen next? Can we afford to find out or should we stop the problems before Greedy becomes too powerful again?

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A cautionary tale for sure, but this could happen again. During the past seven (7) years the industry has worked very hard to correct the problems that created the Great Recession. With guidance and/or dictates from new laws and regulators, changes have been made in our origination and servicing processes. Fannie Mae, Freddie Mac and FHA have made major improvements to their focus on ensuring quality loans are being produced and that QC departments are no longer ignored or dismissed when their testing shows problems. As a result, the agencies are pleased that the quality of the loans they are asked to purchase and/or insure is improving. A recent statement from Fitch also reflected that defaults are down to the lowest levels in many years. The loans being made are tested to ensure the borrower can pay and new requirements explaining the process is in place. Yet, there are signs that “Greedy” is still active.

Potential Warning Signs

Today lenders have adapted to the changes made in the aftermath of the Great Recession. Loans made are required to meet the “Ability to Repay” and “Qualified Residential Mortgage” if they are going to a federally insured entity. The secondary market is closely examining loans for TRID compliance and lenders are doing Pre-funding QC as well as using the agency taxonomies to establish the level of risk in the files. However, there are signs on the horizon that says this may not last.

Increasing number of homebuyers:

For several years now lenders have been waiting for the Millennial generation of 72 million to start buying homes. While there were many reasons for the delay it appears to be over. These individuals have now reached the age where they are getting married, having children and want a place to call their home. While the type of housing they are looking for may change, the sheer volume is bound to be good for lenders.

In addition, the largest generation, the Baby-boomers, are reaching retirement age and are looking to move away from large houses with lots of work to smaller homes that leave them more time to enjoy the fruits of their labors. Many more are looking for second homes in areas where they can get away from cold winters and relax or move away from the suburbs to larger cities with more cultural events and groups of people with common interests.

Also to be considered is the immigrant population that continues to grow. These individuals, whether brought here by companies seeking employees or by their own desire to make the move, they are increasing the population of people seeking to buy houses. All of these buyers are putting pressure on housing inventory and prices.

Increasing home values:

While anyone who already owns a home is aware of increasing values in their area, there are signs that values are steadily increasing. Zillow recently published the list of Top Ten Housing Markets with the highest increases in prices. The top five include Denver, Seattle, Dallas-Ft. Worth, Richmond and Boise with the highest have a 5.6% home appreciation rate.

New loan products:

While it has taken a while, private investors are reemerging in the marketplace. Just recently announcements were sent out from lenders offering products that are similar to those we saw prior to the mortgage meltdown. These product offerings include, DTIs up to 60%, LTVs as low as 10% for jumbos with no MI, alternative income offerings, non-warrantable condos, loans for borrowers with a bankruptcy or foreclosure within the past 24 months, loans with interest only options, investment property lending regardless of the number of properties owned, and the most concerning of all loans with credit scores to 580.

Government Pressure to increase homeownership

Despite all the accusations made by government officials during the last crisis, the political climate is once again focused on expanding home-ownership rates. Numerous articles have expounded on the fact that the homeownership rate is well below what was acceptable even before the crisis. A recent announcement from FHFA included a statement that they were directing Fannie Mae and Freddie Mac to determine what is preventing individuals from purchasing homes and to create programs to address those issues.

Degrading the importance of Quality Control

The new quality control requirements implemented by Fannie Mae, Freddie Mac and FHA are designed to ensure the adherence of loans to their guidelines and eligibility requirements. In fact, they require that any loan produced that is not eligible for sale to them or needs insurance provided by them be given the highest risk rating. However, other than that they allow lenders to determine how they define risk despite the fact that the two highest ratings are used to calculate the overall error rate. In other words, one lender can say that the second highest risk they identify are those loans where there is obvious fraud. Then all other issues, such as bad appraisals, inaccurate calculations of DTI, missed liabilities, title problems, regulatory faults and similar type problems are not considered significant enough to warrant being included in the overall error rate. Another lender may include these issues in their second tier rating and as a result have a higher error rate than a lender making numerous mistakes.

More discouraging is the fact that the very people who make the mistakes are the ones responsible for reviewing the findings and contradicting the issues so that they are wiped out of the reports. The pressure on QC staff has not abated at all.

Furthermore, none of the entities requiring these QC processes has the ability to test each lender to ensure they are complying with the guidelines. While it is bad enough for large lenders it is even worse for smaller ones. Here the QC reviews cannot show any problems since management is concerned that any investors they may have will terminate the relationship with them if the QC report is not perfect. This also applies to outsourcing firms as well.

Recently I was told about a loan where the appraisal had numerous flaws and the value of the property had increased from $120,000 to $190,000 in six months. When reported in the QC findings, the QC manager was told to remove that finding or they would be responsible for the company closing its doors since the loan had gone to their primary investor who wanted to see their QC report. This pressure on and intimidation of QC personnel is by far the most significant indicator of problems to come.

So while those of us still in the industry like to think we have progressed beyond the collapse of the industry and are once again living in the land of good mortgage lenders, the reality is that we are still susceptible to the enticements that caused the original problems. Maybe this time however, we will be smart enough and strong enough to resist the evil potion of greed and stay in the fairy tale land of good mortgage lenders. Otherwise we may very well end up with another Nightmare on Elm Street.

About The Author

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Rebecca Walzak
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.

Standing Up For What’s Right

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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.

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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.

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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.

INDUSTRY PREDICTIONS

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.

INSIDER PROFILE

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.

Progress In Lending
The Place For Thought Leaders And Visionaries

Some Very Good News For QC

This is week three of the QC Bowl! More and more folks are signing up and getting to work on reviewing those files. As of last Friday, 28% of the entrants were nearly finished with their reviews and more folks are signing up daily. This looks to be the largest contest of its kind ever conducted within the mortgage lending community. Just as exciting are the inquiries coming from executives, agencies and other entities in the industry. Everyone is delighted about the QC Bowl and it shows in the registrations.

Some friendly reminders:

  • You must complete all 10 loans to be eligible for one of the prizes.
  • Each loan must have a paragraph that explains your reasons for the rating you assigned the loan.
  • You can stop the review and go back to where you were without searching through all the files.
  • The program can be accessed anywhere there is WiFi available.

Some of the contestants have indicated that they had a problem accessing the program. If you were one of these individuals, please let those running the competition know. The organizers will work with you to ensure you are able to access the loan files and the questions. You can reach them at QCBowl@mortgagetrueview.com

Featured Sponsors:

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Wears have some exciting updates.

A New Sponsor. The QC Bowl is pleased and excited to announce that Advantium Capital has signed on as a sponsor for the QC Bowl. The company is known for providing products and services to the mortgage banking industry that are specifically designed to streamline and enhance the entire loan process from origination and secondary marketing through the post-closing and servicing. Their focus on quality products and services is well known and appreciated through-out the industry.

A Deadline extension. Many of the entrants have let the QC Bowl know that they have had delays in completing the loan reviews due to inclement weather, earthquakes and just too much snow. Since this has impacted so many, the organizers have decided to extend the completion deadline another week. Therefore you have until Friday, February 12th to finalize your answers.

Featured Sponsors:

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Haven’t signed up yet? It is not to late!

For those of you who have not yet signed up, there is still time. Just go to QCBowl@mortgagetrueview.com or reach out to David@mortgagetrueview.com or Becky@mortgagetrueview.com.

About The Author

[author_bio]

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.