Mortgage Industry News

So, for the first time in the last fifteen years – in the middle of the worst crisis the industry has faced, FHA has proposed some changes that look as though they should happen by January 1st.  FHA really is only following the trend of GSE requirement boosting…So is the assumption that by raising the net worth requirement to $1 million they should be able to cover what?  Three, four, maybe five loans?  And that creating a tier of liability isolating FHA from the mortgage broker will somehow make that $1 million stretch farther?

FHA Announces Credit Policy Changes, Adding Chief Risk Officer
Policy Changes Will Reduce Risk As Officials Anticipate Annual Actuarial Study to Show Capital Reserve Ratio Dropping Below Congressionally-Mandated 2 percent
(source: Federal Housing Administration)

(Washington, DC) – Federal Housing Administration (FHA) Commissioner David H. Stevens today announced plans  to implement a set of credit policy changes that will enhance the agency’s risk management functions.  Stevens also announced his intention to hire a Chief Risk Officer for the first time in the FHA’s 75-year history.

Both actions come as the agency’s annual independent actuarial study is being completed. The study will be sent to Congress in November and is expected to show the capital reserve ratio dropping below the congressionally-mandated threshold of two percent. The changes announced today will strengthen the FHA’s reserves and better manage risk.

“To be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action,” said Commissioner Stevens. “That said, given the size and scope of the FHA and its importance to today’s market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections.”

“By keeping affordable loans flowing, particularly to the growing ranks of first-time homebuyers, the FHA has been critical to our nation’s economic and housing market recovery,” said U.S. Department of Housing and Urban Development Secretary Shaun Donovan.  “As we begin to move from recession to recovery, these changes will not only ensure FHA’s financial strength but they will also help to further strengthen our nation’s economy.”

FHA’s congressionally mandated capital reserve ratio, which is determined by the independent actuarial study, measures excess reserves above and beyond projected losses over the next 30 years.  FHA continues to hold more than $30 billion in its total reserves today, or more than 4.4% of its insurance in force. Additionally, FHA’s full faith and credit insurance means that there is no risk to homeowners or bondholders, even in the event that the capital reserve ratio drops below the two percent threshold mandated by Congress. With the FHA’s higher average credit scores and tighter credit policies announced today, the FHA fund is expected to produce revenue for the U.S. Treasury.

The FHA’s risk management functions are currently dispersed across a number of offices. The Chief Risk Officer will oversee the coordination of FHA’s efforts to concentrate risk management in a single division devoted solely to managing and mitigating risk to the FHA’s insurance fund – across all FHA programs.

In addition to adding a Chief Risk Officer, the FHA is proposing specific credit policy changes that are largely focused on ensuring responsible lending and risk management for FHA-approved lenders.  These changes build on lessons learned in the credit crisis and seek to align the FHA with the Administration’s goal of regulatory reform.  As the FHA’s stable of lenders grows, these lenders must have “skin in the game.” These credit changes will do that by ensuring they have long-term interest in the performance of the loans they originate.

Changes Being Pursued by Mortgagee Letter, Effective January 1
Require Submission of Audited Financial Statements by Supervised Mortgagees

Requires supervised mortgagees to submit audited annual financial statements to FHA. This new requirement is a prudent safeguard that permits FHA to ensure that those entities with which it does business are adequately capitalized to meet potential needs.  FHA is aware that the majority of supervised and non-supervised mortgagees are already required to prepare audited financial statements for various regulatory bodies, Government Sponsored Enterprises (GSEs), and investors.  Given these existing requirements, FHA’s new policy will help to reduce risk at limited new costs for approved mortgagees.

Modify Procedures for Streamline Refinance Transactions

Revises current procedures for streamline refinance transactions to establish new requirements for seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower; provide for collection of credit score information when available; and to cap maximum LTV at 125 percent.  An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction.   These revisions bring documentation standards for streamline refinance transactions in line with other FHA loan origination guidelines, ensures the borrower’s capacity to repay the new mortgage, and prohibits the dangerous practice of loan churning, where borrowers raise cash through successive cash-out refinancing that put them further in debt.

Require Appraiser Independence In Loan Origination

Provides new guidelines on ordering appraisals for FHA-insured mortgages and reaffirms existing policy on FHA requirements regarding appraiser independence and geographic competence.  Mortgage brokers and commission based lender staff are prohibited from ordering appraisals.  FHA does not require the use of Appraisal Management Companies or other third party providers, but does require that lenders take responsibility to assure appraiser independence.  While FHA’s existing policies regarding appraiser independence are consistent with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the Code to ensure full alignment of FHA and GSE standards.

Modify Appraisal Validity Period

FHA’s appraisal validity period will be reduced to four months for all properties including existing, proposed and new construction.  Previous validity periods were six months for existing properties and up to twelve months for proposed and under construction properties.  This provides for more accurate home values used for underwriting FHA-insured mortgages during volatile housing market conditions.

Appraisal Portability

Provides new guidelines that allow a second appraisal to be ordered under a limited set of circumstances when a borrower switches from one lender to another and restates the requirement that the first lender must transfer the appraisal to the second lender at the request of the borrower.  This will prevent delays in closing that often occur when a loan is transferred to a new lender.

Changes Being Pursued by Rule Making Process
Modify Mortgagee Approval and Participation in FHA Loan Origination

Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility. These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to originate FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Increase Net-Worth Requirements for Mortgagees

The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased since  1993. HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions.  These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.

All mortgagee letters will be available at noon today on HUD’s website. The proposed rule provisions will be subject to a notice and comment period, after which the final rule will take effect.

Warehouse line relief is coming in small waves, but only for the big banks, despite the fact that small and community banks (as we have consistently been pointing out) are the most stable, have greater trust from their customers and would benefit the most from a solution to the warehouse liquidity crisis!

Read our recent article in Mortgage Orb: “REQUIRED READING: How Independent Mortgage Bankers Can Survive The Warehouse Crisis“

Restoring the productivity of the U.S. mortgage marketplace is a critical, perhaps linchpin, element of both domestic and global economic recovery.Despite conditions ripe for our industry to experience resurgent and restorative volume, independent mortgage bankers have been restrained by a massive retreat from warehouse-line lending. (More)

Despite recent lobbying efforts and legislation, changes thus far have done nothing more than bolster the big banks whose stability has been questionable for some time. ”Big Bank” lenders saved by Troubled Asset Relief Program (TARP) allocations are gaining market share, which poses a dangerous imbalance to our recovery and long-term financial sustainability. From the MBA:

MBA Keeps Up Pressure on Warehouse Lending
Sorohan, Mike

More than 90 percent of warehouse lending capacity has disappeared in the past few years–an issue the Mortgage Bankers Association has made a priority in communication with policymakers and legislators.

Last week, MBA stepped up those efforts on two fronts. On Aug. 27, MBA and the Warehouse Lending Project, a coalition of independent mortgage bankers, met with Treasury Department officials to discuss how Fannie Mae, Freddie Mac and Ginnie Mae could help jumpstart warehouse lending activity.

Additionally, MBA last week coordinated with 17 state mortgage lending associations in a letter to the Senate, asking for their support in creating a solution that would open up warehouse lending channels.

The activity comes at a time when warehouse lending activity remains stagnant. Warehouse lending is a short-term revolving line of credit provided to a mortgage company to fund mortgages from the closing table to sale in the secondary market. It is the mechanism by which virtually all non-depository mortgage bankers fund loans that are eventually sold into the secondary market to Fannie Mae, Freddie Mac and Ginnie Mae. Today, loans originated through warehouse lines are responsible for at least 25 percent and as much as 40 percent of all residential mortgages, including more than half of all Federal Housing Administration loans.

MBA estimates that the number of active warehouse lenders declined from a peak of more than 115 in 2005, to fewer than 30 today?The total aggregate capacity of warehouse lending credit has declined to about $25 billion, down nearly 90 percent from the level reported in 2007. (more)

Here is more recent mortgage industry news concerning warehouse line lending which outlines the problems for smaller banks:

NATIONAL MORTGAGE NEWS: September 21, 2009Warehouse Squeeze Eases—but Only for Bigger Players

Banks are becoming somewhat more willing to provide warehouse lines to larger and medium-sized players, but it remains difficult to say when and if lines will be again be available for “mom and pop” mortgage brokers and other small originators that are among those hardest-pressed by regulation and the downturn.

For relatively small players, the warehouse lending situation has “gotten worse, not better,” according to Scott Stern, CEO of Lenders One, St. Louis, a cooperative aimed at giving its members the collective scale they need to compete in the market effectively.

As a result of this situation, brokers’ and smaller players’ main career alternatives on the origination side of the business in the near term may continue to be either collectives that aim to preserve their autonomy while supporting and sharing in the profits from their efforts (sometimes referred to as “branching” operations) or joining a lender’s staff.

Warehouse line availability today is “driven by net worth and line size,” Mr Stern said. “Unless you need a $100 million line and have a $10 million net worth, [warehouse lines] are getting harder and harder to find.” (more)

Small banks fail in big numbers

Left behind in finance revival
The Washington Times
By Patrice Hill 

While attention has focused on the improving fortunes of the nation’s largest banks and Wall Street firms, an increasing number of smaller banks have succumbed each week to a slow tidal wave of defaults on consumer and business loans. (more)

More updates soon…

More confirmation with regards to what we’ve already stated.  See previous entry and data here.  

Another Wave of Foreclosures Looms

Washington Post (09/09/09) P. A13; ElBoghdady, Dina

A new report from Fitch Ratings estimates that fatter payments on resetting option adjustable-rate mortgages will lead to another round of foreclosures for the housing market. About $134 billion in option ARMs will reset by 2011, and monthly payments are expected to surge 63 percent on average, or by $1,053 a month, according to Fitch, which also notes that many borrowers are struggling. As of April, more than 35 percent of option ARMs were already two months or more late even though they had not reset.

(More)

(Conclusion from a previous post here)

Instead of allocating TARP funds to larger lending institutions that are not necessarily motivated to extend warehouse lending lines of credit as evidenced by the closure of so many within the last year, TARP allocated funds could be managed in a way that would allow middle market and small lenders access to funds to continue doing business.  This aid would serve to allow these lenders to support and bolster lending within their local communities. The federal government could earmark TARP funds to create a nationally subsidized warehouse line provider or they could allocate these funds to a few different regional banks with the express purpose of supporting warehouse lending for independent mortgage bankers.

The idea is a simple one born of common sense. Correspondent mortgage lenders in good standing could immediately access the needed line extensions or obtain a new line to meet the demands of the market. Then, only high quality, thoroughly audited and compliant loans would be funded through these lines. The risk exposure would be extremely limited, in that the line is a short-term extension of credit that will replenish itself every 15-30 days as loans are sold to the purchasing investor. Further, traditional warehouse lending fees and interest would be charged to the participating lenders for their use of the funds, thereby generating income for other economic stimulus programs.

Today’s Mortgage Industry News – Warehouse Lending Bill

By AUSTIN KILGORE
July 15, 2009 9:11 AM CST

The Department of Housing and Urban Development (HUD) secretary could be required to conduct an ongoing review of new mortgages that become 60 or more days delinquent within the first 90 days of origination if a Federal Housing Administration (FHA) reform bill introduced last week is passed.

The 21 Century FHA Housing Act of 2009 — HR 3146 — aims to reform HUD and FHA processes to root out lenders with high incidences of delinquencies.

The bill’s authors also note the substantial presence of warehouse lending in mortgage originations — which provides short-term lines of credit to non-depository lenders to fund mortgage loans that are eventually sold on the secondary market to Fannie Mae (FNM: 1.62 -2.41%), Freddie Mac (FRE: 1.86 -2.11%) and Ginnie Mae.

As much as 40% of all US mortgages and 55% of FHA loans are originated through warehouse lines of credit, the bill’s authors found.

But warehouse lending has been in decline, falling as much as 90% since 2006 to a range of $20bn to $25bn and leaving a crucial funding gap of potentially hundreds of billions of dollars, the bill says.

“[U]nless Federal regulators promptly address the issue, borrowers seeking to take advantage of today’s low interest rates will face rising costs and reduced credit access, which could undermine the housing market recovery,” the Act reads, in part.

The bill calls on HUD, the US Treasury Department and the Federal Housing Finance Agency to provide financial support and assistance through recent economic recovery legislation to support the flow of credit and lending by warehouse lenders to mortgage lenders.

It also calls for the addition of 90 new HUD employees to conduct FHA process reviews on behalf of the secretary.

The bill was introduced by New Jersey Democrat John Adler, and cosponsored by Connecticut Democrat James Himes and Republicans Chris Lee of New York and Leonard Lance of New Jersey. It awaits action in the House Financial Services Committee.

(Read more here from MortgageNewsDaily.com)

Ruth Lee

Here comes the rain!!!  Even if its starting as a sprinkle.

In these past months, with rates not as aggressive and seasonal dips in refinance and home purchase demand, there has definitely been mellowing in transactional volume.  At the same time, there is not a day that  goes by that I don’t hear of another company that has been around for 15-20 years giving up the fight for survival and closing their doors.  In any case, all of these factors are freeing up capacity for warehouse lending in the small and mid-cap market.  We have been very pleased with the response we are getting from community banks and private equity groups opening small lines – however, at the end of the crisis, it will be the health of our traditional warehouse lending partners that will define this next chapter of housing recovery.

Today, I am hearing from a number of our warehouse lending partners that their capacity is loosening.  As such, we would encourage bankers looking for capacity to reach out to Southwest Securities – whom you can find on our partner’s page.  I know for a fact that Mark Cheney and Steve Wojnar with SWST are definitely looking for clients in their respective markets – Mark in the north FL and GA markets… Steve in the Northeast…  Southwest is a great company that really understands the market and hires accordingly.   David Frase, the man behind the curtain – well maybe a little out in front of the curtain – well okay, he is the master of ceremonies but who’s counting…well he is just a smart cookie with a strong sense of the market….  David has stewarded his program through the meltdown with foresight and agility.  A long term partner imo.

Ann Steadman with Texas Capital Bank (also on our partner’s page) sent out an email this week… she is also looking for clients in the southeast.  A fantastic southern lady… Ann is well-known for superlative customer service… with a smart, matter-of-fact understanding of warehouse lending.  As another Southern girl…I just love her style.   

While we aren’t ready for an ark…or even a bateau… the dehydrated market is going to soak this up like a sponge!  For all of you looking for a bit of relief… check out our partners page for contact information and best of luck!!!!

(Continued from a previous post here) 

A commercial revolving line of credit is not a complex or arcane financial instrument. The concern of most potential warehouse lenders is how to handle unfamiliar collateral – the mortgage.  Facing similar quandaries of limited expertise and unfamiliar infrastructure, other industries have embraced the outsourced services model with notable success, accelerating and/or streamlining the efficiency of new business endeavors.

Community banks themselves are not strangers to outsourcing key elements of their business services and operations ranging from trust administration and operations, to online bill payment, check processing and imaging, to telecommunications expense management.  Outsourcing has served community banking well, allowing them to compete more effectively against big banks, and democratizing sophisticated business lending and advisory services to firms focused on serving their local economies.

Today, community banks can outsource a warehouse lending service platform that includes collateral management, line reconciliation and technology infrastructure, providing local institutions with the same operational support as any warehouse line lender. Choosing a well equipped, dynamic outsourced warehouse lending platform and service provider delivers a variable-cost service to micro warehouse lending with specific focus on the needs of local banks.

In the bigger picture, the government could further increase liquidity by allowing TARP funds (Troubled Asset Relief Program) to create a warehouse line of credit, backed by federal funds. This is a simple way to increase liquidity—Fannie Mae and Freddie Mac are being bombarded by customers trying to become direct sellers.  These sellers know that selling directly to FNMA/FHLMC will cut down purchase time lines and allow them to stretch their funds further by turning the lines they have faster and more often. The use of TARP funds to bolster warehouse lending would be a great solution if lenders could get access.  Additionally, the funds would earn interest and replenish itself every 15-30 days.

Final Segment Tomorrow…

(Continued from a previous post here)

The warehouse lending predicament threatens a shorter-term robust economic recovery and weakens a vital marketplace. It is in the best interest of our industry and informed policy makers to pursue relief for independent mortgage bankers that have been parched for liquidity.

The recent demise of Colonial Bank further exacerbates the situation at  hand.  The removal of Colonial Bank represents another significant blow to warehouse line lending and independent mortgage bankers.  With an estimated $4 billion in warehouse lending commitments, Colonial represented approximately 20-25% of total current warehouse lending capacity remaining in the market.  Additionally, Colonial serviced some of the largest remaining “large cap” lines left in the industry.  With this fall, the pool of available funds has once again become significantly smaller.  The large independent mortgage bankers currently serviced by Colonial will begin competing for funds that are normally available to middle market lenders and will serve to push more small and mid size lenders out of business further constraining the market’s ability to  meet volume demands and consumer’s needs.

The solution, many agree, lies in problem solving in a different way by looking to the local community.  It has become commonly acknowledged wisdom that the mortgage marketplace is a local, not a national, phenomenon; thus common sense applies that mortgage lending liquidity is best resourced locally. Most IMBs are fully entrenched in their local financial services community, which provides them access to sources of funding capacity that just a few quarters past would have not been feasible, including private equity and smaller community banks.

To be continued…

As the wind blows to and fro in Washington, the warehouse lending sector is still agonizingly short funds.  This is just another example in a long line of examples of why we can’t wait for the government to fix our ills.  We, as an industry, need to take up our own issues and fix them.  If we haven’t learned anything in the last 2 years, we have definitely learned that if we do not self regulate and step up; others who know nothing about our business will…. and here we are today.  

Problems Pile Up in the Warehouse Lending Market

American Banker (09/04/09) P. 11; Muolo, Paul

The Mortgage Bankers Association and other industry groups may have to pitch their plans for aiding the warehouse lending sector to a new regulator and new people in government because the president of Ginnie Mae and director of FHFA — both big advocates for the issue — are leaving their agencies. The industry believes that having Fannie Mae and Freddie Mac purchase participations in warehouse lines would be the easiest way to boost liquidity to nonbank lenders; but the idea also would have to be approved by the Treasury Department, which is losing Assistant Secretary Seth Wheeler, who has been meeting with lobbyists. (More)

(Continued from a previous post here)

Unfortunately, while the financial markets seem to be calming, the economy as a whole is not as steady.  As seen in the chart, the subprime resets peaked in Q1 09 declining to relative insignificance by Q4 09.  The impact of these resets is yet to be seen in the current market as homeowners with fewer options seek refinancing in a market unfriendly to more complex borrowers.  Looking at the chart, the most important thing to note is that the number of resets continues to rise as Option ARMs and Alt-A resets triple and quadruple over the next three years.  The impact of payment shock on homeowners used to paying at either a teaser rate or interest only will compound demand for refinance or force further foreclosure.   Inside Mortgage Finance, a trade publication, estimates there are almost 3 million households represented by this data.

This is germane to the argument about warehouse lending because of the significance of its scarcity in the market.   Since it cannot absorb $32 billion in shortfall, the market will force hard choices based not only on credit or capacity to repay – but more likely on the profitability of the transaction.

In origination, that will mean focusing resources on the loans that are easiest to process and quickest to produce with the lowest risk.  For self-employed borrowers, investors, retirees and emerging markets, that is not going to be great news.  Specifically, the self-employed and investors, aka small business owners/engine of the economy, made wide use of the relaxed documentation requirements of Alt-A and the cash flow benefits of Option ARMs.    Already struggling in a recessed economy, many conscientious small business owners will receive their inability to refinance their personal mortgage loan as a body blow to their business enterprise.

Next segment Tuesday…

(Continued from a previous post here)

Resourceful and creative independent mortgage bankers have already discovered the option of establishing a warehouse line through private equity. GMI Home Loans (gmihomeloans.com), a New Jersey retail mortgage banker originating approximately $500 million per annum in conventional, FHA and reverse mortgages, encountered liquidity challenges soon after its launch in 2007 when access to warehouse line facilities began shrinking industry wide. GMI reached out to NVC Premier Fund LLC, an entity managed by New Vision Capital Partners, LLC, for its funds, and worked with Titan Lenders Corp to develop a warehouse line process management platform.

“As a matter of necessity, we went outside the box to secure reliable liquidity for our business, and found a private equity source to fund our warehouse line,” said GMI Home Loans founder and President Glen Lemeshev. “Making it work for our correspondent investors required that we secure a third-party administrator and custodian, and put into place processes and safeguards that ensure our loans are accepted for purchase by them.”

Private equity funds can fill the gap between loan origination and ultimate investor with minimum start up and operating costs by outsourcing the technology infrastructure and process management. They can pilot programs on a smaller scale, taking their capital to market in a highly structured, process-driven environment. When these processes are refined and perfected, funds can scale up, down, regionally, nationally, conforming or niche.

Due to its use of the Titan Lenders Corp warehouse lending management platform, all costs are variable with the exception of the wire transfer fee, which is fronted by NVC when wires are sent to settlement agent for funding.  Nonetheless, all fees are covered by or recovered from the lender when the investor purchases the loan.  Upon receipt of purchase advice, NVC withholds per diem interest (cost of funds) and administrative fee to cover services and out of pocket costs (wire fee) prior to turning over remaining funds to lender.  This deal truly costs NVC next to nothing to execute and run.

Part five tomorrow…

(Continued from a previous post here) 

Interest rate driven growth in first-time residential purchases and refinance activity swelled mortgage demand in the first two quarters of 2009.  Although public policy of low rates and tax credits has had the intended demand jumpstarting effect, for the small business arm of mortgage banking, there is evidence that a portion of that demand is being curtailed at origination as a byproduct of severely limited liquidity.

Downstream of these events, the survival of independent, community-based mortgage businesses is threatened.  A contracted marketplace of independent mortgage bankers is creating a less cost competitive environment for purchase borrowers of every ilk, dangerously limiting refinance opportunities for troubled homeowner households and driving property values lower as asking prices adjust to lure buyers with reduced buying power.

Part four tomorrow… 

Organizational Development:  Improving Quality Dynamics
by: Deborah Aydelotte

Developing an effective internal organizational dynamic is an ongoing process, and the changed market environment presents a unique challenge.  Every internal group considers themselves a performance watchdog, and while this is commendable, it can also be dangerous to developing the long term strength of the organization. 

Let me explain.  Between identifying and correcting a performance issue, the far easier task is identification.  When I hear a quality or compliance person self congratulate in the knowledge they have found an error, I wonder if they understand their responsibility and enormous potential to change the dynamic and success of the business rather than stopping short at identification. 

I’ve seen and managed many different models and by far the most successful is a quality joint ownership model.  Sound simple?  Not that important?  Think again.

Developing a model wherein production and support groups actively work together to identify and correct issues is better suited to an agile business.  It reduces the duration of quality process improvement by weeks and months.

Think about the approach in a tactical situation.  Model #1:  A potential issue is found by a quality group, some research is done but not extensive, alarms are sounded, quality group accepts kudos for its find, issue is thrown over the wall and the business is left to research and hopefully correct.    

Model #2:  A potential issue is found by a quality group, the business manager is alerted, a nimble joint effort is initiated to dig deeper, additional data is gathered to clarify and validate root cause, a high level plan of attack is developed jointly and reviewed with executive management.  Jointly the groups can already say they are addressing the issue.  Kudos all around.

Unfortunately, model #1 is more often employed.  Many firms unconsciously drive their groups into organizational paralysis either through muddied vision or lack of forethought.

More importantly, the “throw it over the wall” or “gotcha” model includes throwing ownership over the wall as well.  Lack of skin in the game by the quality groups has negative impacts which not only promote a less agile performance improvement model, but also weaken internal dynamics to the point of kindergarten antics.  Productivity and partnership slowly become casualties – guaranteed – as does a nimble improvement model.

As a mortgage entity, internal groups should strive for quality joint ownership.  As a C-level executive, I would require and expect it. 

How to get there from here: 

Performance Quality Ownership – Creating a philosophical shift around this requires cooperation in all groups and understanding the overall company benefit.  While the message needs to come from the top, the senior managers are catalysts to making it happen.  We all own quality and should work together to improve with joint responsibility. 

Create a Quality Road Map – Gather the production, quality and technology groups semi-annually to review tools, current needs and upcoming changes including early warning info and how to address potential legislation.  I’ve discussed this process with many colleagues who acknowledge disparate, isolated efforts tend to tie them into knots with multiple overlapping tools, inconsistent findings, unmanageable processes and additional cost.  The first step is as simple as a white board exercise identifying what tools/applications (fraud tools, valuation tools, compliance tools, etc.) are used at what point in the process and what value they provide.  I’ve heard managers say “I don’t need to do that, I’ve got it all in my head”.  You would be surprised at what you and your partner groups learn by putting 60 minutes to this exercise.  Note that this is highly effective when discussing leveraging tools and quality processes across multiple business channels.

Quality Tune-Up – Business leaders should request that quality partners review processes and procedures often, outside of regular audits.  As an example, ask your compliance group to sit with your folks (yes, at their desks) semi-annually and audit the most critical compliance check points.  This not only improves the dynamic between the groups, but provides additional, more frequent insight into where improvement is needed.

Granted, the “gotcha” models provide drama and excitement, but I prefer the more holistic partner dynamic any day.  Your responsibility as a manager is to own and ensure the safety and soundness of the business from a comprehensive perspective, drawing all partners into the ownership circle.