PERSON OF THE WEEK: It is safe to say that a decided lack of quality control helped to fuel the current crisis facing the mortgage industry. But has the industry learned its lesson? This week, MortgageOrb speaks with Jan Wetzel, founder and president of Wetzel Trott, based in Farmington Hills, Mich., regarding the state of quality control within both the origination side of the business and in the federal agencies involved in mortgage banking.
Q: How would you categorize the state of quality control in today's mortgage banking industry?Â
Wetzel: Due to the fall of the subprime market and the increase in incidents of fraud in the industry, quality control is getting a lot of attention. It used to be that lenders just did the quality control to fulfill the agency requirements so they could have the results available in case of an audit. Now, they are actually reading the reports at a senior management level and taking corrective actions in their procedures.
Q: Do you see a greater degree of quality control within Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA)?
Wetzel: Yes, all of the agencies are enforcing their requirements on the lenders and actually want to see the most recent three months of reports and management's response to the issues that are presented in the reports.Â
Q: What are the primary steps for a mortgage banking operation to take in order to instill quality control into its corporate culture?
Wetzel: They need to have a written quality control plan in place that meets Fannie, Freddie, FHA, Department of Veterans Affairs and Federal Home Loan Bank requirements. Having the written plan is not enough; the plan needs to be executed by qualified staff that are independent of the production staff. The reviews of the files can occur with internal staff (if they are independent) or the reviews may be outsourced to a third party.
Q: Do you believe that creating a chief risk officer position could help encourage a higher level of quality control in a company?
Wetzel: Just creating such a position does not increase the level of quality control. It really stems from how serious upper management is about preserving their quality level and how dedicated they are to making the changes necessary when issues are discovered.
Q: If there is a greater emphasis on quality control today, do you believe that this will contribute to a decline in mortgage fraud in the near future?
Wetzel: I believe that fraud may begin to decline with the various electronic tools that are available to alert companies if any red flags are in the file that could require further investigation. Also, the Federal Bureau of Investigation has stepped up its efforts to decrease the incidents with arrests and convictions. Even at a local level, funding has been provided to form mortgage fraud task forces to prevent and pursue fraud in their communities.
(For more input from Wetzel on quality control standards relating to FHA lending, check out the February edition of Secondary Marketing Executive.)