PERSON OF THE WEEK: Debora Aydelotte is the chief operating officer of Credit Risk Solutions, a Computershare subsidiary. A mortgage industry leader with more than 25 years’ experience in business line development, risk management and operational improvement, she has also developed and managed diversity and inclusion programs.
MortgageOrb recently interviewed Aydelotte to learn more about how mortgage lenders can improve in these areas.
Q: This year has already brought tax reform, rising mortgage rates and the potential for Dodd-Frank reform. From your perspective, how do you view the current state of the mortgage industry since the end of last year and how do you foresee consumer and/or borrower sentiment toward housing moving forward this year and into 2019?
Aydelotte: Historically, at this point in the economic cycle – i.e. post-recovery, multiple months of full employment, positive consumer sentiment – the Fed would be managing a potentially overheating economy, a thriving housing market and rising inflation. This scenario hasn’t really played out. Rather, inflation has been slow to advance, and the housing market is contending with contradictory signals of increasing home prices, low inventory, full employment and low wage gains.
It’s also anticipated that consumer sentiment will decline slightly as we move past the tax refund season and then have to contend with a rising interest rate environment. Then we’ll also have to contend with exogenous factors such as the mid-term elections, potential impacts on Main Street from import tariffs, and possible geopolitical strife.
Despite this, mortgage volumes are forecasted to remain steady from 2018 through 2019, even with continued rate increases. There’s also the potential for a recession in 2020, just as we approach another presidential election cycle, which could put a damper on interest rate increases.
Q: You continue to be an active participant in progressing diversity in the mortgage industry. As you know, according to studies, earnings at diverse mortgage companies are higher than earnings at non-diverse firms. Why does diversity play such an important role in increasing corporate earnings in mortgage banking? Can those margins improve through even greater diversity?
Aydelotte: Several studies have found a statistically significant correlation between diverse leadership and better financial performance. Now, correlation does not necessarily mean causation. However, McKinsey, Forbes and others have concluded that firms with diverse leadership and diversity at all levels see improved performance. McKinsey also found the reverse to be true, that companies lacking diversity in both gender and ethnicity underperform.
This may be due to the number of ways in which a diverse group impacts the culture of the company, such as greater inclusivity of diverse ideas in business development, product design or problem solving. Diversity also facilitates recruitment and attracting top talent, as it speaks well of the company’s culture. This has an additional multiplier effect on greater employee retention, increased employee satisfaction and internal career growth.
Diversity can also provide a competitive advantage in the marketplace when soliciting new clients, especially if a lender’s prospective clientele is broad-based across the country or the world. It is also important when directly interacting with consumers to reflect the market in which a firm does business.
Q: What is the ultimate goal for a diversity program, or is there more than just one goal for the program? How does a company get a diversity program started and how do they get the budget for it?
Aydelotte: Each company is at a different point on the diversity maturity scale and therefore likely has different immediate goals. However, broadly speaking, the ultimate goal of a diversity and inclusivity program is for it to eventually become unnecessary.
To start down this path, two key elements are data analysis and executive leadership (not just engagement). Companies need to assess their current baseline and research deficiencies and challenges from which to set their goals. All actions should be tied directly to the goals. Executive leadership must be more than just cutting the ribbon. The most successful programs I’ve seen are driven by the CEO and his or her direct reports. This is critically important in many ways.
Let me illustrate just one issue that consistently impacts our industry: the disappearing female. According to McKinsey’s Women in the Workplace study, women represent 47% of entry level hires. But this figure decreases at each progressive step within the organization. By the senior vice president level, women hold only 21% of the roles and only one in five of C-suite positions. This decreasing pattern is even worse for women of color.
But even companies with a small budget can take advantage of a variety of available resources to improve this situation, including standard training curricula on subjects such as unconscious bias or diverse recruiting. They can also speak with diversity leaders from within our industry. Another great resource is CEOaction.com, a diversity and inclusion site organized by PwC and other firms to share information on challenges, ideas and making progress toward greater inclusion within their companies.
Q: From Equifax to Sears to Delta, data breaches have had an impact on hundreds of millions of consumers just this year alone. How can the mortgage industry guard against data breaches? What tools, policies and procedures can mortgage companies put in place to help ensure that borrower data is safe?
Aydelotte: The financial services industry currently must comply with multiple regulations regarding the protection of data, including the Gramm-Leach-Bliley Act, Dodd-Frank, and other laws and regulations. These include specific requirements around data security, as well as requirements for consumer notification if a breach should occur.
Further, most industry vendors must be certified as compliant with Service Organization Controls (SOC) and International Organization for Standardization (ISO) rules by an independent third party, thereby confirming their ability to manage and control the security of data.
In addition to standard boundary protection measures, such as firewalls and intrusion detection measures, most companies also conduct customary safeguarding and encryption of information. Recently, legislators and several industry trade groups have come together to encourage the government to enact new data security rules. Their plan calls for improvements around new standards for data protection, enforcement of national standards and reinforced consumer notification rules.
Q: Due diligence is another major topic for the mortgage industry, particularly since the housing crisis. What improvements have you seen and continue to see in due diligence? What are the most important due diligence items in underwriting loans today? What ways do you use due diligence to help reduce not only risks but costs for mortgage lenders?
Aydelotte: I’ll answer this with respect to secondary market, pre-purchase, and bulk transfer reviews, not the Fannie/Freddie required post-close QC reviews. Our firm performs these reviews to reduce the risk to our investor clients, ensuring that the loan represented to them is actually what they are buying.
The number of outsourced due diligence providers for such reviews has declined due to industry consolidation and firms exiting the space since 2008. And the barriers to entry for new companies are fairly high: technology, recruiting talent and getting rating agency approval. So there are now only a handful of firms performing such services. But they include a few long-time players with their own technology and several smaller firms that have opened in the past 10 years.
The newer firms, such as ours, have innovated the process, tend to be more flexible in their approach, and have partnered with innovative technology firms to utilize more advanced platforms integrating calculations and grading to support component reviews. A few providers market OCR (optical character recognition) and ICR (intelligent character recognition), and clients should dig deeper into those processes and investigate whether they are supplemented with offshore employees.
Q: What should lenders look for if they plan to outsource mortgage loan fulfillment to an outside vendor? Can outsourcing be advantageous for all mortgage lenders? Which mortgage lenders should take advantage of outsourcing for loan fulfillment and why?
Aydelotte: The standard assessment of a third-party provider should include whether the vendor holds the appropriate licenses to support your origination footprint. This can be easily checked free of charge on NMLS’s Consumer Access page.
In addition to customary financial reviews, a lender should take a deeper look at where geographically the vendor performs work, including their ability to recruit experienced staff within that area.
Lastly, discuss the option of the vendor assigning a dedicated team for the client, the cultural fit, and whether the client can participate in resume review.
There are many factors a lender needs to consider prior to engaging outsource vendors for fulfillment. At our firm, we are engaging more clients who are expanding their footprint into new geographic locations, or have determined the need to reduce expenses through operational consolidation and the use of a variable cost structure through outsourcing.