BLOG VIEW: You may recall from an earlier blog that I am taking a course on how to become an emergency medical technician (EMT). Well, the other day, we had an EMT training class that offered an introduction on how to take blood pressure readings. After receiving the obligatory how-to lecture from our instructor, the students were handed stethoscopes and sphygmomanometers (that's the formal name for the cuff-and-gauge instruments used to measure blood pressure) and were allowed to test their newly learned skills on one another.
One of my classmates requested to take my blood pressure, and I gladly volunteered my arm for the cause. But things didn't go quite as she hoped. After fiddling about with the sphygmomanometer and running the stethoscope bell up and down my arm in what appeared to be a vain search for a pulse, my classmate came to a somewhat grim diagnosis: I am a vampire. After all, how else could she explain my alleged lack of a pulse?
Needless to say, my classmate still needs a lot of work when it comes to accurately reading blood pressure. And since determining a patient's blood pressure is one of the first procedures that an EMT performs, one can imagine what will follow if the early stage of treatment gets off on the wrong foot.
The same thing can be said for mortgage banking. Really, the concepts of due diligence, quality control and risk management need to kick in from the very beginning and remain prevalent throughout the entire process.
In the period leading up to the burst of the housing bubble, it appeared that many companies only implemented serious risk assessment as a reactive procedure. After all, if it had been implemented as a proactive procedure, the majority of the toxic loans would never have gotten beyond the initial paperwork phase. But the toxic loans are still out there – CoreLogic recently issued a report that estimated $14 billion in fraud losses in 2009.
Of course, it is not just originators and securitization experts that fumble in this area. More recently, servicers have been making a muck of things in some widely reported fiascos that appear to confirm a continued absence of quality control, due diligence and risk management in mortgage banking.
The new poster boy for this problem is Jeffrey Stephan, a document processor with the GMAC Mortgage unit of Ally Financial. Stephan recently admitted in a sworn deposition that he signed off on up to 10,000 foreclosure documents a month for five years – but he never bothered to thoroughly review any of the documents. Stephan's job performance, along with other quality-control issues on the servicing side, forced Ally to freeze foreclosure-based evictions in 23 states and face investigations by several state attorneys general.
But it is not just a GMAC Mortgage problem. Since that story broke, Chase Mortgage and Bank of America has also issued freezes on foreclosure. Do not be surprised if additional freezes on foreclosure are announced in the coming days.
And speaking of Bank of America, the financial instituion recently found itself in a publicity nightmare when it was widely reported that it foreclosed on the Fort Lauderdale, Fla., home of Jason Grodensky – no mean feat, considering Grodensky didn't have a mortgage with Bank of America or anyone. (He bought the property for cash in a short sale.) Clearly, there was no quality control in the bank's handling of that situation.
It is fairly astonishing that many companies within mortgage banking are still struggling with the basic concepts of due diligence and quality control. It seems that the lessons of the past two years did not sink in with many people in mortgage banking.
You don't need a sphygmomanometer and stethoscope to realize that the industry has yet to move beyond the health problems that brought it to its knees. Clearly, more work is needed before mortgage banking can be given a clean bill of health.
– Phil Hall, editor, Secondary Marketing Executive
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