Welcome to my continuing series regarding working with the GSE’s!
As I write this article, I reflect on how the mortgage industry has always been impacted by swings in the market. Risk is around us every single day: interest rate volatility, loan production volume, credit risk, underwriting changes, technology implementation, managing margins, or a changing talent pool – it is a business with inherent risk.
Whether we care to recognize and manage risk, it is those firms which succeed in the lending environment that have become savvy, and distinct in how their firms manage risk. So maybe it’s time to ask yourself - What is your firm’s mindset in accepting risk, and taking well founded principles on how to manage and mitigate risk?
As a consultant, I have seen differing degrees of business culture on this subject. There are those who will say – everything is running smoothly; or identifying risk means accountability; and will totally ignore risk in their day-to-day environment. If your firm falls into any of these “camps” – read on, standards in how mortgage lending firms are expected to identify, remediate, and manage risk have changed, and will continue to change.
This isn’t exactly the result of a meltdown in the financial markets, it is the result of a changing evolution and sophistication in the manner in which investors – the “market makers” who purchase single-family mortgage loans have identified risk. With that is a price which is associated with the risk that is being passed through to them, as the end investor.
An easy way in which your firm’s culture can manage risk is to look at the basic principles taught in Lean Six Sigma. If you come to terms with this concept, your ability to manage risk (and mindset) will totally change. The concept is called DMAIC:
Define
Measure
Analyze
Improve
Control
When you can apply this risk philosophy, it is easier to follow the expectations that both Fannie Mae and Freddie Mac have. For this article, I will mention the very specific, though easy to follow Risk Assessments offered by Fannie Mae. The examples that come to mind are: Enterprise Risk Management, Change Management, Internal Audit, Business Continuity, and Quality Control.
Let’s take one example:
Change Management – An ongoing process which provides an infrastructure to support and sustain change.
The scenario is: A lender is introducing a new software system. While it has followed the Project Plan as provided by the vendor, it has not moved down the path to have each department interact in cross-functional teams to define how their current processes work through the life of loan cycle.
The result in believing the vendor’s workflow matches yours creates an implementation with mass confusion, and makes the firm be at risk with its customers, regulatory risk, hedging – interest rate risk and investor delivery timelines, to name a few. Folks get frustrated, work long hours, suffer burn out and then the “blaming game” starts. Is that really the way in which you want the very employees that support your organization through thick and thin to work?
Had the lender implemented a Project Team that was cross-functional to have discussions that were out of scope (as otherwise provided by the vendor), it would have been able to identify gaps, work on solutions, conduct testing, implement training, and avoided a ton of frustration from the very employees who are supporting the change. It would have succeeded in Risk Management!
This is why Fannie Mae has taken the time and effort to write, in detail, and with clear guidance their assorted Risk Assessments. You can’t walk away from one of these assessments and not have a better understanding of the basic fundamentals which are expected when working with Fannie Mae.
If there is only one thing I encourage you to do in your Executive Leadership position, is that as a Leader you have employed lots of very smart people, so use the their talents to have a “voice” in identifying risk, make improvements, and manage risk on an ongoing basis. In the end, you will look back and realize that with your leadership and open mind the firm you are proud of has the foundation to be sustainable.
I look forward to hearing from you and supporting your firms success !
Luana Slettedahl is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements. Her understanding of how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com
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