Quality Control Programs 'Not Working'.

Byline: Brad Finkelstein

Deerfield Beach, FL-An expert on operational risk management states that what the government-sponsored enterprises and the Federal Housing Administration require of their approved originators in terms of quality control programs is not working.

Rebecca Walzak, the founder of Walzak Consulting Inc., said, "If we had effective QC, we wouldn't be where we are today." While the issues were found in the process, company management did not pay attention, and the reason they did not pay any attention to the process is because of the way the GSEs and FHA required originators to do quality control, she continued.

The standards for quality control programs were written in the mid-1980s and they haven't changed since then. "They don't take into account any of the technology changes that have taken place, they are very much an inspection process," Ms. Walzak said. Furthermore, there is no standard approach for lenders to review their production. Each company has its own questionnaire and areas of emphasis. There are some general requirements, but when she works with lenders, she has seen some whose questionnaire is only 30 questions long, while others have 300 questions.

"There is absolutely no standard of what we're looking for and why we are looking at certain things," Ms. Walzak said.

There some disputes between QC and production. QC's job should not be about second-guessing the underwriting decision, but rather did the underwriter follow the process in reaching a decision.

She also noted there is no standard way to collect the data, and sometimes how thoroughly the file is looked at depends on how the examiner views ...