Lending Industry Mortgages Its Future

It's been more than 20 years since quality-control requirements were implemented in mortgage lending, and the attention paid to those requirements is the same today as it was two decades ago—as weak as a housing market that has been in free fall for what feels like forever.

That indifference is precisely why the industry finds itself in the bind it's in now, said Becky Walzak, president of Walzak Risk Analysis, who has seen millions of people plummet from owning their own homes to owing so much money that every road leads to foreclosure.

Walzak remembers the baby steps taken as quality control gained a foothold in mortgage lending in the 1980s. The problem is that most agencies still treat quality control like it's in its infancy rather than the mature process it is now.

"[Quality control] was a joke because it didn't mean anything," Walzak recalled. "That's what we got into when we got into this subprime mess. There was absolutely no value associated with quality control in this industry. It was seen as a cost of doing business. If it got done, it got done, and if it didn't, it didn't. Nobody was really concerned about it."

In the early days, reports from quality-control personnel primarily involved things like a closing agent forgetting to have a certain document signed. Things have evolved since then, and now the quality-control department concerns itself with determining the odds of whether a lender will need to repurchase a loan because it went into default.

What happened, Walzak said, is that management grew accustomed to the quality-control process as it applied to prime loans, which default at such a low rate that anything the department said was pretty much ignored. In the realm of subprime loans, which are issued at a higher interest rate because of the risk involved, that process becomes much more important. But the quality-control reports still fell on deaf ears.

They were easy to ignore, Walzak said, because of an almost total lack of solid, proven quality-management methods. "You pull a sample of loans, you inspect them, determine if there was a mistake, write it up, send it to management and say, "We found this loan, and it has this problem.' That might be 60 to 90 days after the loan closed. What are you supposed to do about it now?"

And so they did nothing, ignoring the reports and approving loans that had absolutely no merit.

Among many unanswered questions associated with the subprime mess is how much Wall Street investment banks knew regarding the quality of the loans they sold to investors. According to a report by National Public Radio (NPR), at least one bank was fully aware of what it was dealing with and hid the questionable loans.

Tracy Warren was a contract worker for Watterson-Prime, which performed loan audits for clients such as Bear Stearns, and saw first-hand the marginalization and obliteration of quality control.

At first, she would reject a loan, and her supervisors would overrule her and approve it. Eventually, her supervisors didn't even bother with the courtesy of telling her she had been overruled. The rate at which loans were rejected and sold anyway hovered around 75%, Warren said.

Considering how the lending industry operates, it's almost surprising that percentage wasn't higher, Walzak said. "Mortgage lending has always been driven by volume. The more volume you have, the more fees you collect, and the more profitable you are.

"A large percentage of people who run mortgage operations have come up through the production side. They look at simple numbers like volume and revenue and profitability. Ask them to look at a standard deviation or the probability of default based on process errors, and they don’t know what to do."

According to the NPR report, Warren and other auditors were tasked to find the bad apples, only to have their supervisors toss them right back in the mix to sell to investors. Cleaning up the mess that resulted, Walzak said, means getting to the core of the problem—namely, how the voice of the consumer was drowned out in the cacophony of the call for cash.

Those in the mortgage industry reached the point where the only customer they cared about was the investor, Walzak said. Nobody was worried about the consumer—the person taking out the loan in the first place. That’s where the focus needs to shift if the industry is going to right itself.

"Why can't we develop some type of score that would combine a lender's process, the comments of the consumer and so on?" Walzak asked. "Why can't we do that and have it accessible on the internet so a consumer can jump in and see that of these five lenders, this one has the best rating? For the lenders who really focus on quality, that would be a bonanza. But lenders being held accountable? Who would do that?

"Until we learn to incorporate this basic methodology the rest of the business world knows, we're going to do the same thing over again. I can promise you. Things aren’t going to change. We're just sowing the seeds for the next disaster."

Source: Chris Arnold, "Auditor: Supervisors Covered Up Risky Loans," www.npr.org/templates/story/story.php?storyId=90840958&sc=emaf, May 27, 2008.

—Brett Krzykowski, assistant editor


Olympic Athletes Borrow Playbook From Business World

It requires a bit more than just showing up at the start and doing your best.

"I thought I could go in there and just shoot, and I'd be fine," said Jamie Beyerle, a member of the U.S. Olympic women's shooting team, looking back on the 2004 Athens Olympics. "I just wanted to win a medal in the Olympic games, and so in my preparation I just skipped over that whole trial thing and ended up not making the team because I didn't have the goals that I needed."

Beyerle didn't let that happen again, and she's in Beijing this month competing against the world's top athletes. She probably bettered her chances for gold at this year's Summer Olympics because of those missteps four years ago. More athletes like Beyerle are placing stronger focus on structured goal setting, data-based decision making and benchmarking—terms you usually associate with business, not athletics.

To win at the Olympic level, athletes (and their coaches) have been taking a business approach to managing processes and supporting the training, conditioning and preparation, according to the latest ASQ Quarterly Quality Report.

Whether it's an Olympic wrestling event or a high school track meet, athletes everywhere can gain a performance advantage by taking some advice from the business world:

  • Learn from prior experiences: Analyze past performances—what went right and wrong—to prepare for your next event.
  • Set structured goals: Short and long-term goals are significant, and every event counts.
  • Sweat the small stuff: Attention to detail paves the way to the gold.
  • Data-based decision making and planning: Gather data on strengths and weaknesses so you pinpoint where to focus your effort.
  • Create actionable measurements tied to goals: This will help you clearly see where you are falling short and where you're successful.
  • Benchmark competitors: Don't underestimate the competition.

See the complete ASQ Quarterly Quality report by visiting www.asq.org/quality-report/index.html.


New Edition of ISO 9001 Expected By Year's End

A new edition of ISO 9001 has been submitted for voting as a final draft, subject to approval of membership of the International Organization for Standardization (ISO). The new version is expected to be available from ASQ in hard copy and as an e-standard by the end of 2008.

ANSI/ISO/ASQ Q9001-2008 does not introduce any additional requirements compared with ISO 9000:2000, and its intent does not change.

ISO technical committee 176 approved the draft international standard at its May meeting in Serbia. ISO’s national member bodies vote on the final draft.

To accompany the publication of the new version, ISO is working on implementation guidance, a reference table comparing and contrasting ISO 9001:2000 and ISO 9001:2008, and answers to frequently asked questions.

ISO is also collaborating with the International Accreditation Forum about accredited certification.

Online On Paper

Quick Poll Results

Each month at www.qualityprogress.com, visitors can take a short, informal survey, and we post the results. Here are the numbers from a recent Quick Poll:

"Which quality myth is hardest to disprove to management?"

35.4% – Quality is strictly about product or service issues.

29% – Choosing a quality approach is a task only for senior leaders.

29% – Quality is a discipline learned on the job, not in a classroom.

6.4% – Quality is about controlling risk.

Visit www.qualityprogress.com to answer the most recent Quick Poll question posted:

"What is Six Sigma’s effect on innovation?"

  • Hinders innovation
  • Spurs innovation
  • Neither hinders nor spurs innovation

QP Archive

Access more than 160 issues of QP—dating back to 1995. Search by industry, topic, author, dates and keywords. Once you find the article, you can print it, e-mail a friend the link to the article, keep it in your own "My Saved Articles" electronic repository, or save a PDF version of it.

Government Policy

Federal Agency, ASQ Exchange Improvement Ideas

The Office of Management and Budget (OMB) and ASQ have been exploring ways ASQ can assist with recent initiatives to improve government performance.

Late last year, President Bush signed an executive order requiring more accountability of federal agencies. The order, "Improving Government Program Performance," established a performance improvement council within OMB and mandates that each federal agency appoint a performance improvement officer. That officer is required to:

  • Coordinate and supervise performance management activities.
  • Develop strategic plans, annual performance plans and program performance assessment.
  • Establish a way to measure progress.

ASQ has been discussing ways it can assist in the implementation and ongoing operations of the council.

"We commend the president for his farsightedness in issuing the executive order and the officials at the OMB for their enthusiasm in setting up structures and processes for implementing the order," said Mike Nichols, ASQ's chairman of the board.

Date In Quality History

August 20, 1987

QP looks back on an event or person that made a difference in the history of quality.

The Malcolm Baldrige National Quality Award was signed into law on this date.

The award is presented annually to organizations that demonstrate quality and performance excellence. The Baldrige award was designed to raise awareness of quality management and recognize U.S. companies that have implemented successful quality management systems.

The award is named for Malcolm Baldrige, secretary of commerce from 1981 to 1987. During the time he led the department, Baldrige's managerial excellence contributed to long-term improvement in efficiency and effectiveness of government. Within the department, Baldrige reduced the budget by more than 30% and administrative personnel by 25%. His tenure as secretary of commerce was one of the longest in history.

As a boy, Baldrige had worked as a ranch hand and earned several awards as a professional team roper on the rodeo circuit. He was named Professional Rodeo Man of the Year in 1980 and was inducted to the National Cowboy Hall of Fame in Oklahoma City in 1984. Baldrige was killed in a rodeo accident in 1987.

Source: National Institute of Standards and Technology, www.nist.gov.


Team Award Entries Now Available

International Team Excellence Award applications are now available from ASQ's Team and Workplace Excellence Forum.

ASQ has hosted this competition since 1985, and more than 800 teams from the United States, Canada, China, Colombia, Costa Rica, India, Japan, Mexico, Singapore and South Korea have participated.

The activity gives organizations the chance to showcase their commitment to quality and continuous improvement efforts.

Team finalists will be selected to participate in live presentations at ASQ's World Conference on Quality and Improvement May 18-20 in Minneapolis.

An entry form, along with interviews of past participants and judges explaining the benefits of participation in the competition, can be accessed at http://wcqi.asq.org/team-competition/participants.html.

For more information on the competition or to enter, call 800-248-1946 or 414-272-8575 x7303, or e-mail gbalagopal@asq.org.

Who's Who in Q

Name: Steve Marsinko.

Residence: Connellsville, PA.

Education: MBA from Waynesburg University in Waynesburg, PA.

Current job: Quality coordinator for the Pennsylvania Department of Transportation (PennDOT)-District 12. Marsinko is the ISO 9001 management representative and is responsible for scorecards and dashboards.

Previous job: Adjunct business professor at Pennsylvania State University in Fayette. Courses included management, marketing, and organizational behavior and business classes. General manager/general sales manager at local radio station. Human resources/public affairs director at local hospital.

ASQ activities: Senior member of ASQ and member of ASQ’s Pittsburgh section.

Other activities/achievements: Member of the American Association of State Highway and Transportation Officials' standing group on quality. Marsinko is also trained in ISO 9001 and ISO 14001.

Published works: Marsinko is the author of two articles, "Integrated Communication Flow Matrix" in Quality Forum and "Have Gaps? Now What?" in QP.

Recent honor: He was awarded the 2008 Pennsylvania "Star of Excellence," presented by PennDOT to employees for high levels of work performance.

Personal: Married, three sons.

Quality quote: The word quality seems so difficult for many organizations to explain. Some in the industry even say the term is dated or needs to be redefined. Quality is just striving for constant improvement of the organization using solid measures.



The number of organizations recognized by the Asia Pacific Quality Organization's (APQO) International Asia Pacific Quality Awards. The award, now in its eighth year, is modeled after the Malcolm Baldrige National Quality Award and will be presented later this month at the APQO/International Conference of Quality Managers in Tehran, Iran.

Four organizations received World Class awards:

  • Large manufacturing: ACL Cables PLC, Colombo, Sri Lanka.
  • Large service: Ma Foi Management Consultants Ltd., Chennai, India.
  • Small service: Citigroup Trade Services, Penang, Malaysia.
  • Education: Carmel Junior College, Jharkhand State, India.

Four organizations received Best in Class awards:

  • Large manufacturing: SamsungVina Electronics Co., Ho Chi Minh City, Vietnam.
  • Large service: NYK-FIL Ship Management Inc., Manilla, Philippines.
  • Small manufacturing: Minh Dung Veterinary Aquaculture Co., Ltd., Binh Duong Province, Vietnam.
  • Education: Manipal University, Karnataka, India.

One organization received a Quest for Excellence award:

  • Large manufacturing: Bharat Petroleum Corp., Mumbai, India.


Davis, Former ASQ President and Founding Member, Dies

Alfred L. Davis, one of ASQ's founding members and the society's fifth president, has died. He was 92.

Davis began his career in quality control in 1941, serving as chief inspector of the instrument division of Bausch & Lomb. He co-founded the Rochester (NY) Society of Quality Control and served for five years as its president. Davis was a founding member of ASQ, serving as treasurer from 1946 to 1951. He served as executive secretary the next year and then became president in 1953.

Later, Davis worked at the Rochester Institute of Technology. The former vice president of development and public relations played a key role in helping raise money to relocate the campus to its current location. He was known on campus as "Mr. RIT" because of his 70 years of service to the university.

ASQ News

KALDER HOSTS WORLD CONFERENCE KalDer, the Turkish Society for Quality, is hosting its 17th annual Quality Congress Nov. 24-26 in Istanbul. Its theme is "High Quality of Life, Quality of Work Life." KalDer is an ASQ World Partner. For more information about the event, call Mehmet Yucel at 0216-518-4284-273.

KNOW WHERE TO FIND MORE ASQ has unveiled a new corner of its website that organizes and allows users to search easily for pieces of ASQ's vast body of knowledge. Called the Knowledge Center, the page also features an area on standards that includes the latest news and how-to information, as well as information on writing for ASQ. You can find a link to it on the left-hand side of ASQ’s home page, or visit www.asq.org/knowledge-center.

SOCIAL RESPONSIBILITY SPRING EVENT An ASQ event featuring Muhammad Yunus, the 2006 Nobel Peace Prize winner, has been rescheduled for spring of 2009. The event is part of ASQ’s initiative to promote social responsibility. Watch for updates at www.thesro.org.

BOOKS TO BOTSWANA ASQ has donated about 100 books to the police college in the African nation of Botswana. Many of the donated books were from the former library of the Association for Quality and Participation (AQP). AQP had merged with ASQ in 2004 and now exists as ASQ's Team and Workplace Excellence Forum.


Juran Center Names Fellows

The Joseph M. Juran Center for Leadership in Quality at the University of Minnesota's Carlson School of Management has named the 2008 Juran fellows.

The three fellows were selected this year from 22 applicants, all doctoral candidates doing quality-related research. The recipients and their research projects are:

  • Shaunna Barnhart, department of geography, Pennsylvania State University, "Promoting Sustainable Community Initiatives: Applying Quality Principles to Community Forestry and Biogas Promotion in Nepal."
  • Deborah Mullen, health services research and policy administration, University of Minnesota, "Moral Exemplars: Outpatient Medical Clinic Climate, Temporal Affect and Patient Care Errors."
  • Amy Stott, health and policy administration, Pennsylvania State University, "Improving Long-Term Care Management Practices and Direct Care Worker Organizational Commitment."

Each fellow receives $5,000 upon graduation to expand her respective quality research and its applications.

Web Watch

This month's Web Watch focuses on automotive quality. For more quality related websites, visit www.asq.org.

Formed by nine auto manufacturers—including the Big Three American automakers—the Alliance of Automobile Manufacturers advocates improving the environment and motor vehicle safety and the use of global standards. Its site has free reports, fact sheets, articles and press releases about fuel economy and quality, government regulations, and the environmental benefits of higher technology. It also offers several links to automotive supplier groups, coalitions and news sources.

The Society of Automotive Engineers (SAE) has more than 90,000 members. On SAE's website, members and nonmembers can view the bookstore, job board, papers and related links, plus information on magazines, conferences, exhibitions, seminars, training, collegiate chapters and volunteer opportunities. Other features include free, specialized online newsletters and a search tool. SAE members can access discussion forums and a news briefing service.

If you have any questions about ISO/TS 16949:2002, the automotive technical specification, this site should direct you to the answers. It includes information on the specification, as well as links to registration and training information, and where to purchase a copy of the specification.

Found an interesting quality site?

If you come across a noncommercial site that could be useful to other quality professionals, e-mail it to medmund@asq.org.

Short Runs

THE AUTOMOTIVE INDUSTRY Action Group has announced its training in accessing the control and management of special processes for the remainder of 2008. The programs cover heat treat system, plating system and coating system assessment. To access the training schedule, visit www.aiag.org/scriptcontent/index.cfm.

APPLICATIONS ARE BEING accepted for this year's American Hospital Association-McKesson Quest for Quality Prize. The award honors hospitals' leadership and innovation in patient care quality, safety and commitment. Nominations can be e-mailed to questforquality@aha.org or through www.aha.org/aha/news-center/awards/quest-for-quality/q-for-q-nomination.html. Applications are due Oct. 14.

THE QUEST FORUM will hold its best practice conference Sept. 15-19 in Denver. The event will cover lessons learned when implementing TL 9000, the quality management standard for the telecom industry, along with benchmarking and issues related to converging technology and network reliability. For information, visit www.questforum.org.

ACCORDING TO A SURVEY from PricewaterhouseCoopers, the practice of global sourcing in the retail and consumer sector is thriving, but many companies worldwide are not clear on their cost savings or confident of product safety and other key risks. Sixty-eight percent of those surveyed also said product quality was the single greatest risk to global sourcing. The survey can be found at www.pwc.com/extweb/ncpressrelease.nsf/docid/ E516D4BA10508C5085257464006AABE4.

EIGHTY-FIVE ORGANIZATIONS have applied for the 2008 Malcolm Baldrige National Quality Award: three in manufacturing, five in service, seven in small business, 11 in education, 16 in nonprofit and 43 in healthcare. Last year, five organizations were chosen as recipients from the 84 applications submitted. Review of the applications and examiners' site visits follow in the coming months. Award recipients are notified at year's end.

THE INTERNATIONAL ORGANIZATION for Standardization has released ISO/IEC 27005:2008, Information Technology—Security Techniques—Information Security Risk Management. The guidelines assist the implementation of ISO/IEC 2007, the information security management system approach based on a risk management approach. For information, visit www.iso.org/iso/pressrelease.htm?refid=Ref1139 (case sensitive).

THREE MANUFACTURING FIRMS have been recognized in a recent survey of top companies to work for in the United States. Hilcorp Energy Co., Houston, Lincoln Industries, Lincoln, NE, and Hypertherm, Hanover, NH, were honored by the Society for Human Resource Management and the Great Place to Work Institute. For a complete list of organizations honored, visit www.greatplacetowork.com.

DRAFTS ON STANDARDS and measures for wellness programs have been developed and await public comment. Developed by an advisory group of the Utilization Review Accreditation Commission, the proposed standards are a response to employers' requests for measures for both comprehensive and focused wellness programs. More than 50 members serve on the committee, including employers and representatives from health plans and healthcare providers. Public comment is due Aug. 7. To review the wellness accreditation draft standards, visit www.urac.org and click on "public comment."

THE NATIONAL INSTITUTE of Standards and Technology (NIST) has released a preview of its online mathematics reference. The five-chapter preview of the online Digital Library of Mathematical Functions can be accessed at http://dlmf.nist.gov. NIST has also released a new catalog of standard reference materials with more than 1,100 individual reference materials produced by NIST. Each material has been assigned values for chemical composition and physical properties. Visit www.nist.gov/srm for more information.

Average Rating


Out of 0 Ratings
Rate this article

Add Comments

View comments
Comments FAQ

Featured advertisers