Can high loan quality and a booming mortgage market coexist?
Anyone who has recently embarked on the process of buying a new home can attest to today’s tightened lending standards compared with those in the years leading up to the latest mortgage crisis.
While tighter credit is making it tougher for some potential buyers, it may be improving overall loan quality in the United States. A review by the Federal Reserve and two other regulators released in August showed credit quality of large loan commitments owned by financial institutions regulated in the United States improved in 2012 for the third consecutive year, although loans with weaker underwriting standards in 2006 and 2007 are still hurting institutions’ portfolios.1
Additionally, the Office of the Comptroller of the Currency (OCC) reported quality of first-lien mortgages serviced by national and federal savings banks improved from the same period a year ago. According to the OCC’s report, "Q2 Disclosure of National Bank and Federal Savings Association Mortgage Loan Data,"2 88.7% of mortgages were current and performing at the end of the quarter, compared with 88.1% a year earlier.
The percentage of mortgages that were 30 to 59 days past due was 2.8%, down 7.5% from the second quarter of 2011. Meanwhile, seriously delinquent mortgages—60 or more days past due or held by bankrupt borrowers whose payments are 30 or more days past due—fell to their lowest level in three years, at 4.4%.3
The report attributed the improvement to several factors, including strengthening economic conditions, servicing transfers, and the effects of home retention loan modification programs and home forfeiture actions.4
Part of the improvement, however, also could be due to the higher lending standards that resulted after banks were forced to repurchase $41.95 billion in mortgages from Fannie Mae and Freddie Mac. The government-sponsored enterprises claimed false representations and warranties on thousands of loans sold to them by lenders before 2005 through the second quarter of 2012. Representations and warranties are essentially what lenders tell Fannie Mae and Freddie Mac about the loans and borrowers.5
While banks’ apprehension could be seen as a refreshing return to responsible lending, some industry representatives are concerned that lending has contracted so much that the market will never recover without process changes to encourage lending.
"For the market to reclaim the strength it once had, and to provide a cornerstone for the mortgage market of the future, it is vital we consider ways to improve the representation and warranty model," said Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac’s regulator.6
In September, the FHFA released new guidelines that will take effect next year on new loans sold to Fannie Mae and Freddie Mac. The new framework says lenders are not obligated to repurchase mortgages due to underwriting or appraisal problems on loans when the borrower has made on-time payments for 36 consecutive months. The bank can still be forced to buy back new loans in the case of fraud or errors in submitting data. The rules don’t apply to existing loans.7
The guidelines also provide faster and more in-depth monitoring of loans by Fannie Mae and Freddie Mac with the use of new data-collection systems. In the past, loans were reviewed only after they defaulted.8
Will this solution keep quality and lending high? Some argue the new rules lower quality by loosening lending to make it easier for banks to give bad loans.9 Others say lenders will further tighten underwriting standards in fear of not meeting FHFA’s standards.10
But the FHFA says it’s giving lenders exactly what they asked for—clarification on quality controls and earlier loan monitoring.11
"Ultimately, better quality loan originations and underwriting—along with consistent quality control—will help maintain liquidity in the mortgage market while protecting the enterprises from loans not underwritten to prescribed standards," DeMarco said.12
—Amanda Hankel, contributing editor
- Ronald D. Orol, "Regulators Say Loan Quality Improving," Wall Street Journal Market Watch, Aug. 27, 2012, www.marketwatch.com/story/regulators-say-loan-quality-improving-2012-08-27.
- Office of the Comptroller of the Currency, "Q2 Disclosure of National Bank and Federal Savings Association Mortgage Loan Data," September 2012.
- National Mortgage Professional Magazine, "Overall Loan Quality on the Rise in 2012," Sept. 28, 2012, http://nationalmortgageprofessional.com/news31510/overall-loan-quality-rise-2012.
- Diana Olick, "Regulator Claims New Rules Will Loosen Mortgage Lending," CNBC, Sept. 11, 2012, www.cnbc.com/id/48988843.
- Rick Rothacker and Dan Wilchins, "Analysis: Housing Regulators Loosen Rules, But at What Cost?" Reuters, Sept. 21, 2012, www.reuters.com/article/2012/09/21/us-mortgage-repurchases-idUSBRE88K18120120921.
- Olick, "Regulator Claims New Rules Will Loosen Mortgage Lending CNBC," see reference 5.
- Rothacker, "Analysis: Housing Regulators Loosen Rules, But at What Cost?" see reference 7.
- Olick, "Regulator Claims New Rules Will Loosen Mortgage Lending," see reference 5.
Quality-Safety Program Reduces ICU Infections
Central line associated bloodstream infections in intensive care units were cut 40% over four years through a national program that educated hospitals, and helped them share tools and resources to combat this quality and safety issue.
Program organizers estimated more than 2,000 infections were prevented, more than 500 lives were saved, and $34 million in healthcare costs were avoided at the 44 hospitals involved in the Comprehensive Unit-Based Safety Program (CUSP).
"CUSP shows us that with the right tools and resources, safety problems like these deadly infections can be prevented," said Carolyn M. Clancy, M.D., the director of the Agency for Healthcare Research and Quality, which funded the program. "This project gives us a framework for taking research to scale in practical ways that help frontline clinicians provide the safest care possible for their patients."
The program includes a toolkit to help doctors, nurses and other clinical team members understand how to identify safety problems and gives them the tools to tackle these problems that threaten the safety of their patients.
For more on the program, visit www.ahrq.gov/qual/hais.htm.
Quality Measurements Fall Short, Survey Finds
The methods for measuring quality in the automotive industry are seen as outdated and must be replaced, according to the results of a recent global study by the Automotive Industry Action Group (AIAG).
The quality survey, commissioned through J.D. Power and Associates, recommends significant changes to how the automotive industry measures, structures and improves quality.
Respondents said they believe the current measurement system favors the tracking of lagging quality issues, which can skew quality data and misguide decisions. They suggest replacing current quality tracking metrics with ones that identify leading indicators of quality, such as design and process.
The study also suggests that automotive companies align business objectives around their quality philosophies to deliver continuous improvement, a concept that conflicts with traditional approaches to quality management.
"As a result of ongoing industry improvements in product quality, shifting consumer perceptions of quality are driving a focus toward more predictive tools," said Dave Lalain, vice president of commercial development at AIAG.
Who’s Who in Q
NAME: Mark Paulson.
RESIDENCE: Minnetrista, MN.
EDUCATION: Bachelor’s degree in business administration from Metropolitan State University in Minneapolis.
CURRENT JOB: Quality manager at Crystal Distribution Inc., a curb adapter manufacturer in Elk River, MN.
INTRODUCTION TO QUALITY: Paulson’s first job in quality was as a product tester for a company that produced water purification and liquid separation equipment. He became a member of ASQ a few years later to increase his knowledge and understanding of quality, manufacturing and business.
ASQ ACTIVITIES: Paulson, a senior member of ASQ, holds three ASQ certifications—manager of quality/organizational excellence, quality engineer and quality auditor. He also holds a Lean Bronze Certification and is an authorized instructor for the Lean Bronze Certification refresher course.
OTHER ACTIVITIES: He’s a nature and wildlife photographer (www.mpaulsonphotography.com) and has had images printed in books, magazines and calendars. He also is currently the president of the North Central Region of the Association for Manufacturing Excellence (AME), and serves on the Lean Certification Oversight and Appeals Committee.
PUBLICATIONS: Paulson contributed to the recently published The Lean Handbook (ASQ Quality Press, 2012) and has written articles for the ASQ Lean Division newsletter and several AME publications.
FAVORITE WAYS TO RELAX: Paulson enjoys the outdoors by hiking, camping and discovering places that have good scenery and opportunities to observe wildlife and create good photographic images. He also enjoys golf, landscaping his property and spending time on Lake Minnetonka.
QUALITY QUOTE: Paulson said the mantra, "If everyone is responsible, no one is," has served him well throughout the years.
12 Organizations Under Final Review
Judges for the 2012 Malcolm Baldrige National Quality Award have selected 12 organizations for the final review stage. This stage includes site visits to one organization in the education category, one in manufacturing, one in service, two in nonprofit, two in small business and five in healthcare.
The panel of judges and a board of examiners sifted through 39 applications this year. In 2011, four organizations were honored with Baldrige awards. This year’s award recipients are expected to be announced later this month.
A ceremony honoring the recipients will take place during the 25th Quest for Excellence Conference from April 7–10, 2013, in Baltimore. For more information about the event, visit www.nist.gov/baldrige/qe/index.cfm.
THE AMERICAN SOCIETY for Nondestructive Testing has elected Raymond G. Morasse as its new president. The 12,000-member organization voted on officers, directors at large and council directors during an election earlier this year. For more on the results, visit www.asnt.org/latestnews/election2012results.htm.
A MEMORIAL FUND has been established to honor the late J.R. Tony Arnold by the Association for Operations Management. Arnold was a prolific author and a pioneer in the supply chain and operations management community. For more information, visit www.apics.org/about/overview/erfoundation.
A NEW ACCREDITATION program that certifies professionals to evaluate sustainable systems and practices of buildings is being offered by the Society of Environmentally Responsible Facilities (SERF), an environmental building certification organization, in partnership with the Center for Sustainability and Excellence (CSE). To become accredited, you must complete CSE’s full-day course in sustainable systems and practices with an emphasis on how those elements are evaluated within SERF’s comprehensive certification criteria and pass an exam. Visit serfgreen.org or www.cse-net.org for more details.
MORE CREDIT CARD customers are handling billing tasks and account inquiries on their own, and are using mobile applications or websites to avoid live and automated phone calls or snail mail transactions, according to J.D. Powers and Associates’ inaugural study on credit card websites. During the past three years, credit card customers’ usage rates for self-service interaction (online and mobile) with their card issuer have increased, while usage rates of all other channels, such as mail and live and automated phone calls, have decreased. For more information about the study, visit www.jdpower.com/content/press-release/6vIKt7i/2012-credit-card-website-evaluation-study-ccwes.htm.
THE AMERICAN SOCIETY for Testing and Materials International and the National Institute of Standards and Industrial Technology, the national standards body of Papua New Guinea, recently signed a memorandum of understanding to encourage the use of technical standards and other standards-related activities in the Pacific island country.
A SECOND COLLECTION of case studies illustrating the economic benefits to organizations that implement standards has been published by the International Organization for Standardization. The new volume includes 10 case studies of companies in nine countries. Last year’s volume examined 11 companies operating in a variety of business sectors in 10 countries. More information about each volume, which cost about $40 each, can be found at www.iso.org/iso/benefits_repository.htm.
THE DEADLINE TO submit applications to be recognized as one of nation’s most promising undergraduate engineering students is Nov. 16. Last year, the National Engineers Week Foundation recognized 15 students and awarded them scholarships. For more information and to apply, visit www.facebook.com/collegeedition.
SALARY SURVEY SAYS
The average salary in U.S. dollars earned by a regular, full-time quality professional in the United States in 2012, according to the annual QP Salary Survey. Be sure to check out all the results and analysis in next month’s issue of QP.
LEAN AND SIX SIGMA CONFERENCE
Keynote Speakers Include
Change Expert, Toyota Author
Organizers for the 13th annual ASQ Lean and Six Sigma Conference—slated for March 3-5, 2013, in Phoenix—have announced the first two keynote speakers for the event.
Stacy Aaron, a partner at Change Guides LLC in Cincinnati, is considered an expert in the field of organizational change and has co-authored two books: The Eight Constants of Change and The Change Management Pocket Guide.
Jeffrey Liker, a professor of industrial and operations engineering at the University of Michigan, is the author and co-author of several articles and books, including The Toyota Way: 14 Management Principles From the World’s Greatest Manufacturer and six other books related to Toyota. His articles and books have won 11 Shingo Prizes for Research Excellence.
Watch for more updates on the conference and announcements about other speakers at http://asq.org/conferences/six-sigma.
QP ONLINE ON PAPER
Some of the readers who contributed to QP’s Quality Around the Clock collection shot their own videos showing how they use quality in their personal lives. Watch several of these short video clips when you visit the article’s webpage.
Quick Poll Results
Each month at www.qualityprogress.com, visitors can take an informal survey, and we post the results.
Here are the numbers from a recent Quick Poll:
“Which presidential candidate would do more to advance quality?”
- Barack Obama. 50.4%
- Mitt Romney. 49.5%
Visit www.qualityprogress.com for the most recent poll question:
“What part of your personal life could benefit from a dose of quality?”
- Keeping order in the garage.
- Maintaining a tidy kitchen.
- Managing time more effectively.
- Organizing finances.
WORLD QUALITY MONTH
Share Your Quality Stories, Research on Microsite
As part of World Quality Month in November, organizers want to feature your stories about the impact of quality on your life and organization.
Whether it’s an already-published research article, white paper or best practice, the microsite—www.worldqualitymonth.com—is the place to share and showcase your content and contribute to the month-long celebration of quality.
The website will continue to be updated regularly with these contributions, as well as information on events, videos, stories, polls and other content. The site also features a tool kit with resources to help you and your organization celebration.