Executives at several leading mortgage banks have worked up a new set of quality control standards they are asking the industry to adopt.
The measures, which call for products and procedures to be inspected well before loans are made, were submitted to regulatory and housing agencies this fall.
Compliance officers from Citicorp and Chemical Banking Corp., who serve as members of the Mortgage Bankers Association of America's quality review committee, helped spearhead the drive.
The committee based its system on guidelines developed by members of the California Mortgage Bankers Association.
The compliance executives want a single set of guidelines to standardize measures that are required by federal agencies like the Department of Housing and Urban Development and housing finance companies like Fannie Mae and Freddie Mac.
"Our hope is that our plan will replace the old way," said Jeffrey Polkinghorne, vice president of compliance with Citicorp Mortgage, Stamford, Conn.
Mr. Polkinghorne said he did not expect the measures to require a formal rule-making process by the agencies. Rather, with the agencies' blessings, the standards would serve as a model for the industry, he said.
The measures, which fill several pages with recommendations on originations and servicing, focus on catching problems early, before they turn into loan killers.
This means looking very closely at the home shop's operations, said Rebecca Walzak, vice president for compliance at Chemical Residential Mortgage Corp., Jacksonville, Fla.
"You have to make sure that the way you're producing the product is not creating problems," Ms. Walzak.
The proposals urge mortgage bankers to set goals for achieving quality production and performance criteria. The measures also set benchmarks for outside companies, like realty agents and appraisers, that mortgage bankers work with.
Once loans are made, they require ongoing portfolio reviews, using demographic and economic data, Ms. Walzak said.
The measures also urge mortgage bankers to put in place systems that can continuously track and evaluate different methods of delivery and service.
In addition to policing loans, the data that compliance departments develop will provide leads to areas where the company can expand, said William R. Daniels, compliance vice president with J.I. Kislak Mortgage Corp., Miami Lakes, Fla.
For instance, the information may give the company an early heads up that a once-depressed area is showing signs of recovery, Mr. Kislak said.
Mortgage banks will have to spend money to put the new quality model in place. But the benefits will outweigh the outlays, the executives said.
"Yes, it will probably be expensive," said Mr. Polkinghorne of Citicorp. "But, you'll be stopped from making the problem loan, so the effort will pay for itself."
