New Century – pressure led to lax standards

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Hat tip Calculated Risk for this gem of an article: "Pressure at Mortgage Firm Led to Mass Approval of Bad Loans". It talks about the pressures inside and outside of the company to meet quotas and sell loans. It’s very illuminating and quite accurate from what I’ve heard from my sources within the company.

" ‘You cut my [expletive] deal!’ " she recalls one man yelling at her. " ‘You can’t do that.’ " Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said.

But "you didn’t want to turn away a loan because all hell would break loose," she recounted in interviews. When she did, her bosses often overruled her and found another appraiser to sign off on it.

…

"The stress in that place was ungodly. It was like selling your soul," said Hardiman, who worked for New Century in 2004 and 2005. "There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals."

The pressure to keep appraisal value is real. It is the reason my company is faced with eating a $70,000 loss on a correspondent loan that New Century was ready to purchase. Every other bank that we’ve subsequently tried to sell the loan to has cut this appraised value by at least 5%, but New Century was able to "get it through at value." I bet my old rep (who hasn’t shown her face since the company’s implosion) was down there at the appraisal desk forcing it through.

One of the big things we push around here is that production should not be tied to operations – and they shouldn’t hold sway over them. Processing, underwriting and other operations departments need to have autonomy from production. We always tell our processing team that they are our "goalies". They are there to save us and they have to put the company’s interest ahead of the sales person’s. One loan, we tell them, is not worth risking everyone’s jobs. (At a small company one repurchase could sink the ship if it was big enough.)

The article above is a good example of what happens when that line is blurred/crossed.