It’s encouraging to see the adoption of statistical methods in the world of mortgage quality control. Done right, it can lead to enormous returns on your investment in qualiy control – what we call ‘return on quality’. But you have to do it right. There is plenty of misinformation about statistics on the Internet and a non-expert may have difficulty sifting through what’s right or wrong, especially as applied to mortgage quality control.
So we’d like to present the principles and methods that Cogent’s statisticians and QC experts have honed over the past 15 years. We invite your comments. We begin with an overview of statistical sampling in mortgage quality control, which is available as a white paper (PDF) here.
Statistical Sampling in Mortgage Quality Control
By Hakki Etem, CEO, Cogent Economics
Statistical methods are well-established tools for efficiently measuring and improving product quality in a variety of industries. Unfortunately, statistical analysis has been slow to gain acceptance in the mortgage industry, although the ability to originate the best quality product at the lowest possible cost is just as valuable to mortgage originators as it is to automobile manufacturers. There are many reasons why the mortgage industry has avoided statistical methods, but surely one reason is the subject itself: few disciplines can be as mind-numbing as statistical theory.
Nevertheless the most effective way for QC managers to measure and improve loan quality — at the lowest possible cost — is to employ statistical methods. Although this means that QC managers must necessarily become familiar with basic statistical concepts, with the right tools and professional support the process can be greatly simplified.