Could Six Sigma have helped avert the looming mortgage crisis?
Short answer: No.
Quality was not in the forefront of the minds of many executives in the sub-prime lending world. This much is amply clear now.
Before going any further, let me clarify what I mean by Quality – particularly in this industry: From a borrower perspective Quality would mean having selected a lending partner that has identified the best product for them long term. And from a stockholder’s perspective it would mean that the corporation has been making decisions based on sound judgment (leveraging their core competencies).
By and large the focus in the mortgage industry, since the tech meltdown, has been on getting as large a piece of the pie as possible. The game was about “qualifying” as many applicants as possible to participate in the American dream. So far over two dozen sub-prime lenders have closed their doors, while many more have stopped offering sub-prime loans. In order for Quality to work, there has to be a conscious decision on the part of management to fundamentally understand the repercussions and ramifications of loan decisions. Understanding risk and compensating for it is and should be the core competency of any lending institution. After all that is how products are priced in this sector. Assuming that this statement is valid (not a weak position to hold), how then can we explain the magnitude of people losing their homes and lending firms closing their doors. Because again, this was never about Quality or sound growth – this was about growth at any cost.
That is what Six Sigma disallows – irrational decision making!
S. Shaffie ProcessArc, Inc. - Financial Services Six Sigma
