Another topic all over the papers these days is the subprime mess? While the root cause of this debacle will probably most often be identified as greed, I have been wondering what role process played in the whole mess. Could Lean thinking, a Lean production like system within the industry have made a difference? I don't necessarily know the answer to this, so I'd love to see some reader comments, but I'm still going to muse on it a bit anyhow:)
The process of getting a mortgage begins with your application. You fill in a great deal of information about your personal and financial life. The application allows someone (presumably an underwriter) to review the information you provided and pull a credit report on you. The credit report says even more about your financial life. Based on your application data, the credit report, and the amount you are borrowing vs. the value of the property, and a few other considerations, you are then approved or disapproved.
During the last few years, more and more creative mortgage instruments appeared to allow people to get into bigger, more expensive homes, often when they frankly should not have qualified for such a home based on their application. The driver was finding a payment that would match the applicant's ability to pay the monthly bill, not necessarily the other factors that contribute to the long-term viability of the prospective borrower. As a result, more and more gets approved and there are a lot of suspect borrowers out there in what is still a strong job market. It will get worse whenever the job market begins to worsen.
So where did things breakdown? Hard to blame the sales guy. If they are told a product is for sale, they sell it. Is it the underwriters fault? Well, yes, but who within the underwriter? Is it the individual who gave the thumbs up? Likely, the rules of the game for him have changed. He got the message from on high and applied looser standards than were previously applied. So, the company making the loan is at fault? Okay, sure. But someone further up the chain is funding/buying their mortgage portfolio? So are those guys at fault?
Seems somewhere there was a breakdown in the process and people who shouldn't have gotten loans, got loans. But who is to blame? Everyone?
And back to the original question: Would Lean have made a difference?
Sunday, August 5, 2007
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1 comments:
I doubt Lean could have prevented the entire mess. We know Lean isn't a universal panacea, it will never be adopted by all.
But it could well have (and maybe has) save some individual companies.
Specifically, how rapidly did the loan companies do the PDCA cycle on loan apps/early loan performance? From my days in banking, I remember the fact that there is an "infant mortality" on loans...many that will go bad, will go bad early. And, on a house, if it goes bad early, there is no equity to cover, whereas if it goes bad 6 years into the mortgage, you have some equity to work with.
Did they do experimentation to look at certain loan criteria? Test the assumptions? Change, based on what they learn? In a rapid fashion?? Kaizen, regularly??
That, to me, is the key lean practice that might help here.
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