Wachovia Can’t Modify Loans: Is This Another CIO Failure?

by drjim on November 18, 2009

Image Credit Wachovia's Mortgage Systems Are Falling Down On The Job

Wachovia's Mortgage Systems Are Falling Down On The Job

Hmm, let me try and remember how this is supposed to go: the IT department exists to serve the rest of the company. If the department is doing its job, then the company should be able to operate smoothly and be able to outperform its competition, right? Over at Wachovia (purchased by Wells Fargo awhile ago) the IT systems are dropping the ball and people are in danger of losing their homes. Sounds like Avid Modjtabai, Executive Vice President, Technology and Operations, for Wells Fargo & Company, has got some explaining to do…

The Problem With Adjustable Rate Loans

This tale of woe starts back in the go-go days of the 1990’s when Wachovia, like just about every other bank, started handing out home loans like candy. They offered them to just about anyone who asked for them no matter if they could really afford them or not.

A lot of folks opted to get what are called Adjustable Rate Mortgages (ARMs) . These little babies are great when interest rates are low; however, when there is a global recession and interest rates start to go up, those monthly loan payments can quickly get out of hand. The Obama administration has realized that a lot people are in a bad way, and they’ve made a lot of cash available to banks so that they can convert ARMs to fixed rate mortgages (with a non-changing monthly payment).

If you want to change your loan, all you should have to do is go to your bank and work out a deal with them. Unless your loan is with Wachovia – then things get a bit more complicated.

Marchall Exkblad over at the Wall Street Journal has discovered that a computer glitch in Wachovia’s IT systems is preventing people from being able to modify their ARM loans. Avid Modjtabai, I think that you may have a problem on your hands.

The Problem With Wachovia’s Loan Software

It turns out that Wachovia has been forced to “recode” its computer system. They are saying that this is because of “some of the tweaks to the program” that the U.S. government made. What’s interesting about this excuse is that Wachovia customers have been attempting to get their loans adjusted since June (that’s roughly four months if you’re counting).

In Wachovia’s defense, they are saying that it’s hard to modify existing loans under the government’s guidelines for the $75B foreclosure-prevention plan. Umm, I’m cool with that, but the now-parent company Wells Fargo has been able to modify 11% of their loans in the time that Wachovia has been able to modify only 2% of theirs. What gives?

What The CIO Should Have Done

Once again, let’s review: the IT department and its systems exist to help the company do more and do it quicker. Over at Wachovia, that clearly is not happening right now. What should have been done?

Let’s assume that Ms. Modjtabai got handed a bill of goods back in October of 2008 when Wells Fargo agreed to buy Wachovia. She probably had no way of knowing what state Wachovia’s loan processing software was in when the purchase went down.

The problem comes after that deal was closed. A CIO in this situation needs to eliminate as many unknowns as possible. This means that the first thing that should have been done was a top to bottom audit of Wachovia’s systems: what did they have and what did each system do?

We all know that every unique system that you have to support is going to end up costing you a lot of IT budget that could be better spent on something else. That means that Wells Fargo should have used the results of the audit to create a plan for moving the Wachovia business activities over to Wells Fargo’s existing systems.

I’m not naïve enough to think that this would be easy to do, but in the end that is the job of the CIO – to simplify IT and create a path to move forward. The evidence seems to show that the Wells Fargo and Wachoiva mortgage processing systems are still separate. Whether due to poor design or financial neglect, Wachovia’s systems have not been able to keep up with changes in the market. At the end of the day, that’s the CIO’s job to solve.

What All Of This Means For You

When you become CIO, you need to realize that “the company” is a very fluid thing indeed. What the company looks like one day is not what it will be looking like down the road.

When your company purchases another company you will suddenly be responsible for the IT systems and staff that come along with that company. What you don’t know can kill your IT career.

The moment that the purchase deal closes, you need to be jumping in there with your IT team and turning over every rock in order to find out what you are now in charge of. This has to lead to a plan to merge the IT systems of both companies. You don’t necessarily have to keep the systems that the buying company is using, but you do need to minimize the number of systems that you will be left with.

Nobody ever said that being a CIO was going to be easy – the Wachovia loan processing software bug is just another example that a CIO’s job is never done.

Do you think that the Wachovia loan processing problem is the fault of the Wells Fargo CIO?

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What We’ll Be Talking About Next Time

We all dream of the day that we will get the nod to become CIO — finally we will have arrived. Or will we have? When you are CIO, things are going be different and that’s because you won’t just be the CIO, you’ll also be the company’s Strategic Execution Officer.

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{ 3 comments… read them below or add one }

Doug Brockway November 18, 2009 at 12:32 pm

There are myriad reasons why the banking-side of Wachovia may want to not modify loans. I won’t agree with them but in my direct experience with business execs and CIO’s in the mortgage industry whatever policy the banking side wants to pursue on this subject will be pursued and the CIO won’t be able to stop it.

Depending which servicing system the CIO uses, and the extent of customization Wachovia employed, the situation may be, in the short term, intractable. When examining a modification you are, in essence, re-underwriting the loan. The dominant servicing systems don’t hold the data to examine a loan in this manner. They are using band-aids to put the data elements in comments fields with limited success. If Wachovia has used the comment fields for other purposes even this tactic is unavailable, in the short term.

One superb solution is to take an extract of delinquent loan files and load them into a system like Mozart for Special Servicing. RCS does this and makes complex modifications with impressive ease.

I can connect you with either RCS or the vendor, Overture Technologies.

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Dr. Jim Anderson November 29, 2009 at 12:22 pm

Doug: fantastic write-up on just how loans get underwritten. I think that you have a valid point here — the folks at Wachovia are probably using systems that were never originally designed to perform the re-underwriting process. However, with that being said, so what? The Wells Fargo CIO is ultimately responsible (now) for providing the business with the tools that they need to do their job. That sure doesn’t seem to be happening. In fact, Wells Fargo seems to be doing a better job than Wachovia is. This means that the Wells Fargo CIO KNOWS what needs to be done, and it just isn’t happening over at the Wachovia arm. It’s a great job to be a CIO, but with great power comes great responsibility…!

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Shahbaz December 12, 2009 at 7:09 am

Now i am just agree with your opinion.
Thanks for good stuff for every one..

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