LA Times interviews Tom Detelich
By MortgageDaily.com staff
3/6/2006

Almost four years after the largest-ever mortgage industry settlement, a Household Finance executive recently discussed how the company has renovated its corporate culture and reduced the risks of abusive lending.

Household, which in 2002 agreed to pay $494 million to settle accusations related to predatory lending practices, has changed the way it does business, consumer lending executive Tom Detelich reportedly told The L.A. Times. For example, the unit, which is now part of HSBC North America, has given up about 1 percent market share due to its decision to leave interest-only loans out of its loan product menu.

Detelich pointed out that about 40% of the subprime borrowers in California, where home prices have risen significantly, are in IO loans, which eventually stop being so affordable as the payment adjustment leads to paying "often a lot more on these loans."

"I have trouble believing that 40% of subprime customers are well-served by taking out interest-only loans," Detelich reportedly said.

"I don't believe subprime customers with modest incomes -- and in many cases getting loans based only on stated income without documenting it --can benefit from a loan that's going to have that kind of an adjustment," he added. "I think that's the kind of risk that isn't good for the borrowers and isn't good for us."

Household has also invested $50 million on an automated loan processing system that determines the quality of the consumer and prices the loan, eliminating the need for a salesperson or underwriter to make that judgment. The automated process provides for "zero tolerance for error" and "takes out the risk of people getting 'steered' into more expensive loans than they deserve," the executive reportedly told the paper.

To comply with the settlement's requirement to have its loans provide a "net tangible benefit" to borrowers, the Prospect Heights, Ill.-based lender said it avoids subjectivity by testing eight factors that can benefit customers and weights them depending on the type of loan, according to the Times.

Household has also reportedly eliminated contact between loan officers and appraisers. Instead, a loan officer's request for an appraisal is transferred to an outside vendor.

Detelich emphasized the subprime lender has gone beyond complying with the requirements outlined in the settlement, including outsourcing the closing process when it could do the process in-house with a closer who is not part of the loan sale. This gives the consumer a neutral third party to ask about the loan.

In evaluating borrowers' survey responses six months post closing, the executive said some of the top findings are that consumers care less about a speedy closing process and care more about lenders keeping their promises and about being able to trust their loan officer, by having him or her inform them about the products or how they may qualify for a better-priced loan.

We "have done considerably more than it requires," Detelich reportedly said. "If we were only complying with the multi-state agreement today we would be incredibly disappointed. We have changed the corporate culture to make it more focused on what our customers want."

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