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Beyond the Checklist: The Importance of Active Thinking in Risk Management

Client Partners Beyond the Checklist: The Importance of Active Thinking in Risk Management

By Sara Avery, Chief Risk Officer

When people talk about a risk-aware culture, it’s really honing in on the idea that self-identifying and self-correcting are critical to the success of any organization.

There’s real value in having the kind of culture where you can identify risks and issues effectively and implement timely remediation. It sounds so basic. But it isn’t a given. Even at Cenlar, where we’re well aware of the work required to achieve and maintain this kind of culture, we’re still on the journey of fully developing this mindset. We’re continuing to mature as an organization.

It requires our employees be aware not only of what they’re doing every day but also cognizant of the responsibilities of the people around them, the people who touch their work before and after them. It requires every person to understand where they fit in the process.

This responsibility is empowering — employees know when something doesn’t feel right to speak up and say something, to ask a few more questions and dig into it. This sense usually leads to finding something that needs to be fixed. The ability to translate that into corrective action means — for Cenlar — preventing homeowner harm, process errors and losses.

Asking and Understanding Why

In a lot of organizations, this isn’t possible — people are siloed, and they don’t have perspective beyond their role. In an organization like this, a person who has a report due each Tuesday might have a week where other priorities compete for time and may defer the task to the following day. It’s a difference of one day, but by making that one small decision, that employee may have prevented another necessary process from being achieved after them which could lead to additional challenges even further downstream. They didn’t understand how they fit and the importance of their actions within the full process. They didn’t fully understand why they do what they do.

More than Just a Checklist

We want to avoid a culture that’s checklist-driven. It doesn’t sound significant, but there’s a meaningful difference between the “checklisters” and those who are more aware of why they’re doing something and understand what they need to look for. It’s an active mentality instead of a passive one.

Prescribing to people what they need to do, step by step, absent them understanding the objective for doing each step is a challenged model. Things change all the time and if you’re not able to remember what your objective is and why you’re doing what you’re doing, it’s very hard to adapt and absorb changes. 

You have to reject the idea of “checkers checking checkers,” that managing risk is just layering people and doubling up to make sure things are done right. That’s not how you build a good risk culture. It’s certainly not cost effective, and you’re going to make mistakes.

So, there’s really only one way to ensure long-term strength: make sure all the people on the ground know why they do what they do, know how to spot when something goes wrong and aren’t afraid to raise their hand if they see an issue.

Heightened Standards

You need tone from the top and strength at the grassroots in order to sustain a well-controlled environment.

In the wake of the Great Recession, the OCC created guidelines called “Heightened Standards,” and began applying them to large financial institutions — those vital to our banking system. This set of standards helps to ensure that critical participants in our financial ecosystem employ a consistent and elevated level of governance, execution and escalation. For those organizations, it means ensuring there are appropriate mechanisms to identify challenges in the environment, both internally and from the outside. It means developing a structured reporting and escalation process in order to keep the right levels of management and the board informed. And it means having a rapid-but-effective process to correct material issues so that ramifications are contained.

When you look at Cenlar in comparison to many of these banks, we’re much smaller and the diversity of our operations is not as complex. However, we are a critical player in the servicing market. We’re the largest subservicer and play an important role in supporting effective servicing of mortgage loans, and that’s why the OCC now holds Cenlar to this same heightened standard. We view this distinction as a badge of honor. It’s a good reflection of how important it is for our clients, their homeowners and other participants in the market such as the GSE’s and FHA, that we keep our operations running smoothly and in a well-controlled manner.

Once achieved, we’ll be operating at a level of rigor that only the very largest banks in the U.S. are held to. 

In the meantime, as we evolve the culture at Cenlar, we’re encouraging our employees to “Think” — to consider their role as part of the whole and to speak up whenever something strikes them as out of place. Ultimately, that’s the objective of any strong risk culture. We want to utilize the strength and expertise of our organization’s people so we can provide the best possible experience for our clients and their homeowners.

Sara Avery joined Cenlar in September 2021. Prior, she was the Chief Risk Officer for Common Securitization (CSS), a financial technology joint venture that supports back-office securitization for Fannie Mae and Freddie Mac. Before CSS, Sara spent nearly a decade working with Freddie Mac in a variety of leadership roles across risk management, including risk, credit risk and third-party risk management.