May 05, 2011

Did you read your adverse Audit Review?

Twans asks what happened to the blog, and the short answer is, like the US Patent Office in the early 1900s, there's nothing new worth writing.

Here's a small piece of evidence from the financial crisis, which I covered in much depth in my Audit cycle:

At one point, the lack of quality control at Deutsche Bank’s mortgage lending unit, MortgageIT, prompted the hiring of an outside vendor to conduct reviews of the mortgages the bank approved for FHA insurance.

According to the suit, when the outside vendor found violations in the way it was approving mortgages for FHA insurance it sent letters to MortgageIT making them aware of the problems. Unfortunately, those letters weren’t read because employees there “stuffed the letters, unopened and unread, in a closet in MortgageIT’s Manhattan headquarters,” according to the suit.

Short version: In order to get some form of subsidy in the securitization business, Deutschebank hired an external auditor to review its lending practices. Then, didn't read the results. Which of course were adverse.

What does it mean for the mortgage lending industry? Sabino speculates that there’s a 50/50 chance that the allegations made by the U.S. Attorney’s office are not unique to Deutsche Bank.

In my Audit cycle I speculated that the Audit industry is so filled with errors at many and different points that at this time in history, it is useless to society. That is, it cannot be relied upon to deliver the result. This is evidence supporting that hypothesis.

Posted by iang at May 5, 2011 12:48 AM | TrackBack

Hi Ian, thanks for your writings. I always read them. One of my favorite reads.

Posted by: Todd Boyle at May 5, 2011 01:49 PM
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