The WSJ quoted me today as claiming what amounts to a “quality tax” will be passed down to consumers as a result of the mortgage debacle both from the origination side and the default sides of the house.

From Mortgage Lenders Set Back in Courts written by Ruth Simon, Robin Sidel, and Nick Timiraos

"Tim Rood, a partner with real-estate-finance advisory firm Collingwood Group in Washington, predicts that the six-week-old foreclosure mess will result in a "quality tax" that could amount to about $300 per loan."

The “tax” that I estimate to be approximately $300 per loan will come in the form of higher processing fees or higher interest rates borne by borrowers.

The logic behind such an increase is that tools, technology, and proxies that the industry relied on for the past ten years have proven to be unreliable and often flat out wrong – FICOs, AVMs, AUS, data validation and verification tools, etc.

In response, the industry has gotten back to the process of human inspection and validation of key underwriting, processing, and servicing tasks. That has driven efficiencies out of the loan process but ultimately increased production costs. It will likely be a long time before we as an industry will have enough confidence to revert back to those tools, technologies, and proxies. In the mean time we will continue to require human analysis of their findings.