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the latest Or ig i nat ion SECONDARY MARKET Refinance Volume, HARP Stay Strong se r v ic i ng Data shows that consumers are willing to retool their loans, partially because of program extension. a na ly t ic s J s e c on da r y m a r k e t Risk Culture 101 Deputy comptroller discusses important elements of risk culture in overall organizational health. S peaking at the American Bankers Association Risk Management Forum, deputy comptroller of operational risk Carolyn G. DuChene emphasized the importance of banks' risk cultures, outlining what she views as five key elements of risk culture. "[A]t the end of the day, no matter how good the controls are, no matter what risk management framework you have in place, no matter how much capital and liquidity you hold, it's an organization's risk culture that most determines success in identifying and mitigating risk," DuChene said. The five key elements of an organization's risk culture include enterprise, ethics, education and expertise, empowerment and engaged employees, 74 | The M Report and executive expectations, according to DuChene. Enterprise deals with the complexity of an organization's structure and how it manages risk across its lines of business. Managing risk by product lines or geographies without a clear view of the total effect of all risks on the organization can pose challenges to a bank's soundness, according to DuChene. The second element, ethics, impacts how employees deal with each other and their customers, how the overall business interacts with its stakeholders, and even what products and services a bank offers. "To be effective, ethical standards must be clear, comprehensive, well-understood, and consistently re-enforced throughout the institution," DuChene said. The third factor contributing to a company's risk culture, according to DuChene, is education/expertise. "Sound risk cultures don't just happen," she said. "They result from training, reinforcement, and shared objectives." With proper education, employees next need empowerment and engagement in order to carry out a company's intended risk culture, according to DuChene. Employees must "understand what risk they own and what it means to own that risk." Then risk management professionals must be engaged to "rein in risk-taking when necessary," DuChene said. The last, and according to DuChene, "most critical" part of a company's risk culture is executive expectations. Employees look to the top for guidelines and examples of how to handle risk and communicate about it. "Along with sound risk management and solid, welldeveloped business strategies and capital plans, a healthy risk culture contributes to success," DuChene said in closing. anuary saw nearly a halfmillion new refinances, according to data released by the Federal Housing Finance Agency (FHFA). FHFA's Refinance Report shows an estimated 469,953 refinances completed in the first month of 2013, with 97,589 completed through the Home Affordable Refinance Program (HARP). Since the program's inception in April 2009, HARP refinances have totaled nearly 2.3 million. According to FHFA, borrowers with loan-to-value (LTV) ratios greater than 105 percent accounted for 47 percent of HARP refinance volume in January. Deeply underwater borrowers—those with LTV ratios greater than 125 percent—made up one-quarter of total HARP refinances. HARP activity remained especially strong in certain states. For example, in Nevada, HARP refinances made up 66 percent of total refinance volume in January, just slightly less than the total HARP share observed in the state for all of 2012. Nationally, HARP activity accounted for about 21 percent of all refinances in January. Also of note was the fact that 18 percent of HARP refinances for underwater borrowers in January were for shorter-term 15- and 20-year mortgages, which build equity faster than traditional 30-year mortgages. FHFA made a separate announcement the same week that it will extend HARP through the end of 2015. The program was originally scheduled to expire at the end of this year.