The web of compliance continues to broaden and becomes more complex with each passing year. The Ability-to-Repay Rule and Quality Mortgage Standards now require lenders to work with “reasonable, reliable” third-party vendors to verify consumer information. Not only that, lenders are actually responsible for them. On top of thoroughly vetting each vendor, you must also continually monitor them to ensure they are updating procedures as required. Vendor management has become a significant part of what lenders do each day, and as such, demands a great deal of time and effort. As a result, a real trend is emerging within the industry to consolidate vendors.
The proper way to vet
There’s much more to choosing the right third-party vendor than merely reviewing the documents and data they provide. You need to make sure that they align well with your lending operation, are in full compliance with all applicable regulations, will be available to address your questions and concerns, and are equipped to handle emergencies after hours should they arise…
To do this properly, you must carefully review:
>>That their technology has been certified by a third-party IT-security specialist.
Manmade and natural disaster recovery plans for events such as hurricanes, floods, earthquakes, strikes, sabotage, hacks and theft.
>>The vendor’s history, overall financial health, and organization setup.
>>The vendor’s compliance with applicable regulations. You should also learn whether they are under the supervision of any regulatory body.
If all of this sounds like a lot of work, it is. And as we all know, good work takes time, and time equals money. This is at the core of why there has been steady movement toward vendor consolidation.
Less is more
More and more, lenders are moving toward using as few third-party vendors as possible. To do this, they seek out firms that offer multiple products and services that can be bundled – essentially all verifications from pre-funding to post-closing, including appraisals, credit reports, flood zone determinations, Undisclosed Debt Verifications, tax return verifications, employment and income verifications, and Social Security Number verifications.
By using fewer vendors that offer more data services, those responsible for vendor management within your organization will have fewer companies to vet and manage and less paperwork to contend with. Time savings is where the real value is. Ideally, you should move toward using one third-party vendor, not only because of the reduced amount of time needed for the proper vetting and management of a single firm, but because there are many other benefits to using one third-party vendor.
>>Assistance with compliance – Reducing risk and ensuring compliance is better accomplished if you partner with a third-party vendor that understands and is fully capable of complying with applicable regulations.
>>Efficiency – Streamlining your business dealings by working with one third-party vendor for multiple solutions simplifies and focuses the work that goes into vendor vetting and management. Efficiencies are realized in both time and money saved.
>>Better customer service/business continuity – Dealing with one customer service group for multiple products is infinitely easier than dealing with multiple customer service groups from different vendors. You receive undivided attention from one point of contact that is dedicated to meeting your business needs.
>>Greater ability to customize – Selecting only the document and data solutions that are uniquely suited for your lending operations can be done more easily if you are picking and choosing products and services from a single source with a comprehensive line.
>>Best-in-class solutions – Building an end-to-end process with the very best solutions out there is the job of third-party vendors whose aim is to be a single source. By choosing to partner with one of them, you’ll immediately benefit from having access to best-in-class verifications.
>>Cost-savings – Reducing costs is another important reason to consolidate vendors because of the economic lift realized by bundling products and services. At the same time, the man hours saved by having to perform due diligence on a single vendor translates to dollars saved as well.
What characteristics to look for, and avoid, when assessing a third-party vendor
To realize all of these benefits, you must identify a third-party vendor that’s a good fit for your organization. What should you look for? Rich Swerbinsky, Chief Operating Officer of The Mortgage Collaborative, the only independent cooperative network in the mortgage industry, has an interesting perspective.
“There’s no better way to gain insight as to the likely experience with a vendor than to speak with customers that are already doing business with them,” Swerbinsky said. “Lenders should also look closely at the experience and track record of the senior leadership team as they are the people driving the organization. In addition, it is important to evaluate what key systems they are using and how well they can be integrated into your lending business,” he added.
At the same time, there are things lenders should be concerned about when vetting a vendor. What are those read flags? Swerbinsky cites a number of them.
“You should think twice about any vendors not already integrated or working to get integrated with key industry platforms. Vendors that insist on long-term initial contracts is another red-flag to me as vendors who will allow year-to-year contracts are essentially betting on themselves. Also, there are many start-up tech vendors in the mortgage space right now. Lenders should ask how they’re funded, how many existing clients they have, what their one-, three-, and five-year plan is for the company, and pay even closer attention to the depth of experience on their senior leadership team,” Swerbinsky said.
One is a powerful number
Once you have identified a third-party vendor that aligns well with your lending organization, you can begin the process of consolidating your verifications with them. Once that is accomplished, you will begin to reap the benefits in terms of time and effort saved in the areas of vendor monitoring and management.
The power in partnering with one third-party vendor is considerable. It affords lenders the opportunity to save precious time and money, while benefiting from access to the very best verification data services available, better business continuity, improved customer service and the ability to tailor verification services to meet the specific needs of their business. More importantly, by choosing to work with a vendor that is well-versed in applicable regulatory requirements, lenders are better positioned to reduce risk. Vendor consolidation has become a popular business practice within the industry for good reason. There is much to be gained by harnessing the power of one.