Mortgage Industry Vendor Assessments Must Include Performance Reviews

When the CFPB issued its Bulletin 2012-3 addressing third party service provider risk management, the industry largely responded with a blank stare.  Because most lenders had never developed risk management protocols and vetting processes for vendors, there was significant confusion about what they needed to do to satisfy regulators.

The Bulletin itself was somewhat vague and did not offer a specific list of tasks nor a roadmap or flow chart of detailed steps to ensure compliance and consumer confidence.  It did however indicate that ongoing monitoring was necessary, and that lenders were to “[t]ake prompt action to address fully any problems identified through the monitoring process, including terminating the relationship when appropriate.”

In the wake of the Bulletin the industry responded through private and public means, to provide appropriate tools to manage risk, including for example ALTA”s Best Practices initiative, and Secure Settlement’s third party vetting tool and nationwide risk database.  These efforts, and those by others, were designed to ensure minimum uniform standards of risk management and also provide critical data to allow a lender to assess whether or not a vendor posed a risk of harm prior to engaging in a business relationship.

What these efforts did not fully address was the continual evaluation of actual performance by vendors.  Beyond the licensing, insurance, internal controls, and background checks, there is more to the lender-vendor relationship and the impact the relationship might have on the consumer experience.  Is a licensed and insured vendor that has a solid business platform and clean business record competent at what they do?  Will the consumer experience be one that meets the reputation of the lender which has introduced the vendor into the lender-client relationship?  After all, someone can look great on paper but create a terrible consumer experience through their attitude, lack of experience, lack of professionalism, and overall incompetence.

Consequently lenders need to do more than just collect paperwork about vendors.  They need to actually measure their performance, both internally with operations and among their clients, to determine whether a vendor is doing their job competently.  This can easily be determined by periodic surveys of your staff and post-transaction surveys of your customers.  When poor performance is uncovered, a lender needs to address it with the vendor and determine whether the relationship should be adjusted or terminated.

However you choose to do it, performance evaluations are a critical component of vendor management and must be a part of your overall compliance toolbox.

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