page contents Mortgage News Digest: June 2013

Friday, June 28, 2013

Vendor Management Policies - What's Really Involved?


Click here to download a copy of the vendor management approval process
checklist.  Comment below or in the blog and learn how to get an up-to-date policy
for your company that gets maintained for free.
Free Vendor Management Checklist

We make the assumption that our business partners all comply with the rules and regulations of our common business.  If they don't, we have been used to the idea that we can simply say "Not my fault!"  Unfortunately, while the idea of "plausible deniability" seems comforting,  the industry no longer allows us to blame someone else for ignorance.  We now need to manage our vendors.

Participate in the Vendor Management Survey here 


Don't Fall Prey to Regulatory Paranoia


In the same way that some compliance firms use the fear of CFPB audit as a marketing prompt, Vendor Management occupies that same space in mortgage industry participants' chest of fears.

This is the News Flash that wasn't:  CFPB requires financial entities to oversee their vendors for compliance. "We need to have vendor management policies and procedures?  That is such a compliance burden!"  Wait a second.  Don't we already do this?  The answer, for firms who have already initiated standard mortgage industry operating procedures, is yes.  Vendor management has long been a function in the branch operations process.  We have always approved appraisers, title/escrow companies, couriers, PMI companies and credit bureaus, to name a few.  For those of us who are in wholesale, we have always approved our brokers and correspondents.  Since we do this anyway, it is important to examine whether we are doing it correctly.

I Have Covered the Basics - Who Am I Missing?


This depends greatly on your business model.  Who is customer facing?  Who presents an information security risk?

The easiest way of ensuring you have captured all of your vendors is to go through your accounts payable register and your office correspondence.  Is there anyone there who looks at your customer's information?  Do they have access to your office?  Do they ever interface with your customers?  At a minimum
  • Title Companies/Escrow/Settlement
  • Appraisers
  • Credit Bureaus
  • Mortgage Insurance Company
  • Courier/Delivery
  • Mortgage Brokers
  • Mortgage Wholesalers
  • Lead Generation
  • Office Cleaning
  • Temporary Staffing
  • Accountant/Bookeeping
  • Web/Network Hosting
  • Document Destruction
  • Records Management
  • Consultants
  • SOFTWARE (SaaS)
  • Sub-Servicer

What Am I Checking Them For?


Again, depending on the provider and the scope of its business you will address different elements.  Customer facing vendors have to comply with the same laws we do, while all vendors should have basic elements in place:

Background and Reputation


You should consider the background and reputation of ALL providers regardless of the level or type of service it provides.  At a minimum, check the internet, BBB, and the agency disbarred lists including FinCen, FNMA, FHLMC, and LDP as well as others you regularly check.  Individuals should have a background check of the court records in their jurisdiction.  The provider should be prepared to allow you request enough information to make a meaningful search.  Consider the difficulty of conducting a check without the name and address information of the principals.
  

THEIR Compliance Program


Consumer Facing/Access - Tier 1 or 2 depending on the type of information vendor has access to:

Even though LOS/Credit SaaS vendors are not consumer facing, they have access to the customer's information, so should provide this information as to customer identifying information.  
  • Truth-in-Lending Act
  • Real Estate Settlement Procedures Act
  • Flood/Disaster Protection
  • Right to Financial Privacy Act
  • Credit Practices Rule
  • Fair Housing Act
  • Equal Credit Opportunity Act
  • FACT Act
  • SAFE Act
  • Appraiser Independence

Non-Consumer Facing - Low Risk Tier 3


  • Information Security 
  • Criminal Background Checks

Do I have to hire someone to manager my vendors?


Vendor management simply means the process of monitoring things that are being done on our behalf.  You do not have to hire someone.  In fact, if you do hire someone you have to vet that contractor as well!  In addition, much of the work done to manage this information is borne by the client since the company has the access to the customer information.

Order our Vendor Management Policy and Procedure and receive free access to updates as you provide feedback!

Companies Offering Vendor Management Services


Fortrex Technologies - David Bedard
Vendor Audit - Lenders Compliance Group
Appraiser Management - Global DMS, Melissa Key



Thursday, June 27, 2013

Really? That's all you've got??

"Could use some insight here with what makes one Mortgage Broker better than the next....

Had a client ask me today what I thought differentiates one mortgage broker from the next and, honestly, I didn't have an answer other than the boiler plate response of "integrity, honesty, etc.". Was just curious if I could get some feedback in this group so I could give her good advice. Thanks. D"

I'd be worried about a business that doesn't have a competitive value proposition. If you can't answer the question "Why should I do business with you?" you are in trouble. 

Saying "I give excellent service" is what we call a "claim" - you're saying it, but there is no way to prove it. It's like trying to define "quality". Saying "we have integrity and honesty" is also a claim.  In these cases an unproven claim is worse than nothing at all, because it reinforces the opposite impression in the buyer's mind.  They think "you're bringing it up, so it must be a problem."  So when you say "I'm honest" they think "He's a liar."  When you say "We have excellent service" they think "I'll never get to closing."  Stick with statements that are factual and that you can prove.

Ask me the question! My crib sheet:

As a broker - compared to other brokers - I help you:

1.) make better decisions by evaluating your options completely using my "pre-qualification system", which means you can borrow with confidence 
2.) make sure you get to closing on time by using my "complete application system" which ensures all documentation that could possibly be required is obtained upfront. This also means that you get a better rate, because the lenders know my files are complete, they approve my loans more quickly and offer me better pricing. 3.) get extra value by leveraging my "referral network system" business relationships to choose better vendors offering better prices 

That's for starters!

If you are a true broker, though, you should really leverage your value proposition by searching for financing sources outside of those offered by traditional warehouse/correspondent relationships. If all you offer is agency product, you are at a competitive disadvantage and will compete only on price. As a broker-owner my 2nd biggest job (behind business development) is finding brokered product that no one else has. For instance:

1.) A local bank that offers a special product (I am always surprised to find banks offering high ltv, and low rates, without PMI as well as other niches which they don't advertise - they are their own best kept secrets) 
2.) local life or casualty insurance companies looking for mortgage investments, 
3.) industrial loan associations,
4.) private lenders 

You generally have to work with borrower paid comp on these, but THIS IS THE BROKER BUSINESS MODEL - assembling a suite of products that one lender couldn't possibly assemble.

Finally, national lenders can't be as flexible in building a business around the local needs as a broker can. For instance: 

1.) you are near a military base: "We are the experts in providing financing for servicemembers"
2.) your market has a lot of 1st time buyers/renters: "We are the experts in FHA/HomePossible programs." 
3.) you market has an industrial component: "we have hundreds of programs for self-employed business owners." 

Obviously, these are simply examples, but you should think this through as it applies to you. It should roll off your tongue without having to think about it. 

Imagine going to a bank and asking for a loan for your business; why should I lend you money. It's the same thing with a customer, referral source, business partner: Why should I do business with you?

Wednesday, June 12, 2013

A Wave of Compliance Manager Duties Crashing Down On You?

Compliance Manager - Mission Impossible?

Of all of the groups benefiting from the wave of regulation, one has created the hottest job in the industry today -  the "Compliance Manager."  If you wear the "Compliance Hat" you know that this is just the industry looking for another panacea - a silver bullet to manage the seemingly overwhelming task of keeping up with the rules and regs tsunami.  If you are a company owner or manager, you WANT a silver bullet (if not to just shoot yourself with!)

Reading the job descriptions in association with the Compliance Manager job posting, you would think the job is kind of amorphous; alot of "and other duties as may be assigned in order to comply with regulations..", or "and other regulatory requirements..." To me that is an anathema to the position.  We want to be as specific as possible about the job duties.  We need to specify WHAT that individual needs to do AND when.

A Simple and Practical Approach

Checklist of compliance manager duties and timing
What are the duties of the Compliance Manager?  This rubric attempts to manage the responsibilities in a finite way. Click here to add comments and suggestions to the sheet. 



We have seen a substantial growth in "Compliance Management Software", too.  This is a reaction to that same search for panacea.  Even with automation of data management, audit and reporting there still must be someone to parse the data and verify its timing and accuracy.

Since it's the human process that makes the program effective, we have upgraded our compliance manager position description to include these elements.  This also ties in with all of the requirements of the CFPB audit guidance, so that if you are anticipating a CFPB examination ensuring you have implemented.  If you are a subscriber to the updates you can get them on our Document Management Website.