Magazine article Mortgage Banking

Will Your Vendor Partner Be around for the Long Run?

Magazine article Mortgage Banking

Will Your Vendor Partner Be around for the Long Run?

Article excerpt

WITH THE DECLINE IN THE NUMBER OF DISTRESSED LOANS and foreclosed properties, several field service/broker price opinion (BPO) and real estate-owned (REO) vendors and other default servicing companies have merged, downsized or gone out of business altogether. On top of this, the heightened regulatory pressure has taken its toll on the vendor community. All of this has led to a great exodus of players.

The recent contraction within the servicing industry raises this question: How can servicers tell if their vendor partner will be around years from now?

One sign servicers should look for during the initial vetting process is proof of the vendor's financial strength to handle the hefty costs involved with staying in compliance--along with necessary operational expenses. Under recent guidelines from the Office of the Comptroller of the Currency (OCC), the servicer is held accountable for any incident of noncompliance, regardless of who is at fault. Therefore, servicers must protect themselves by ensuring their vendor partners have the financial wherewithal to employ a full-time compliance staff wholly dedicated to the day-to-day monitoring and interpreting of the latest legislation on a local, state and national level.

Vendors must invest in the right experts to handle this specialized task--those who have a legal background and understand complex statutory requirements. It is also beneficial for servicers to partner with a vendor with the financial strength to afford not only its own in-house staff of experts, but that also outsources to a specialized third-party compliance team to promote fur their checks and balances. This helps ensure nothing gets overlooked in the research and implementation of new regulations.

Besides making sure their partners are investing in sound compliance measures, servicers must also confirm that their vendors have obtained all necessary and up-to-date licensing. The vendor partners should make sure that these requirements are monitored on a regular basis, and that they are adhering to all licensing changes on a weekly, monthly and annual basis.

Servicers must also make sure they are only working with partners who have a good reputation for paying their own vendors/contractors in a timely manner. A servicer's vendor in turn works with its own vendors/contractors, whether for drive-by inspections of properties, drive-by broker price opinions, attorneys for a foreclosure situation and the like.

If the vendor cannot pay its contractors on time, contractors will not want to work for that vendor-- and that can have possible regulatory implications for the servicer. The orders that come in from the servicer will only continue to pile up, putting the servicer at risk of violating critical timelines for performance.

The servicing business has become a very co-dependent environment, and that can create an adverse domino effect for the servicer if the vendor partner does not perform responsibly. Thus it makes sense for servicers to seek out public message boards or state licensing agencies to uncover any complaints about other parties working with the vendor partner and ensure the vendor partner has a formal procedure to manage complaints to provide timely and meaningful resolution.

Another key indicator of a vendor partner's long-term health is its ability to anticipate and adapt to the shifting business environment. Vendor partners must prove they are agile and responsive to regulatory changes and modified servicer requests. …

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