Dec. 16, 2014--Tucker, Michael firstname.lastname@example.org
As lenders, servicers and vendors all focus on complying with new federal regulations, MBA NewsLink spoke with executives of three leading service providers about how to prosper in today's environment.
Roundtable participants include:
Paul Abbamonto, chief operations officer with LRES, Orange, Calif., a residential and commercial financial services provider offering property valuations, asset management and technology services.
Scott Stucky, chief strategy officer with DocuTech, Idaho Falls, Idaho. DocuTech manages and secures all the information needed for a loan and guarantees accuracy, security and compliance.
Barry Hays, senior vice president with TeleVoice, Houston, a provider of customized call center services. Televoice helps clients manage their customer service communication channels while complying with key industry regulations like Single-Point-of-Contact rules.
MBA NEWSLINK: How can servicers more effectively and efficiently approach their operations to ensure they are meeting the needs of consumers as well as being compliant with regulations?
PAUL ABBAMONTO, LRES: To address compliance, servicers should make sure their servicing systems are consistent with the models that the CFPB and regulators dictate and that these systems are constantly updated to reflect the ever-changing guidelines. The servicer should have compliant policies and procedures in place and confirm that their associates have proper access to the latest information and are trained accordingly.
Supervision and routine audits are critical to ensure compliance, and management should offer re-training of associates when necessary. Servicers may wish to consider an in-house or third-party compliance team to build, model and audit compliance procedures and ensure policies and procedures are being adhered to. Also, servicers should seriously consider contracting with trusted third-party vendors to relieve much of the compliance burden if they have not already done so.
Finally, technology should be employed to streamline, monitor and collect all data.
BARRY HAYS, TeleVoice: CFPB is pressing servicers to provide a better customer experience in their interaction with borrowers. With this new emphasis, servicers should review the design of customer-facing applications like interactive voice response--IVR--systems. A thorough system audit can highlight areas where improvement is needed in scripting, menu design, authentication methods, and self-service opportunities.
The goal of an IVR redesign should be to streamline menus and make it easier for borrowers to self-serve. An effective redesign will improve the customer experience and increase the percentage of calls handled by IVR without involving a customer service representative.
MBA NEWSLINK: What is the most valuable lesson the industry should have learned from the recent shift that will make it stronger moving forward?
PAUL ABBAMONTO, LRES: There were many valuable lessons learned (during the downturn), but I will boil it down to the most important. First, originators learned to make the right kind of loans at the very onset of the process, ensuring that proper valuations, underwriting, technology and policies and procedures were firmly in place.
Also, the industry as a whole learned to be more “customer-available” and to improve or increase associate training. Some measures that have been adopted as a result of the recent shift include greater supervision and stronger oversight of operations, choosing the right vendor partner by implementing a more extensive vetting process and more aggressively adhering to current regulatory oversight.
MBA NEWSLINK: How do you see the lender-vendor relationship developing in the next year?
PAUL ABBAMONTO, LRES: The lender-vendor relationship will become stronger and more closely aligned. We will see a much heavier reliance on third-party service providers due to the expense of tracking and updating compliance changes.
Using vendors like appraisal management companies creates an arms-length transaction to facilitate and validate the valuation process and avoid the possibility of lenders working with selected appraisers or agents who can influence values.
Recent history shows how lenders were impacted by such direct and flawed values, so it is prudent that lenders prevent the situation by enlisting with neutral third-party vendors.
SCOTT STUCKY, DocuTech: Lenders and vendors are going to have to work together to comply with regulatory requirements without incurring significant additional costs. The technology, operational security and audit requirements are increasing costs significantly.
Vendors will have to do more work up front to validate their ability to meet security and audit demands, and lenders will find themselves working more closely with their strongest partners to increase productivity and compliance without also shooting costs through the roof.
MBA NEWSLINK: How have some of the recent regulations such as the OCC, ULDD and Reg B impacted how lenders manage the appraisal process?
PAUL ABBAMONTO, LRES: These regulations created an additional layer of complexity to originating loans. Regulatory bodies/regulations require lenders to staff-up and either develop new systems to maintain compliance or contract with outside agencies such as third-party vendors to assist in this process.
Even when using a third-party vendor, it is still incumbent upon lenders to ensure that they are doing their due diligence and spot-checking/auditing the work of their vendor partner as they are held accountable for any incident of noncompliance--regardless of who is to blame.
These regulations have forced lenders to more proactively protect themselves by partnering with trusted vendors who have the financial means to employ a full-time compliance staff dedicated to adhering to the latest legislation on a local, state and national level.
MBA NEWSLINK: With the heightened regulatory pressures, many vendor partners have either merged or gone out of business. With all this consolidation, how can lenders tell if their vendor partners will be around in the years to come?
PAUL ABBAMONTO, LRES: It is in the best interest of the lender not to hire a brand new start-up company, but to contract with vendors who have established a strong brand and good reputation in the industry.
The lender should perform a detailed vetting process prior to hiring the third-party vendor. Key components of any detailed vetting process should include proof of vendor’s financial strength, focused compliance measures and documented processes, proper insurance and licensing, strong vendor network of coverage, reasonable fees and timely payment to contractors, measurable key performance indicators for quality and turnaround time and strong references from other clients and/or business partners
SCOTT STUCKY, DocuTech: Financial due diligence may become one of the biggest factors in vendor selection. Smaller lenders can reap significant advantages by partnering with vendors who conduct business with the top five financial institutions, because the due diligence required to work with these lenders is significant.
Additionally, vendors who can scale their technology and prove their viability to meet the needs of small and large lenders will have an advantage in the marketplace.
MBA NEWSLINK: How are vendors working with lenders now to combat compliance measures that they weren’t necessarily doing before?
PAUL ABBAMONTO, LRES: Vendors are working more closely with lenders to ensure compliance with regulatory measures. Lenders are not in the business of managing ancillary rules; they need to have comfort that their vendors have a good handle of the latest regulations. Vendors must eliminate concern and workload so that lenders can remain focused on their core competencies.
For example, vendors relieve the burden of managing the intricacies of Reg B by ensuring the borrower has received a copy of the appraisal within the allotted timeframe. It is, however, up to lenders to audit their vendor’s work. They should ask their vendor for proof and documentation, speak with their customers, employ a compliance company to complete post-funding audits, etc.
There are many ways for lenders to ensure the proper checks and balances are being completed. This environment demands a more sophisticated level of due diligence than ever before.
SCOTT STUCKY, DocuTech: Most vendors are in regular contact with their clients in regard to compliance issues and see compliance education as a significant part of their value proposition. Vehicles such as newsletters, webinars and face-to-face meeting ensure no one gets surprised and that lenders are utilizing best practices to meet regulatory requirements.
MBA NEWSLINK: What about current single-point-of-contact regulations? What's the most important thing servicers/lenders need to know and are there changes they should prepare for in the near future?
BARRY HAYS, TeleVoice: To ensure compliance, servicers must implement adequate tools to manage the day-to-day responsibilities of their SPoC agents. Proper management tools can ensure that required outbound contact attempts are always made in a timely manner, without inconveniencing inbound callers.
Timeliness in communication is absolutely essential, but it's virtually impossible without workflow management systems tailored specifically to the SPoC environment. In the coming months, servicers should expect increasing demands for comprehensive reporting that demonstrates their compliance with SPoC standards.
Additionally, detailed loan-level reporting will become critical in defending against borrower complaints related to effective communications.
(The views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at email@example.com.)