Mounting regulations—and legislation still to unfold—continue to cause an extraordinary amount of concern for servicers.
While ensuring their own processes remain compliant is a servicer’s most pressing issue, it is not the only regulatory pressure they face.
Partnering with third-party vendors has become a necessity. However, at the same time it generates increased scrutiny for servicers. Now more than ever servicers are under a greater microscope to manage the moving target that is compliance for their businesses as well as the partners they engage.
The majority of financial institutions rely heavily on third party assistance, with many large institutions reportedly having more than 1,000 partnerships.
While it is no secret that these vendors relieve operational stressors that are critical to helping servicers perform efficiently, it is paramount that the institutions know how to properly manage the risk associated with the actions of outside companies.
Upholding vendor compliance will only become more crucial as federal and state regulators pile on rules to which servicers must adhere.
Servicers working with a third-party should not have to bear reputation or other costly financial consequences. Before a contract is ever signed, servicers must do their homework and clearly define how the relationship’s success will be evaluated moving forward.
Key Ingredients for Success
Due diligence is key. Carefully evaluate a vendor’s qualifications, work history and expertise. Do sufficient research and contact several references as an initial step. By investing the time up front to compare an organization to its competitors in the market will prove to be worth the extra effort in the long run.
Once a decision has been made, servicers need to be certain a plan is in place for timely communication. Who is your point person at the company and how will you reach him/her? Miscommunication can be extremely costly for servicers, not to mention it can lead to fines for noncompliance. Creating a way to communicate openly will allow the servicer and the vendor to avoid discrepancies that hinder the process for all parties.
Implement checks and balances to continually evaluate the service your company receives from a partner. A vendor should agree to regular reviews and assessments of the working relationship. Periodic evaluations are important so the partnership will remain positive (and a compliant one) for your business.
Perhaps the most important ingredient in a healthy servicer-vendor relationship is transparency.
Since servicers are ultimately responsible for third-party vendor compliance, they must have transparency into all appropriate processes and activities. Gaps in communication are costly and not only leave room for miscommunication; it provides a fertile ground for costly mistakes and fines imposed for missing regulatory guidelines.
Using a common technology platform for all parties to the transaction not only gains transparency into the operations that impact one another is critical to closing the communication gap that has plagued our industry in the past.
As servicers continue to make internal changes, they must proactively establish strict guidelines for their partnerships to adhere to. It is not possible to truly improve their business processes without improving communication and collaboration among their critical partners.
So, as servicers continue to make internal changes, they must also proactively establish guidelines for their partnerships, which will prove beneficial in restoring their bottom lines—and reputations—in a highly regulated world.
Angela Hurst is the senior vice president of business development for RES.NET.