With lenders and servicers now shouldering greater responsibility for their vendors' actions, mortgage companies have had to rethink the way they evaluate their business risks and manage compliance.
The higher standards mandated by the Consumer Financial Protection Bureau and other regulators have created an environment where it's no longer acceptable for lenders and servicers to solely focus their attention on evaluating and responding to risks on the individual loan level. Rather, mortgage companies must approach compliance at the organizational level, including thorough scrutiny of their vendors' risk management practices.
One way this is accomplished is through standardized information gathering, or SIG, questionnaires — essentially an annual checklist where vendors outline their security protocols, financial strength, insurance coverage and other operational details to their clients. But despite their name, the format of these surveys is anything but consistent. It's typical for vendors to receive a wide range of survey formats, while mortgage companies must manage all manner of responses from their partners.
Mortgage software vendor Ellie Mae and Prevalent, a risk management and vendor oversight technology firm, are developing a portal designed to help lenders and vendors manage the SIG reporting and submission process. The service leverages Ellie Mae's shared connections with lenders and third-party vendors that integrate with the Ellie Mae Network, a communication medium and delivery channel for third-party underwriting services like document preparation, income and employment verification, and credit checks.
"We're creating a library of all the due diligence requirements not only for Ellie Mae, but everybody that's on the Ellie Mae Network," said Joe Tyrrell, executive vice president of corporate strategy at Pleasanton, Calif.-based Ellie Mae. "Our lenders will only have to go to one repository to get all of the due diligence information that they're required to get."
Alongside the library of due diligence documentation, Prevalent will also offer lenders ongoing monitoring and threat assessments of their vendors on the Ellie Mae Network, as well as of service providers who work outside that ecosystem.
"We're collecting and monitoring different data points of public and proprietary information and as that information is brought in and correlated, it will be associated with the service providers in the Ellie Mae Network," said Jonathan Dambrot, CEO and co-founder of Prevalent, based in Warren, N.J.
Prevalent's monitoring technology analyzes and reports on data risks, such as phishing scams and other breaches, and brand risks, including product recalls and other incidents that can affect consumer sentiments. What's more, the analysis can be performed on lenders' direct, or third-party, vendors, as well as the partners that those vendors use, known as "fourth-party" vendors.
The due diligence document library, called Vendor Manager, will be provided to lenders as part of the Compliance Management System that Ellie Mae has incorporated into its loan origination system. Prevalent's ongoing monitoring service will be offered for an additional fee. With both products, lenders will only be able to access information on the vendors that they have existing relationships with.
These new services seek to replace lender processes that often involve manually updated spreadsheets and other efforts pieced together to meet their vendor management requirements.
"Many lenders have elements that they are putting in place to try to address it, but they're really looking for a comprehensive solution," said Tyrrell.
"Ultimately we see an opportunity to create a standard request for information and a standard way of delivering it," he added.
Vendors also stand to benefit from this attempt to standardize the due diligence process. Given the scope of oversight now expected of lenders, vendors, particularly smaller ones that offer a niche product or service, face the prospects of losing clients who simply can't handle or don't want the burden of managing a large assortment of third-party companies.
"One of our executive advisory board members said that they currently have 16 vendors and their goal is to get that down to less than seven," said Tyrrell. "And it's because of the requirements they have from a vendor management perspective and having to manage them on an ongoing basis."
In many ways, Ellie Mae's strategy behind Vendor Manager parallels a product called Total Quality Loan that the vendor launched in 2011 to make it easier for correspondent loan aggregators to verify the underwriting data provided by vendors on the Ellie Mae Network.
In addition to the partnership with Prevalent, Ellie Mae's Compliance Management System suite of tools includes other new features that incorporate technology from recent Ellie Mae acquisitions. For example, customer-relationship management technology from Ellie's acquisition of a vendor called Mortgage Returns has been configured to manage consumer complaint resolution. Another feature offers a content management system for employee education and training that's rooted in the AllRegs technology that Ellie Mae acquired in 2014.