By Chuck Sockol, VP of Industry Relations for Aspen Grove Solutions
The mortgage servicing industry is increasingly relying on comprehensive technology platforms to meet the expanding needs of vendor management professionals. With the industry’s management of third, fourth and often fifth-party relationships, and the proliferation of servicing guidelines, compliance requirements and regulatory enforcement actions, the industry is partnering with technology providers to add automation, data management, and analytics to their vendor management strategy.
High-level objectives for vendor management teams include creating stability, consistency, and efficiency in a vendor network. Additionally, these teams are setting standards of performance, providing continuous development through training, and making sure controls are in place to mitigate risk. While vendor management teams have an obligation to focus on areas where process improvement is possible, they must also cultivate valued and trusted partnerships with their vendor network.
Technology is helping meet the needs of vendor management professionals across the mortgage servicing industry from recruitment to issue resolution. As requirements of vendor management personnel and teams expand, they are more often turning to technology that is flexible and customizable. Robust technology must not only support the need for centralized data collection and standardization of process, but also help manage evolving regulation and risk and compliance with applicable guidelines.
The Layers of a Vendor Management Program
Vendor management departments play an important part in the industry’s effort to manage risk and maintain compliance. With the responsibility of finding, vetting, documenting, on-boarding, training, managing, and coaching vendors along the supply chain; vendor management teams must evaluate and prioritize each aspect of their role and find ways to proactively drive positive performance and eliminate sub-standard work. In order to create strategic vendor management programs that are both robust and layered, these teams must address key objectives to maintain network integrity.
First, vendor networks must demonstrate stability. Valued vendor partnerships are nurtured and new vendors are held to quality standards early to build and maintain a reliable, knowledgeable network. Second, there must be consistency in service expectations and results. Consistency in communication, clarity of roles and responsibilities, training, performance expectations and performance scoring can build confidence in internal staff, the network, and the clients that depend on them. Finally, because regulations are creating the need for new services and expanded roles within the industry, the processing of data and corrective actions must be accomplished efficiently. Technology provides that efficiency, along with continuous oversight of vendor activities which is essential to maintaining a successful, compliance-driven vendor management team. This approach not only allows vendor management teams to help their clients reduce business risk and minimize loss by investors, it is part of a collective industry goal toward achieving community stabilization. Through effective vendor management programs, loan servicers are able to contribute to the communities they service by maintaining vacant and abandoned properties that promote safer neighborhoods and protect against blight.
Throughout the mortgage servicing supply chain, industry professionals are responding to internal and external demands by taking a more robust and layered approach to the management of vendor networks. The depth of inquiry into a vendor’s background, business history, and qualifications is at the core of maintaining a trusted vendor network but is only the beginning. A standard, consistent process for on-boarding vendors (and off-boarding), evaluating and reporting on their performance, managing incidents, and providing on-going training are also of key importance. This work can, at times, seem monumental. However, vendor management strategies are more often relying on technology to help recruit, vet, and monitor the activities of their vendor networks.
Know Your Vendors
Vendor networks can be described as independent businesses working to achieve common goals for mutual clients. Yet a vendor managers’ relationship with contractors can also be seen as a partnership that requires communication, documentation, agreed service expectations, and coaching. Vendor managers utilize well-tested vetting and recruitment processes to ensure the integrity of their vendor network. These methods include completing industry-approved background checks, validating professional licenses and insurance, in-depth reviews of business references and checking the viability of a prospective vendors’ business.
To maintain a qualified network, both loan servicers and field services providers are committed to the meticulous screening of potential vendors and the continuous monitoring of the supply chain performance and relationships. With the quality of both administrative and field services work under scrutiny by regulators and municipalities, vendor management teams must ensure that the expertise of their vendors is commensurate with the current level of risk and complexity challenging the industry.
The impact of executing a rigorous vetting process and conducting due diligence prior to contracting work to a third-party goes beyond mitigating business risk. Selecting qualified vendors, and documenting exactly what they will do, play an important role in maintaining the stability of the communities in which work is performed.
Vendor management programs must include strong quality controls, audit infrastructure, monitoring systems and performance improvement plans in order to resolve issues and promote industry best practices. The industry is incorporating technology platforms that offer vendor management teams the stability, consistency and efficiency needed to manage required vendor data.
Expanded Services and Standardization in a Changing Compliance Environment
The regulatory environment has driven an expansion of vendor and operational services as industry organizations look to stay ahead of compliance measures. This sets in motion a corresponding need for all businesses in the supply chain to develop new strategies to ensure their networks stay stable, consistent and efficient. Field services providers, and other third-party suppliers, are utilizing technology to establish standardized business processes that satisfy both regulatory and client requirements while maintaining the effectiveness of their vendor network.
Property inspectors and contractors are increasingly being asked to provide reporting on expanded services such as providing insurance loss estimates, conducting utility inspections, and providing structural assessments. These new service requests are prompting vendor management departments to re-evaluate the necessary qualifications of their vendor networks and how they establish that the person at the property has those qualifications. An emphasis on documenting the licensing or certifications required to perform expanded services creates another layer of responsibility for vendor management teams and their networks. All levels of the supply chain are developing business requirements to meet expanding service requests. More often, they are finding cost-effective solutions in new technology.
Evolving regulatory guidelines from agencies including the Consumer Protection Finance Bureau (CFPB), the Office of the Comptroller of Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) present ongoing challenges to establishing standardized business requirements. However, technology providers are working with industry organizations to develop acceptable standards for items such as background checks and required certifications. As the industry continues to work closely with technology partners, we are seeing technology platforms that are able to analyze multi-faceted business processes, identify vulnerabilities and pain points, and then, effectively, fill any gaps in those processes. The industry is embracing the efficiencies that automation brings to compliance challenges. Strong partnerships with technology providers are supporting the efforts of vendor management teams to achieve process improvement, track regulatory changes, and meet network management and compliance requirements. Technology provides vendor management departments with the means to centralize data collection and management, configure customizable vendor pricing and assignment methodologies, and to proactively analyze and resolve performance and compliance challenges. While aspects of vendor management will always include tactile practices like inspections and preservation work, the benefits that automation, mobile technologies and analytics provide is vital to improving a business’s ability to compete.
By standardizing processes such as background checks, vendor managers can drive efficiencies by reducing administrative tasks and improve the stability, consistency and efficiency of their network.
Quality Control and Performance Reporting
An effective vendor management strategy must include stringent quality control measures that focus on preserving the asset and minimizing business risk. To meet compliance requirements, vendor management teams need to ensure that their third-party vendors are providing quality services on a consistent basis. Additionally, performing quality control measures are essential to maintaining vendor network stability.
Technology platforms add a layer of oversight that promotes quality control checks by identifying inconsistencies or conducting random audits of work order results. Vendor managers can also choose to deploy external quality control efforts that take place in the field such as a quality control inspections. A quality control inspection involves the re-inspecting of a property. The re-inspection can be conducted by internal team members or another third-party vendor to review the initial inspection. This second team ensures that the initial inspection, maintenance or securing work meets client expectations and regulatory requirements. This allows vendor management teams to identify performance issues and continuously improve their vendor networks. By implementing quality checks in the field, vendor management departments are able to manage costs, reduce the occurrence of code violations, and the need for repairs due to unsatisfactory work.
Some clients require vendors to follow a specific set of requirements before work order results are accepted. In such cases, quality checks are conducted by specialized teams to monitor quality, compliance, and adherence to timelines. This work involves performing quality control audits around client guidelines to ensure a property is in acceptable condition prior to submitting work order results.
If there is an issue with the quality of work completed by a vendor, a performance review is conducted to determine what action should be taken to correct the problem. Performance reporting involves creating and executing corrective action plans that are closely monitored. Technology platforms can collect, monitor, and flag data to ensure that vendor work is performed and completed in accordance with agreed upon client requirements, municipal ordinances, and regulatory guidelines. Business rules within technology systems can quickly identify inconsistencies in processes, work order results and compliance with client guidelines.
The goal of an internal quality control team is to identify inconsistencies within the vendor process and expedite corrective action for any infraction. Additionally, these teams drive vendor performance through heightened expectations and detailed performance reviews. Performance reporting involves the review of vendor scorecards and the designing of a performance improvement plan based on peer rankings of scorecards. A poor performance review can trigger vendor management teams to require additional training or participation in vendor improvement programs. Periodic training in the form of policy and procedure reviews, in-field training, online learning modules, and conference attendance are available to vendors.
The Role of Technology in Vendor Management
Vendor management programs are especially benefiting from the scalability that technology provides. A secure technology solution can accomplish more than the required processing of work order results, they are enabling teams with a consistent supply chain management process. Users are able to secure and store pertinent documentation, track expiry dates for required insurance and licensure, analyze and collect diversity information, and review client and regulatory guidelines. Vendor managers can review communications between parties, distribute vendor alerts and track ongoing vendor training on industry and client guidelines.
Some technologies allow vendor management departments to have the clear line of sight capability needed for managing third-party relationships at all levels. Vendor management teams are increasingly using data developed from mobile technologies to monitor compliance and quality control. Additionally, industry stakeholders from servicers to field services providers, can activate permission-based access to communication channels, work order results, and vendor qualifications including the presence of pertinent background checks, licensing, certifications, references, and insurance. Near real-time management can be achieved with point-of-service features.
Technology is helping the mortgage servicing industry meet the expanding needs of vendor management professionals. Today’s technology platforms provide a central hub for all of the tools required to successfully execute a vendor management program. As regulators require transparency into operational processes and the retention of all documentation associated with vendor relationships, the industry is finding that technology providers are helping them to optimize internal operations and improve processes while reducing costs and business risk.