Mortgage Companies: Know Your Vendor's Leadership - It Affects Culture and Compliance

If you're an established financial institution, you're probably using third party vendors to fulfill several functions to gain efficiencies and market advantages. After the contract has been signed, the quality of the relationship between the institution and vendor is the key for the ongoing partnership. However, this is usually the time that if left unchecked, things can go awry.

Stay In Tune With Your Vendor Relationship

Like any relationship, take marriage for example, considerable time and effort is spent getting to know each other. In vendor relationship management, this should be an ongoing practice. Relationships mature and grow, but they can also fall apart.

Ask yourself:

• Is the vendor I signed up with 25 years ago, the same vendor today?
• Do we still share the same values?
• Is the product or service still meeting my needs?
• How come customer service doesn’t seem to be consistent compared to a few years back?

If the most you know about your vendor is that they bring donuts and pastries into the office on the last day of the month then you cannot satisfy this fundamental piece of oversight management. You simply don’t know enough about your vendor. 

While most vendor interactions will begin at the sales level, the institution should really look further up the chain of command. After all, once the deal is signed, sales staff naturally move on. 

Developing relationships with key stakeholders in the vendor organization will play dividends in the long run. Account management, key point of contacts and executive level relationships will help define if you mature from a vendor relationship to that of a consultative partnership.

What to Look at When Leadership Changes

But how does this look if the vendors leadership is in constant flux? Here are some things to pay attention to:

• Vendor Service Levels: If there is one thing that is key in the changing of the guard is that direction or lack of are key danger areas in managing vendor service levels. Leadership steers the ship and directives - and even the company culture is at stake and may impact your own vendor relationship experience.  When things go wrong (and I write from experience), the relationship can turn frosty.
  
  If your vendor seems to have a revolving door within its leadership or operations ranks, you may want to consider how your service levels and product quality is being impacted.
  
• Bio and Tenure: In my standard review of a vendors’ operations and commitment to regulatory compliance, I will always look at the C-suite bio and tenure to get a high-level overview of how a vendor is structured. It stands to reason that while an organization may have outsourced a specific process or function, the risk of outsourcing remains with the financial institution. The vendor has become an extension of your operation. If you follow that logic along, it would make sense that you would want to know that the leadership is stable and consistent.
• Expertise: One aspect of leadership which is often overlooked is the experience level that sits at the table. More so than ever; the responsibilities of leadership and having key areas of expertise are vital in the lending vertical. Since mortgage fulfilment vendors usually have some level of regulatory compliance requirements it would make sense that when looking at the C-level or board level team that expertise in compliance and risk oversight is adequately represented.
  
  Based on the phrase, you don’t know what you don’t know, how then can a leader know where the weak spots are in the operation? The vendor management team usually spot this weakness before the line of business since it is vital that they have a broad understanding of the vendor organization.

From time to time, the C-suite may and will change as other opportunities present themselves, however if the change of leadership or key operations staff seems to be on the increase and your service levels have begun to deteriorate, it may be time to consider looking at your options.

Change of Leadership Can Negatively Influence Culture of Compliance

Leadership is key to setting a company culture, new leadership will make course corrections where warranted but, often in my experience, there is usually a learning curve and what one would call the “dating period” involved when key leadership changes within an organization. Here are a few points to consider related specifically to culture:

• If leadership has changed recently with a key strategic partner, then it can be a good practice to increase the level of oversight in the form of ongoing monitoring or conducting performance scorecard calls.
• It also makes sense to reboot the relationship, this is a great time to get to know the leadership and offer your opinion and assessment on your experience to date. A receptive new leader will be eager to receive the feedback as they get the lay of the land.
• Lack of or change in culture of compliance can cause real problems. Looking back at the events at Wells Fargo earlier this year, the infamous fake account scandal was firm evidence that the organizations’ compliance management system had not been appropriately implemented or monitored. All evidence suggested that this was a cultural issue within the organization. 

So how can you tell if your vendor has a culture of compliance?

There are a couple of basic areas which can help pass the litmus test of gauging the compliance culture question.

• Gather the vendors policies and procedures relating to regulatory compliance. The CFPB stated in May 2017 that they themselves will be reviewing policy documents of vendors in the lending space. Follow their lead.

• See about litigation / enforcement actions. Nothing screams louder than something is amiss than an enforcement action. Violations such as UDAAP, RESPA, AIR, FCRA to name a few should be cause for concern.

Knowing your vendor is a vital piece of third party risk. As vendor management matures in the industry, take the time to invest in this relationship aspect. A strong vendor relationship can be golden.

Download our Vendor Oversight and Ongoing Monitoring infographic to learn more about due diligence best practices.