NMP - April 2017 - 98

Smaller Lenders
Streamline Your V

APRIL 2017 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

98

t has been said, "The price of
doing the same old thing is
far higher than the price of
change." Similar thinking was
likely behind the passing of
the Dodd-Frank Bill of 2010,
which was intended to make
lending, including mortgages, fairer
and more transparent for
consumers. Unfortunately, the
"invisible hand" of law of
unintended consequences proved
true. Despite what may have been
the best of intentions, the actual
impact of the new regulations has
made the mortgage process more
complicated and challenging,
particularly for lenders.
Regulations created by the
newly formed regulator, the
Consumer Financial Protection
Bureau (CFPB), spawned by DoddFrank caused lenders to reassess
how they acquire third-party
services. The responsibilities
placed on a lender by these new
regulations have resulted in
significant costs to the lender
associated with maintaining
relationships with third-party
suppliers. Many have concluded
that they need to reduce their

I

number of vendors as a practical
consideration. In doing this, lenders
have partnered more closely with
their suppliers-improving
transparency, leveraging spend
and cutting compliance costs.
l In efforts to improve
transparency in the process, the
lender must now understand the
third-party costs at a level they
did not need to in the past and
often disclose that information
available to the borrower. The
appraisal process is a prime
example. Lenders must now
understand what third-party
appraisal management
companies (AMCs) pay their
appraisers, because the lender
is responsible that fees are
Customary and Reasonable per
Dodd-Frank and many other
state regulations.
l Much of the money spent on
mortgage originations was
historically narrowly focused and
did not provide much ongoing
value. To better leverage spend,
lenders are finding new ways to
partner with their supply chain
to get more out of the money

they are spending to originate
loans.
l As the costs of regular due
diligence on third-parties are
often so high for the lender, it
makes more sense for the
lender to partner with service
providers that can offer several
different solutions to meet their
needs. It comes as no surprise
that it is more efficient to
perform diligence on a single
provider of five services than on
five single service providers.
Post Dodd-Frank, with new and
more stringent audits, regulators
came to the conclusion that
lenders were outsourcing critical
functions without adequate
oversight to ensure work was done
to comply with regulations and at
reasonable costs, which are often
passed on to consumers.
This resulted in additional
regulations requiring lenders to
institute more extensive third-party
oversight and procurement
programs. Larger lenders were the
first to react, consolidating vendors
by function. These lenders primarily
looked to work with vendors with

multiple product offerings to support
various touch points in the
origination and servicing process. As
a result, these lenders are reducing
the amount of firms they manage,
thereby minimizing the cost of
diligence oversight and reducing
compliance risk.
So, what is the impact on the
marketplace today, and what effect
does it have on small- to mediumsized lenders? The movement
toward "less is more" when it comes
to vendors is extending beyond large
banks and mortgage companies,
making it imperative now more than
ever for vendors to provide a wider
breadth of services. For lenders,
beginning to take a closer look at
partners, consider this:
1. Choose players that can support
multiple products or servicesĀ in
both the manufacturing and
servicing process. Often larger
vendors have business lines and
solutions that support all stages
of the lending process.
2. Rethink your approach. Don't
buy services from vendors;
develop solutions with key
supplier partners. Consider the


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