“These are very challenging times for independent mortgage bankers,” said Marina Walsh, MBA’s Vice President of Industry Analysis, in November 2018. Most mortgage lenders can relate to that sentiment, since at the moment, competition is fierce, interest rates are on a slow but steady climb, mortgage application rates are down and regulatory compliance is more challenging than ever. In this environment, the cost of manufacturing a mortgage has never been higher; in the third quarter of 2018, loan production expenses were $8,174 per loan, a steep rise from the $6,312 average established from 2008 to the present. In her remarks, Walsh named high fixed costs and low productivity as two factors that challenge mortgage profitability, but outsourcing vendor management is a solution that can reduce some of these stubborn costs, help staff be more productive and manage risk.
Focus on Core Strategy
Mortgage lenders are designed to do one thing: manufacture mortgages. However, vendor management has become a time and labor-intensive process that distracts from this mission. Prior to the mortgage industry’s digital transformation, vendor contracts were regarded as simple affairs to be filed away. Over time, lenders graduated to Excel spreadsheets to manage their vendors, but unfortunately, that’s where progress stalled out. Vendor oversight is often delegated to an employee in a risk or compliance department who might not have the expertise to accurately assess a vendor’s credentials.
As the expectations for vendor management have increased, the process has begun to steal bandwidth and focus from internal resources that could be more profitably spent managing the lender’s core business. Especially in this period of market compression, in-house vendor management is an inefficiency that most lenders can’t afford. Outsourcing this work to a vendor management platform is both a cost-saver and an opportunity to leverage the specialized knowledge of vendor oversight experts. As Steve Greenfield, CMB, Director of Operations at Vendorly, puts it: “The benefit of outsourcing [to Vendorly] is that it’s all we do. Just like your business is manufacturing loans, our core focus is managing the risk that vendors present to that lender client.”
Tap into Regulatory Expertise
When managing vendors, mortgage lenders must balance a patchwork of regulations from the CFPB, OCC, FDIC, FTC and FFIEC. In addition, new laws such as California’s Consumer Privacy Act are imposing even more restrictions on how customer data is stored and shared with vendors. While all these regulations recognize that data-sharing between entities is inevitable and often beneficial, they make the lender responsible for the risk those vendors present. Gauging vendor compliance requires a high level of expertise on which regulations are applicable. With outsourced vendor management, experienced professionals stay abreast of the latest requirements and inform lenders when those requirements change.
Harness SaaS with Built-in Automation
For mortgage businesses that still rely on old-fashioned Excel spreadsheets, the experience is very disjointed. Typically, a spreadsheet logs the vendor name, sales representative and contact information, but lacks due diligence documents. In contrast, adopting a cloud-based SaaS platform creates what Greenfield calls, “A single source of truth, where we have a centralized repository that catches all of the vendor information such as pre-contract due diligence, contract management, ongoing monitoring, risk assessments, financial reviews and performance standards oversight.”
As anyone who has ever forgotten to hit “save” can attest, legacy systems are vulnerable to human error, and the opportunities for mistakes or miscommunication are multiplied with every new person that has database access. The SaaS model, on the other hand, creates a system that is tracked and auditable, because all actions taken in the system are logged.
Powered by automation, third-party vendor management platforms have a lot more functionality than spreadsheets. Automated bots can gather information about vendors from external sources—such as the CFPB complaint database, Better Business Bureau or the OFAC—and upload that data into a single digital ecosystem. This empowers lenders to make more informed and strategic decisions about vendor management.
Take Advantage of a Flexible Pricing Model
Vendorly’s pricing model is built around the idea that no two vendors are the same, meaning they require different levels of oversight. “Our solution is based on performing a risk assessment of vendors to see what risk they present to an organization, and then applying the relevant controls to mitigate that risk,” says Greenfield. Critical vendors, with access to sensitive consumer data, require a high level of oversight and ongoing monitoring, and are priced accordingly. While lower-risk vendors require an initial examination to ensure their level of access and compliance is appropriate, mortgage professionals can still take advantage of the various pricing options to make the most of their resources.
Perhaps the greatest misconception about outsourcing vendor management to a trusted third-party is that it is cost-cutting measures impact existing staff. On the contrary, Vendorly complements the efforts of staff, and the financial savings delivered by outsourcing can be used to shore up the strategic goals of the business. In short, mortgage professionals can reinvest savings into areas that fuel future growth, rather than distract from it.
For the foreseeable future, interest rates will continue to fluctuate, regulations will grow more complex and demand and competition for mortgage business will be strong. To remain profitable in the short-term, it’s crucial to seize on cost-saving outsourcing. To remain viable in the long-term, it’s crucial to maintain impeccable regulatory compliance. Outsourced vendor management accomplishes both, and lets mortgage professionals focus on doing what they do best.