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  • Writer's pictureLuana Slettedahl

The Roadmap to a Lenders Third-Party Vendor Management

The past year has demonstrated the mortgage business is undergoing BIG changes, again. With the marked decrease in loan originations, the industry has also managed to cut its costs with a reduction in staff. While a humbling truth to the environment that exists, this creates challenges in how lenders may be managing their Third-Party Vendor relationships.

I recall hearing various examples in working with clients where the unexpected instance occurred, and the business was scrambling to resolve the deficiency because it had an immediate financial or regulatory impact. Bottom line, when you design a Third-Party Vendor Oversight Plan that mitigates risk and allows your firm to continue doing business without major leakage – then the Oversight Plan has very quickly demonstrated a Return on Investment (ROI).


In today’s lending environment your team must understand how Third-Party Vendor service levels could change and they need to be monitored more closely. More closely, now, than ever before. All while your balancing the ability to maintain adequate staff, address staff training, and keep up with the ongoing changes in the lending environment. It’s simple, the market’s cyclical characteristics cause firms to look at their “bottom line” and sometimes, let’s admit it, the choices that are made typically impact operational oversight first.

The time is now, if your firm hasn’t yet asked, “How do you manage your firm’s Third – Party Vendor relationships?” Highlighted below are the items that should be addressed in a Third-Party Vendor Management/Roadmap.


1. Does the work culture acknowledge, have a written Policy and Procedure which sets expectations and addresses the following risk components? I use the word “culture” in this framework because many times we all have our specific areas of knowledge – though broadening out and educating employees on various components of what “risk” looks like will result in a change in your firm’s culture and working framework. Examples include:


· Strategic – goal alignment and ability to quickly react

· Reputational – customer or other

· Regulatory – compliance with laws or regulations

· Operational – business continuity plan and testing

· Transaction – service gaps or delays

· Credit – contractual failure

· Compliance – business standards, industry regulations and requirements


2. Develop a centralized structured process for the review, approval, and on-boarding process for all vendors? Having a formal, centralized department that monitors and reports on this process is a must. This will demonstrate corporate governance, automatically improve communication, and improve upon the decision making and implementation steps. Benefits include:


· Utilization of a Risk Assessment Scorecard

· Cohesiveness for the decision making process

· Cost / benefit analysis

· Forum for vendor due diligence process, initial and annually

· Consistency for contractual obligations, such as service-level standards

· Change impacts can be identified

· Financial capacity determined, with periodic audit standard’s

· Testing for regulatory and investor compliance

· Compliance with investor Business Continuity requirements

3. Change Management Committee / Plan: The benefits of a Change Management Committee are guaranteed to break down work silos and improve upon Operational Efficiency. If managed in an open environment with stakeholders in assorted roles within the organization this will prompt problem solving and innovation.


· Cohesive change management structure

· Stakeholders from assorted Divisions / Departments

· Addresses impacts within workflow

· Technology testing

· Training requirements

· Buy-in for implementation timeline

· Prompts changes to Policies and Procedures


This roadmap will aid your firm in managing, monitoring, and demonstrating that your firm has a Third-Party Vendor Oversight Plan, a GSE requirement. Understandably, it is not always easy to understand these requirements. An example of a requirement that resides with both Fannie Mae and Freddie Mac speaks about a Business Continuity Plan requirements and testing. I encourage you to start a discussion within your leadership team on this requirement, and vet where is your leadership team is at in understanding, monitoring and testing this requirement. This discussion could drive your firm to a higher level of dialogue. Is the process working, or does it have gaps for areas of improvement?


As you read this blog, also understand that having a Third-Party Vendor Oversight Plan is not the same as having a Master Servicer / Sub-Servicer Oversight Plan – they are totally different activities and have different GSE requirements. The impacts, workflows, service standards in concept are similar, however, due to the financial risk not only for your firm and the various groups that receive income stream from the loan servicing activities – the financial risk, performance levels and Master Servicer Oversight of a Sub-Servicer are different.


For more information on the above reach out to the team at BlackFin Group. We offer a diverse range of talent, expertise and insight which can guide you and support your firm in developing this framework.


Luana Slettedahl is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements. In conjunction with her understanding how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com

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