Mortgage Industry Struggles to Avoid Vendor Management Land Mines
Bloomberg BNAElizabeth E. McGinn, Moorari K. Shah
October 3, 2015, marked the official effective date of the long-anticipated, and widely dreaded, TILA-RESPA Integrated Disclosure (TRID) rule. Mortgage professionals have learned from a half-decade deluge of regulation that their TRID fate, along with almost every other aspect of the industry’s ability to comply with the new regulatory regime, lies largely in the hands of third-party vendors.
Vendors ranging from independent mortgage brokers to disclosure preparation companies to settlement service providers span the entire origination process. In a rare acknowledgement of the problems associated with unreliable vendors, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told an audience of mortgage bankers just two weeks into the TRID rule’s existence:
‘‘Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you on the spot with changes at the last minute or even past the due date. It may well be that all of the financial regulators, including the [CFPB], need to devote greater attention to the unsatisfactory performance of these vendors and how they are affecting the financial marketplace.’’
Cordray’s remarks ultimately provide little comfort to mortgage lenders that must bear responsibility for vendors who fail to individually and collectively maneuver around TRID’s many land mines. In that regard, the TRID rule is no different than any other industryshifting paradigm advanced by the Bureau in its short but notable five-year reign.
Considerable investments to absorb and adjust to new laws and regulations have not altered the reality that coordinating the efforts of vendors will continue to determine whether the mortgage industry can ever conquer the heavy compliance burden it now faces. Along with vendor management concerns arising under the TRID rule, this article explores a number of mortgage industry challenges related to vendor management that have been the focus of intense CFPB enforcement efforts during the past year and are likely to continue into the foreseeable future.
Back to the Future
Throughout its existence, the CFPB’s vendor management arsenal has had a familiar tendency, consisting mostly of (1) ominous guidance bulletins, (2) invective-laden enforcement actions, and (3) cryptic signals of future enforcement. In so doing, CFPB regulators have honed in on long-standing compliance pressure points involving third parties, including marketing services agreements (MSAs), deceptive advertising of ancillary products, and prohibited loan originator compensation. In addition, a number of multi-party transactions, such as the delicate relationships among lenders, appraisal management companies (AMCs) and independent appraisers, figure to result in almost certain vendor management enforcement in the post-TRID era.
To be sure, other federal agencies such as the Federal Reserve Board (Fed) and the Office of the Comptroller of the Currency (OCC) have more modestly echoed the CFPB’s warnings with respect to vendor relationships, and many in the mortgage industry have heeded the regulators’ calls and wisely redoubled their efforts with respect to vendor management.
The efforts have resulted in, among other improvements, robust policies and procedures that cover vendor selection, contract negotiation and ongoing monitoring, as well as compliance training for everyone from the board of directors and senior management down to line-level employees. Nonetheless, whether because of the TRID rule or otherwise, many mortgage companies continue to grapple with fundamental changes to—and in some cases elimination of—age-old industry conventions.
Originally published in Bloomberg BNA; reprinted with permission.