Compliance issues have forced lenders to revisit much of the way they manage service providers and "back-of-the-house" operations. Is the relationship-based business gone forever? Or has it simply evolved?
There was a time when a loan officer or vendor manager assigned an appraiser, title insurer or other service provider based upon location, turn time and cost. The high volume days of the mid-2000s really didn't allow a mortgage lender much time to handpick vendors--at least not without potentially leaving money on the table. [paragraph] We've all heard the stories about vendor managers frantically thumbing through phone books or performing impromptu Google[TM] searches in order to assign an order to a service provider in a new market. Although this certainly wasn't the norm, it vividly illustrates the mortgage lender's priorities regarding vendors during the housing boom of the early to mid-2000s.
Of course, times have changed. Some of the popular post-meltdown analysis faulted mortgage lenders for failing to adequately vet and/or monitor their transactional partners, resulting in increased fraud, a poor consumer experience and unacceptable numbers of errors. As a result, mortgage lenders today are held accountable for their choice and oversight of businesses that may touch the mortgage transaction on the lender's behalf.
We often hear the mortgage and housing industry described as "relationship-based." However, as risk mitigation soars to the top of the priority list for most originators, one must wonder whether this is still true--especially when it comes to entrusting third (and fourth) parties with functions affecting the mortgage process.
Have regulatory requirements changed the process forever?
Yes, but only to the degree they have forced us to evolve. Ours remains a relationship-based industry, but relationship is now only part of the formula.
Selecting a service provider: Then versus now
The mortgage industry has long been revenue-focused. Decision makers have tended to fixate on emerging markets, product mixes and market share. Thus, the "if-it-ain't-broke-don't-fix-it" model was a standard of vendor management for many originators when it came to service providers.
Because so many of the services necessary to close a mortgage loan, such as title, escrow or appraisal, tend to be somewhat commoditized, more than a few lenders looked to their relationships (whether referrals from lender colleagues or interactions within the service provider community) as the jumping-off point for vendor selection.
That began to change when the real estate world experienced incredibly high origination volumes from 2002 through 2007. During that period, demand--especially for refinancing--was overwhelming. Originators competing to close deals as quickly as possible in order to move on to the next one pushed speed above all else.
As a result, in some quarters, vetting and selection standards gave way to turnaround time. If a potential service provider was geographically situated to take on an order and...