In the midst of a storm of new regulations, lenders and their service providers are working toward compliance. As a technology team, Mercury Network is developing software solutions for your compliance challenges, but we're also keenly aware of the importance of third-party oversight and vendor compliance and their implications for us. [paragraph] Specifically, two new bulletins were issued by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) addressing lender responsibility for third-party oversight and risk mitigation. And both definitely got the attention of industry vendors. (We will get to the specifics of those bulletins in a minute.) [paragraph] However, because lenders are dealing with lower originations, Qualified Mortgage (QM) and other compliance burdens, many haven't yet scrutinized their appraisal service providers in light of these bulletins. [paragraph] But as lenders make progress on streamlining operations, service providers like us know our turn under the magnifying glass is coming.
Third-party oversight requirements: Boon or burden?
As with all compliance-driven changes, third-party oversight can be seen as a hassle--adding extra burdens to lenders and service providers. But really digging into vendors critical to your success is always good practice.
You will undoubtedly find that some of your valuation vendors present unacceptable risk, and lining up safer and better alternates has benefits beyond just ensuring your compliance.
With better vendors, you'll find ways to be more efficient. You can reduce overhead costs, deliver better service to your borrowers, reduce delays and hassles, make loan originators more productive, and much more.
Compliance may be the trigger for your scrutiny and ultimately the reason you're switching valuation vendors, but unreliable vendors are negatively impacting your bottom line. Like going to the dentist, vendor evaluation is painful, but better for you in the long run.
The latest announcements
There have been three recent announcements related to regulatory expectations of third-party service providers. The existing regulations are familiar to most, so we'll focus on the 2013 clarifications issued by the OCC and CFPB, as well as the new quality-control initiative launched by Fannie Mae.
CFPB's third-party oversight bulletin
In April 2012, the CFPB issued Bulletin 2012-03, outlining expectations of supervised entities and their relationships with service providers (see http://files.consumerfinance.gov/f/201204.cfpb.bulletin_service-providers.pdf).
Among the key clarifications in this bulletin, the CFPB made clear that lending institutions would not be absolved from responsibility for the compliance of their third-party service providers. The CFPB also stated that third-party service providers would be subject to the same CFPB supervision as the lending entity.
OCC's third-party oversight bulletin
On Oct. 30, 2013, the OCC issued Bulletin 2013-29 to clarify its expectations of the management of third-party service providers (see www.alamode.com/download/occ2013-29.pdf). This bulletin gets more specific than the CFPB's in that it mandates lender due diligence in third-party selection.
The OCC requires ongoing, consistent monitoring of the activities and the performance of the service provider throughout the relationship. It goes a step further in requiring that the supervised entity verify a third-party service provider's compliance with regulations, specifically the Gramm-Leach-Bliley Act's (GLB's) consumer-privacy safeguards.
Fannie Mae's December Lender Letter
On Dec. 10,2013, Fannie Mae issued Lender Letter LL-2013-10, focused on appraisal quality and announcing its new Appraiser Quality Monitoring (AQM) program (see https://www.fanniemae.com/content/announcement/111310.pdf).
The Uniform Data Collateral Portal* (UDCP) has given the...