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26 COMPLIANCE CRITICAL: AUDITING FIELD MANAGERS' VENDOR MANAGEMENT PRACTICES By Steve Salimbas, Ameriguard Properties Management, LLC e Office of the Comptroller of the Currency states explicitly in its recently issued guidance for risk management that it "expects more compre- hensive and rigorous oversight and management of third-party relationships that . . . could cause a bank to face significant risk if the third party fails to meet expectations." e Federal Reserve and Consumer Financial Protection Bureau have issued similar directives. Clearly, oversight of third-party service providers is a primary area of concern for regulators and one they will be scrutinizing closely. is makes vetting field managers' vendor management practices a new requirement. is vetting is essential since a broad range of practices are now utilized to manage contractors and inspectors. Field managers—and their mortgage servicer clients—will be held accountable for the actions of all contractors and inspectors, good and bad, as evidenced by new regulations and recent litigation. Properly monitoring the vendor management practices of field managers not only encourages collaboration between all parties to promote optimal Vendor Management Best Practices (VMBP), but it also fosters a level of quality and professionalism from contractor and inspector networks that will meet continually evolving regulatory requirements. New best practices must at least include a thorough audit of four key areas: recruitment, training, compensation, and quality assurance. ese four areas have the most influence on the professionalism, quality, and level of care of all services performed. 1. Recruitment – First, Field managers should ensure that all contractors and inspectors are recruited through reputable mortgage field service associations, such as the National Association of Mortgage Field Services. Industry networks offer an experienced tal- ent pool of professional vendors who have a thorough understanding of the regulations and the impact their actions have on compliance. Most other recruitment methods will result in a substandard vendor network. 2. Training – ird-party certification standard- izes training and provides a method for auditing the skills and diligence expected of those who have been certified. In-house training programs put in place by field managers should be directed at company- specific policies and procedures and not at teaching inexperienced contractors and inspectors how to perform services. 3. Compensation – In any industry, quality of services rendered is directly correlated to com- pensation. Any change in compensation will have the greatest positive or negative impact on quality. is has been painfully obvious in the mortgage field service industry during the past few years. Historically, mortgage field service quality was at its highest when contractor and inspector invoice payouts were all in the 75 percent range. Although volume discounts by large-volume servicers are a valid approach, an unfortunate consequence has been an extreme adaptation of this model, causing cut-rate pricing for contractors and inspectors. It is becoming commonplace for contrac- tors and inspectors to be paid only 25 percent of the invoiced amount on already reduced volume-priced services. On top of that, the work may also be further subcontracted out. These multiple levels of fee reduc- tions compound the negative impact of compensa- tion cuts and have eliminated most of the financial incentive for contractors and inspectors. This is a major contributor to the high turnover rates and poor levels of care seen over the past several years and why efforts to increase quality have had minimal impact during this time frame. 4. Quality Assurance – Conducting an independent survey of each field service manager's vendor network is the only true way of knowing if the vendor management practices the field management companies report to be in place are, in fact, being followed to protect servicer interests. Field managers should not be involved at all in the survey, and both current and past contrac- tors and inspectors must be surveyed to identify areas of needed improvement. Servicers' account- ability risks are mitigated by implementing more extensive vendor management audits that ensure VMBP are implemented throughout field manag- ers' operations, promoting responsible business decisions. Any company that is in the processes of implementing these very practices will gladly welcome such audits to show their organization places quality of service and level of care first. Such audits foster dialogue that will attain greater understanding and better results industry- wide in the area of vendor management as regula- tions evolve, ultimately providing much needed credibility to the default management process. Finally, this type of proactive audit approach will help avoid tougher and more costly future regula- tions and guidelines. Steve Salimbas is founder and president of Ameri- guard Properties Management, a Wyoming limited liability company (LLC) that provides inspections, preservation, and REO services and solutions for today's challenging regulations and stringent oversight. © 2014 Stewart. More you. Less us. Some companies concentrate solely on their own bottom line – jumping in and out of new areas to make a quick buck and leaving customers high and dry. At Stewart Lender Services ® , that's not how we do business. We believe the key to long term success for us is long term success for you. And, with over 17 years in the mortgage services industry and a parent company in business for over 120 years, we know long term. Our focus is on your big picture. We create solutions using tailored services that encompass all your needs today and into the future. And when you get to that future? We'll still be there concentrating on your success. Want more information? Visit stewart.com/more-ds. Stewart Lender Services. Dedicated to doing business right.™ SLS-1429-13-3 DS News Print Ad - Feb 2014.indd 1 1/17/14 11:47 AM

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