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60 THE CHALLENGES THIRD-PARTY VENDORS FACE: LACK OF REGULATORY STANDARDIZATION, COSTS, AND NEW DEMANDS So what challenges do third-party vendors face today? If you ask assure360 – a technology and outsourcing firm that provides mortgage servicers and law firms with case management technology, compliance systems, and customized default software – a lack of standardization around all the new rules posed by policymakers in Washington, D.C., is one of the default servicing industry's greatest challenges. "e spirit of the policies they are adopting is good," says Adam Hansen, chief operating officer and chief information officer for assure360. "I don't think anything they've suggested or proposed is necessarily wrong," Hansen says of regulators. "ings like protecting social security numbers and following all state and federal regulations ... and making sure your portfolio is sound, all of that makes sense." However, he says, there is a gap between the ideas policymakers draft in their offices and the real world environment where it's often up to servicers, vendors, and the government-sponsored enterprises to interpret those rules and execute them. It's not uncommon, Hansen says, for a GSE to adopt one policy after interpreting the rules, and for another party or servicer to interpret the same rules a different way or with slight variations. Unlike the National Institute of Standards and Technology – a federal agency that offers descriptive guidelines on how to comply with tech standards and policies – new servicing- related rules from prudential regulators often fail to provide a policy framework for execution, Hansen explains. e end result is a situation where servicers expect third-party vendors to comply accurately with all guidelines, yet no one has defined the exact standards that will measure successful compliance. Hansen says he would love for a large-scale regulator at the national level to develop a compliance framework to ensure expectations are uniform and easily implemented among servicers and the third- party vendors who partner with them. "No one is doing anything wrong," Hansen says of today's regulatory environment. "We need to add one more step in the process. We need to agree to some framework. I think policymakers are doing their job, and the GSEs and law firms and third-party participants are doing the best they can. If we can all agree to the standard by which everyone is measured the entire environment would be healthier." Patrick Nackley, director of marketing and business development for Superior Home Services, Inc., shared some of Hansen's concerns. e executive sees a strong need to implement consistent processes in dealing with compliance and to memorialize the results in some way. Superior Home Services is a vendor focused on providing hazard insurance recovery and property repair management services. From Nackley's standpoint, the Office of the Comptroller of the Currency (OCC), which regulates national banks, came in with new vigor after the financial crisis. Under the new compliance regime set up by prudential regulators, servicers are constantly being asked how they address risk, how they manage compliance, and how they manage their vendors, Nackley says. ese expectations are then pushed on to third-party vendors. e challenge, Nackley explains, is many of these needs were already being met, but there was no recorded process to measure and manage compliance. "Although a lot of these things were being done, there wasn't a proper memorialization of the process, and without that, how can you go through and audit the results?" Nackley said. "What was being communicated to the banks was being directed to the vendors. e first question was what is your process and can you communicate that in writing? But a lot of what we did was almost intuitive; it was ingrained into what our operation was." Much like Hansen, who insists standardization is the key to implementing new regulations, Nackley says successful vendors need to focus on establishing a process of compliance that can be easily enforced and repeated. "Whether you are a foreclosure attorney or doing valuations, what is the process you are using and is it all memorialized?" he asked, adding that vendors should ask themselves, "Can someone walk into the job with similar experience and knowledge and understand what the responsibility for that position is?" As a result of the OCC's new regulatory focus on financial firms, Nackley says servicers turned right around and asked their vendors to comply with new guidelines. "What we are currently focused on is continuing to get better at understanding the requirements that our clients face," Nackley said. After learning those requirements, "I think margins have fallen. If you look at the life cycle of the business, you will see competitors continue to fall off. The firms that continue to compete and win, they have pushed the envelope in technology. They are asking how do we automate more, how do we move this file forward more efficiently?"

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