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Th e M Rep o RT | 21 Feature W hile the old adage that there is nothing new under the sun may be true for lenders who need to vet and manage vendors, there has not been anything quite like the scrutiny we see on those processes today. Government- produced bulletins on the subject have been out for more than a decade, but new guidance from the Consumer Financial Protection Bureau (CFPB) coupled with the potential financial and operational penalties have ushered in a new era of heightened awareness. Until recently, vendor manage- ment guidance focused mostly on the safety and soundness of an institution. Regulators have since clarified that requirements established by the FDIC Bulletin FIL-44-2008, which provided guidance for managing third-party risk within national banks, were not enough to protect consum- ers. Updated regulations from the FDIC, the Federal Financial Institutions Examination Council (FFIEC), and Fannie Mae in- clude guides on how to manage third-party relationships. In April 2012, the CFPB weighed in and published a three-page service provider guidance, which is driv- ing significant operational adjust- ments within the industry. Vendors and lenders are both working hard to interpret and implement policies and proce- dures based on the guidance provided. Because of their size and limited internal resources, small to mid-size community lenders face challenges that big banks and institutions do not. Vendor-Assisted Compliance A tlanta-based consumer, commercial, and workforce information solutions provider Equifax and other vendors have experienced a rush for informa- tion and assistance from inde- pendent lenders since July. "Lenders are looking to their vendor partners for direction," said Michael Kuentz, SVP of Verification Services at Equifax. "Therefore, it is the vendors' responsibility to apply the rules and develop tools that will help lenders, as well as ensure that the word is out that they have done so. This is an opportunity for vendors to have a strong voice, because lenders need direction to navigate the new policy and procedures." This sort of behavior is not new to the mortgage industry. Kuentz says it reminds him of other regulatory changes, which tends to reveal three types of lenders: those that will be ahead of the curve and do whatever they can to ensure they are compliant, those that will wait and see what effect the changes will have on the industry, and those that will wait and see and just resolve to pay the financial penalty if there is one. St. Louis-based Altisource Fulfillment Operations (AFO) has also seen similar adaptation patterns among its clients. "The progression of lenders work- ing through the requirements is fairly typical," commented Debora Aydelotte, president of AFO. "We have always provided clients with information regarding to licensing and certifications, as an example. However, within the last few months, demand has increased for our advisory services as well as for our internal compliance policies from both existing and new clients on our correspondent, quality control, and underwriting service platforms." Aydelotte notes that both originators and servicers should do a bit of legwork before ap- proaching each vendor and pre- pare a standard requirements list of due-diligence items, such as financial statements, compliance, and corporate ethics policies and system security assessment information. For vendors con- sidered tier 1 (critical to business Vetting Your Vendors: What Lenders Really Need to Know The heightened regulatory environment has forced lenders to ensure they are working with the right team. By Tim Cox, Senior Manager of National Programs, Lenders One Mortgage Cooperative