REQUIRED READING: Prior to the 2008 economic crash, the selection process for a document preparation vendor was not the most complex challenge. But that was four years and different world ago. Today, servicers face a myriad of challenges in their daily operations, and choosing a document preparation vendor can make the difference between a well-run business and a visit from Richard Cordray's bloodhounds.
For servicers that may be in the market for a new document preparation vendor, here is a checklist of some obvious and not-so-obvious concerns that should be addressed.
Does the vendor have an in-house legal and compliance staff? In today's environment, these are functions that cannot be easily outsourced.
‘By far, the most important consideration is having in-house legal and compliance expertise,’ says Don Iannitti, president and CEO of Document Systems Inc., based in Carson, Calif. ‘It is an absolutely critical component. There is so much going on and changing in the industry – the regulatory environment is changing constantly, and these functions cannot be outsourced effectively any longer. Vendors need to have an internal team to gather and process information, and to provide that information to clients in a clear and concise way.’
‘In today's lending environment, failure to comply with government regulations can spell the end of a business,’ says Steve Rouse, vice president of enterprise sales for Denver-based Mortgage Cadence. ‘The Consumer Financial Protection Bureau has already promised to levy penalties and fines against servicers. All compliance requirements and document content management should be completely managed by the lender's document vendor. Reallocating such document services will help to reduce the overbearing in-house compliance and content management costs while ensuring compliance.’
‘Legal questions are bound to come up, if not on every single file,’ adds Mark Mackey, executive vice president at Salt Lake City-based International Document Systems. ‘It is important to make sure the vendor's legal staff can ensure quality work. There are 50 different states and different rules for each state. From our experience, our attorney has to go through each state to see what laws are changing in order to ensure those documents are compliant.’
Does the vendor have appropriate risk management processes in place? Kristina D. Maritczak, head of the mortgage compliance and regulatory practice at Los Angeles-based Palmer, Lombardi & Donohue LLP, urges servicers to perform extensive due diligence in regard to a vendor's risk-management procedures.
‘The ultimate issue is: how do they manage risk?’ she says. ‘Risk management should be central to what vendor you select. If a problem occurs, how will the vendor deal with it – internally or by hiring an outside company or lawyer to handle it? And what are your risks in doing business with the vendor? You will need a straightforward, well-defined plan, and you will need to take time, energy and effort to monitor the vendor.’
Maritczak adds that one risk that often gets overlooked involves the simple act of two people not talking to each other.
‘The biggest risk is the lack of communication,’ she says. ‘Sometimes, the vendor may not communicate with you accurately. And sometimes there are miscommunications, particularly in litigation process.’
‘Over- and under-disclosure is a continued concern in the industry,’ says Rouse. ‘Without a dynamic document solution, errors are likely to occur because companies are relying on manual intervention as opposed to smart technology. A true document preparation and delivery provider should offer document management and risk mitigation services in a manner that allows the vendor to truly 'partner' with the servicer by offering services with superior technology.’
Does the vendor have a solid staff in place? ‘In regard to support staff, you need to ask about their response times,’ says Mackey. ‘I have seen some companies take a week to get an item resolved, while others take an hour.’
Servicers may also want to ask the vendor about staff turnover rates. If the company's personnel roster is constantly in flux, there might be problems.
‘The tenure of the account managers is important because these people can be a lifeline,’ says Jonathan Kunkle, president of document services at LenderLive Network Inc., headquartered in Glendale, Colo. ‘Servicers need to make sure that vendors have the right people in the right job, and that they are doing their job accurately.’
Does the vendor have an appropriate high-tech setup? ‘Document providers speak often about portals,’ says Rouse. ‘Choose a provider that exports data seamlessly from the servicing system of record, populating the appropriate fields with the extracted information, and instantly creating packages to then print, save, or securely deliver electronically. This type of portal should accept standard export formats to ensure data consistency and limit data entry.’
Ed Delgado, chief operating officer of Dallas-based Wingspan Portfolio Advisors, concurs, adding that servicers need to ask multiple questions about the vendor's high-tech set up.
‘It's important to understand the technology platform they use,’ he says. ‘Is the technology Web-based? Where is the data stored? We would also want to know how quickly we could obtain the data, and if there is a portal that gives us dashboard reporting for transparency considerations.’
Does the vendor handle diverse document preparation requirements? ‘Another technology aspect has to do with the rules-based software that the company deploys,’ Delgado says. ‘For example, one bank may require eight documents for a modification package, while another bank may require 10. Can this be coded in the provider's system?’
Iannitti recommends asking if the vendor has the ability to handle large-volume workloads.
‘As document packages grow and lenders become larger, there will be a lot more transactions,’ he says. ‘Speed is critical, and the servicer needs to make sure if the company is on the cutting edge of all tech advancements. The vendor could be processing 6,000 to 7,000 transactions in a batch, so the servicer needs to measure process time, including the amount of available bandwidth.’
‘Can the vendor handle the most complex of forms?’ asks Kunkle. ‘For example, a notice-of-denial letter in our engine consists of 1,500 lines of code. If a vendor is using a mail merge process, they will not have a very accurate denial letter delivered to a borrower.’
Does the vendor have appropriate cybersecurity measures in place? Cyber attacks are not just limited to Iranian nuclear facilities – all businesses are vulnerable, and those connected with the financial services industry are especially attractive to digital miscreants.
‘Information security is a big fear,’ says Abram Spohn, director of credit for Denver-based Allonhill. ‘This is more and more critical in all industries, especially when you consider the scale of servicing and the large number of documents that it touches.’