PERSON OF THE WEEK: Yashodhan Ratnakar is project manager for IndiSoft, a software firm that provides compliance and vendor management solutions that help mortgage servicers reduce their risk and weather increased regulatory scrutiny.
MortgageOrb recently interviewed Ratnakar to get his take on how new regulations have changed the vendor management landscape for servicers in recent years, as well as how vendor management can be improved in other areas of the mortgage industry, including origination and secondary markets.
Q: What does the vendor management landscape look like now that the increased government regulations have been in place for a couple of years?
Ratnakar: Today, mortgage companies are more diligent about managing their vendor relationships due to the additional regulations. Federal agencies, such as the Office of the Comptroller of the Currency (OCC), have regulations in place that, in effect, hold servicers accountable for the actions of their vendors. As such, servicers and lenders must ensure that each activity is performed in a safe and sound manner while also being in compliance with the regulations.
It is important for mortgage companies to have the necessary reports and proper documentation in case they are audited. In September 2014, the OCC assessed a penalty against the U.S. Bank National Association for unfair billing practices. Restitution was ordered for those who were unfairly billed for products marketed by the bank and sold by its vendors. This action was a wake-up call for servicers and lenders to be more diligent and careful when selecting vendors that are to be used for additional services, both internally and externally.
Q: What is the next step in vendor management, from a mortgage company point of view?
Ratnakar: More mortgage companies need to fully embrace technology to effectively help manage vendor management. I know it sounds like a broken record, but it is still a very valid statement. Some companies are still using manual processes to manage their vendor relationships. Not only is this inefficient, but it is also dangerous for the company and makes it vulnerable to penalties. Companies that thought they found a short-term resolution to being compliant now have to reassess their strategies, as these regulations and their associated penalties are here to stay.
Q: What are the challenges companies are facing today because of vendor management?
Ratnakar: Most of the companies today have a dedicated vendor management group that manages relationships and monitors compliance. This group plays an important role in the organization. Therefore, without the proper application, vendor managers find it extremely challenging to keep track of the changes in regulations, as well as vendor feedback. Vendor managers also use multiple systems to track various aspects of the relationship. This can lead to inefficiencies and inaccurate information. For example, a vendor’s contract information is stored by a company’s business unit, while the vendor’s payment information is stored by the accounts payable group. Merging all of that information into one system would increase efficiency and productivity while also preventing possible errors.
Q: What technological changes have been made to help with the requirements?
Ratnakar: Technology has matured immensely in the effort to assist vendor managers. Before federal requirements, companies could manage by using multiple spreadsheets and storing contracts and other vendor-related information at several different locations despite the fact this caused clerical nightmares and additional unnecessary risk. Now with vendor management applications, all of the information related to the vendor is stored in one location, which allows vendor managers to have a complete account overview.
Additionally, the risk associated with having multiple vendors’ information is reduced significantly. Dashboards and easy-to-run reports make it easier for management to clearly identify high-risk vendors and also help them make more informed decisions regarding company risk. In addition, technology has automated various tasks, such as reminding vendors and/or vendor managers of expiring documents, contract expiration, ongoing monitoring, etc.
Q: What other segments (originations, servicing, secondary markets) of the industry still need to use more technology to enjoy better results when it comes to vendor management?
Ratnakar: That is a simple answer: all of them. There is not one segment of the industry that has completely embraced technology.
Unfortunately, that is not much of a surprise. The time for slow acceptance has almost come to an end. Companies that use vendors for banking activities, including originators, servicers, etc., need to implement and use vendor management applications immediately.
Regulators are stricter, and if companies do not comply with the regulations, they may end up paying hefty fines. The unsettling reality is that there are still a vast number of mortgage-related companies that are managing their day-to-day activities using archaic methodology (spreadsheets), and this increases the risk of fines. Although the initial technology implementation may seem daunting, the result can save companies money and their reputations.