third party oversight and appraisal operations
TRANSCRIPT
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Critical appraisal compliance update:
Third party oversight
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L ender
AMC AMC Appraiser
Mercury NetworkCloud-based vendor management platform, connecting more than 600 lenders and AMCs to their appraisal vendors, and powering more than 20,000 appraisal deliveries a day.
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Third party oversight“Regulated entities are expected to oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm.”
CFPBOCC
FRB
FNMA
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Who are third parties?
• Any service provider
• Defined in Dodd-Frank (section 1002(26)) as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.”
• Includes commonly outsourced services:• Appraisers and appraisal management
companies (AMCs)• Document and disclosure vendors• Website and software providers• Payment processing
• Contract underwriters• Attorneys• Affiliates• Mortgage insurance providers• More
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The regulators• CFPB (Bulletin 2012-03, April 13, 2012)
http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf
• OCC (Bulletin 2013-29, October 30, 2013) http://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html
• FRB (Federal Reserve Board Supervision and Regulation Letter 13-19, December 2013) http://www.federalreserve.gov/bankinforeg/srletters/sr1319.pdf
Plus, investor Fannie Mae• Fannie Mae Lender Letter LL-2013-10
https://www.fanniemae.com/content/announcement/ll1310.pdf
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Regulatory actions regarding third party providers
• Sept 2013: Chase and JP Morgan, $20 million + restitution http://www.consumerfinance.gov/newsroom/cfpb-orders-chase-and-jpmorgan-chase-to-pay-309-million-refund-for-illegal-credit-card-practices/
• June 2014: GE Capital (Synchrony), $3.5 million + restitutionhttp://www.consumerfinance.gov/newsroom/cfpb-orders-ge-capital-to-pay-225-million-in-consumer-relief-for-deceptive-and-discriminatory-credit-card-practices/
• July 2014: SunTrust, $160 million http://www.federalreserve.gov/newsevents/press/enforcement/20140725a.htm
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Third party oversight in appraisal operations:
15Recommendations
for choosing appraisal service providers
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1Collateral valuation is critical,
so consider a site visitTour the facility, meet the technology experts charged with
your collateral valuation pipeline, and investigate their preparedness first-hand.
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2Check client lists, referrals,
and experienceAre they handling significant order volumes every day?
Choose a tested partner that’s endorsed by other industry leaders.
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3Get a full audit trail
All the compliance safeguards are irrelevant if you can’t prove it later. Get an end-to-end audit trail on the full transaction from order
to delivery of the appraisal to the borrower.
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4With software, choose
enterprise solutions over custom-built installations
Leverage industry best practices and the compliance knowledge of your colleagues, and make sure you can easily scale and make adjustments.
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5Avoid relying on a company for technology if that’s not
their primary businessAdopt a single technology platform, supported by a technology expert,
and get your AMCs and appraisal vendors to use it.
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6Don’t sacrifice quality
control for complianceWith technology, you can still control your quality and maintain
compliance with all regulations and investor requirements.
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7Verify that your vendor’s
tools are compliantFrom ECOA, GLB, PCI, and pre-funding QC requirements, make sure your
service provider’s tools are compliant because you’re liable.
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8Satisfy your production team, but still maintain compliance
Preserve appraiser independence, but adopt technology that keeps production in the loop on appraisal pipeline and report status.
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9Demand vendor
performance reportingWhether you use one AMC, multiple AMCs, appraisers, or a mix of all three, the third party oversight requirements mandate that you have
the ability to monitor and report on their performance.
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10Consider integrations
and partner listsIs your third party provider integrated with your existing systems?
Even if you don’t currently need an integration, verify your provider is modern and agile enough to support you when needed.
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11Check development
methodology and reliabilityVerify that your provider has the development and deployment
experience necessary to quickly add or modify compliance tools.
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12Check uptime statistics and
disaster-recovery plansThe regulators’ service-level expectations are outlined in the memos, and
third party providers should be prepared to answer these questions.
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13Verify history of innovation and user-focused updates
The one constant in this environment is change. Make sure your service provider can adapt quickly and consistently
releases new tools needed by the industry for compliance.
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14Demand the service your team will need
Select providers that can answer your questions 24x7x365 and can provide the training essential to your
compliance and your team’s success.
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15Get flexibility in case you
need to make changesRegulators require a process for identifying and promptly replacing
weak partners, so avoid contracts or service minimums.
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Regulations are still being formed. Should you wait for everything to be finalized before you make changes?
No. Rapid and continual change are the only constants in our industry lately. Instead of desperately trying to keep up with new investor guidelines and regulations, you need a flexible system in place that will let you make changes as regs and risk tolerance evolve.
