In the past two years, the vetting and oversight of third party service providers has gone from being a minor consideration for the vendor management department to a core focus in the boardroom. In the wake of the Consumer Financial Protection Bureau’s stated intention to hold mortgage lenders accountable for the actions of their service providers, those firms are moving quickly to systematically mitigate their risks.

But while “score-carding;” vetting; on-site audits and written documentation are all a big part of the puzzle, what do lenders really look for from their very best service providers? When the pressure is on, who do mortgage lenders trust the most? 

We spoke with several lenders of different sizes and in different regions to get an idea of what they rely upon the most. While many, for obvious reasons, requested their statements be printed anonymously, what we learned was extremely valuable.

It's probably also not surprising to learn that the lending professionals on the front lines (processors, underwriters, etc.) wanted something a little bit different than the C-level executives with whom we spoke. While the production teams tended to focus on the here-and-now of the transaction, and how the service providers perform at key times during the transaction, the executives seemed a bit more concerned with the potential future results of service provider performance, such as compliance or customer support. 

At the production level, the common theme was pretty clear:  “Does the service provider make it easier to carry out my duties in the transaction?” 

Some said that they measured the value of their vendors by the speed and earnestness of the vendors’ responses to inquiries. Others claimed to value providers who communicate quickly and clearly.  Still others mentioned reporting formats that were easy-to-use and intuitive.  “Service levels” was a term that came up repeatedly as well.

Based on the lenders with whom we spoke, even where a service provider is unable to answer a question quickly, a simple acknowledgement of the issue and that it’s being addressed can go a long way with the client.

One production professional for a national non-bank lender put it simply: “I don’t want to see my questions ignored. Even if a service provider doesn’t have an immediate answer, those that at least acknowledge our requests and get back to us in a timely fashion quickly become our favorites.” 

A processor with a different non-bank lender echoed those sentiments.  Asked what elevates a service provider to the position of “unofficial favorite,” she replied “Speed.  A service provider that provides quick responses to our inquiries—or at the very least, acknowledges receipt of our requests and that they are working on them—gives us a sense of security that they are working diligently to get things done.”

Something as simple as the format of a report or update also seems to get the attention of frontline lending personnel. One such professional with a regional non-bank lender told us this: “When it comes to a service provider, it helps me to work with one using docs that are very easy to read.  Getting back to me very quickly, with either the docs we need or confirmation they are working on the docs we need, is huge. I have seen some providers put all of their title docs together, which makes it harder to find where some documents end and others begin (I have even seen title docs that have a different doc put into the middle of it).”

We also heard the words “responsive,” “pleasant,” “timely,” “correct” and “diligent” more than a few times in our conversations. The lending professionals we talked to also frequently mentioned that proactive service providers, or simply even those “willing to help” were among the favorites as well.

Bottom line?  At the production level, there’s a strong case to be made that the lender really does value customer service from its providers.

At the strategic level, the responses we received were a little different, and tended to revolve around future consequences; potential growth and the critical paths leading to both.  Leaders in the lending industry have quickly deduced that their choice of service providers plays a major role in a company’s success or failure.

But we also learned that, beyond the automated compliance systems, checklists and best practices, common sense remains a key ingredient as well.

One lending veteran was willing to go “on the record” for us.  Robert Rubin, managing director of Detroit, Michigan-based consultancy The Business Loan Connection, has owned and managed warehouse and correspondent lending firms over the course of his career.  Today, he works with dozens of banks and lenders of all sizes, nationwide.  We asked him, in general, what he believes today’s lenders seek in a “go-to” service provider.

“Most of my clients do, indeed, have ‘go-to’ vendors,” says Rubin.  “While they audit or vet every service provider heavily before adding it to the network, there are always a handful with which the lender entrusts its most important tasks.”

“What do they look at in making their decisions?  Financial strengths and stability,” says Rubin. “They also look at the vendor’s quality control processes and how well those vendors manage their own service providers. Is the vendor double-checking results?”

Rubin works mostly with executives and owners in the course of his business.  In his experience, the decision makers value predictability and experience from service providers. “For many lenders, the rule of thumb when it comes to service providers is ‘no surprises.’ You could also make the case that, for many more, it’s ‘no neophytes,’” said Rubin.

In Rubin’s experience, customer service is more of a cost of doing business—at least, in the eyes of the mortgage lending executive. “Customer service is important, but you’d better have money in the bank; be accountable for your actions and be able to indemnify the lender should a CFPB infraction take place on your watch.”  To Rubin, risk becomes a larger factor where the CEO or owner is concerned when it comes to selecting and working with vendors.

One CEO of a national non-bank lender spoke to us at length about what he looks for in a service provider.  He told us that, when it comes to selecting a service provider, his business is usually looking at things like “score-carding;” financial history and the like.  “Certification (such as a SOC II, Type 2 certification) is also big for us,” he pointed out. 

But when all other factors are even, this CEO has a unique method of measuring a service provider: “If all other factors are equal, I usually request a face-to-face with the provider’s CEO.  If he or she can’t make 15 minutes to meet with us when we’re trying to give that firm business; why would I think they’d make time for us should something go wrong down the road?”

The CEO further admitted that a service provider’s focus on compliance; quality and turn-around time remain important.  He also pointed out that, in this era of rising costs, a service provider’s price remains important too—so long as that vendor is able to meet the criteria mandated by compliance and quality control in the first place.

Of course, within a mortgage lending company or bank, the production team is evaluated on its day-to-day performance for easily measured metrics:  speed, output or accuracy, for example.

Executives tend to be evaluated for longer term performance:  strategic planning, execution and, ultimately, revenue and profit. So it’s not surprising that executives and production professionals appear to have decidedly different criteria themselves when it comes to judging a service provider’s performance.

Nonetheless, it’s clear that more thought at all levels is being put into the assessment and measurement of vendors.  For all,  it’s clear that there’s more to measuring service providers than simple and objective criteria. 

Beyond answering the questions “will this service provider help me reduce my risk profile?” and “is this service provider capable of delivering on its promises?” a vendor today must still inspire a positive response to the question “is this someone with whom I want to do business?”