Ensuring a well-trained workforce could mean the difference between sinking or swimming in today’s strictly regulated environment
By Shawn Sorensen
Mortgage lenders and servicers have always held their service providers accountable for doing good work in compliance with investor guidelines and government regulations. Vendors that could not meet these minimum requirements failed out of the business, often creating problems that required time and money for the industry to clean up. In the past, the industry had the luxury of making mistakes right and financial institutions could operate in the sure knowledge that if a problem presented itself, the solution would not unduly hinder the operation of the enterprise. That’s no longer true today.
The Consumer Financial Protection Bureau (CFPB) has made it abundantly clear that the failures of any third-party service provider will be held against the financial institution. Banks, mortgage banks, and mortgage servicers are now ultimately responsible for every job performed on their behalf by any third party.
This fundamentally changes the dynamic between institution and service provider. Companies that don’t realize this and attempt to continue to operate as if service level agreements are a failsafe to disaster will be systematically driven from the business by federal regulators.
In response, lenders and servicers have stepped up their due diligence, digging into the backgrounds of every servicer provider they consider hiring in an effort to uncover flaws that could lead to errors that might later be held against them by the government. Background checks are now ordered on a regular basis and vendor visits are a necessity. But is the industry looking in the right places to mitigate this risk?
We often see the leaders of settlement service providers in the trade press, talking intelligently about the key issues of the day. When lenders and servicers visit with these companies, they sit down across the conference room table from a team of highly trained and experienced executives, and it’s upon the reputations of these individuals that the decision is made. But what about all of the other people working in the company—the people most likely to do the actual work the lender or servicer is outsourcing? How good are they?
In our experience, financial services companies seeking to outsource work rarely ask for details on the potential service provider’s internal training regimen before making their decision on a partner. When so much depends upon getting the job done right, this will have to change if lenders and servicers hope to comply with increasingly stringent investor requirements and government mandates.
There have been many articles on preparing an RFP, vetting vendors, and even managing vendor relationships. Few if any have covered this issue. Of course, simply asking about employee training in a request for proposal is not sufficient due diligence. Lenders and servicers interested in evaluating a potential vendor’s internal training methods need guidance in order to ensure that all of the vendor’s employees are properly trained to provide a fully compliant service.
Why You Must Ask About Employee Training
Every good company has some method for bringing new employees up to speed on the standard operating procedures required to deliver the firm’s product or service. While few firms have taken the initiative to make this an independent department, training is a core function of any good human resources department. Our industry is no different in that respect.
However, what often happens in industries that experience rapid growth is that the training function begins to become decentralized by necessity. With workloads increasing, companies are hard pressed to pull together the employees who require additional training, instead using mentors on the line to impart the necessary education. There are many problems with this.
First, it is impossible to ensure that all aspects of a required training program get across to a new worker when a mentor delivers the training. Furthermore, it’s quite possible that the more experienced worker will impart workarounds developed over time but that run counter to accepted company processes. Finally, the risk of losing their position to new, younger, and lower paid workers may influence some mentors to impart less information than is required to succeed in the position.
Another tactic that some companies have fallen back on involves learner-paced online teaching tools. Some of these are quite good, and when the company has time to develop them, it can provide information that delivers a company-approved educational experience. Unfortunately, when changes are required, the system must be updated, which can take time and money. Often, these programs become outdated but remain in use because they are all the company has available to meet the training need.
Industry trade groups will often provide educational opportunities that they make available to any company for a fee. Many companies will send their managers to these events, which are often of high quality and carry the sanction of government regulators who track continuing education. The problem is that these managers are then expected to return to the company and train all of their subordinates and peers in a form of mass mentorship. This is rarely effective.
All of these methods are useful, and a complete internal training regimen is likely to include them. To be most effective, these methods will be combined with classroom instruction, supervised on-the-job instruction, and traditional continuing education opportunities.
Which of these methods are your vendors using to ensure that everyone who works on your job knows exactly how it must be done? If you don’t know, you need to ask.
The Good News: Training Is In!
The proliferation of affordable and accessible educational tools in conjunction with increasing compliance pressures has made training a higher priority for most companies. In the U.S. financial services industry, more companies than ever are focusing time and resources on training.
This benefits both the vendors and the clients they serve, but only well-planned and well-run educational programs achieve anticipated results. When management and staff share a mutual understanding of the skills and training required for each job, both benefit. Consequently, more companies are starting to fill the information gap between employees and management through training and development.
This isn’t limited to our industry, of course. In the new economy, more employers in all businesses are realizing that investing in employee training is vital. According to Forbes, corporate training spending grew by 15 percent in 2013 to over $70 billion in the U.S. and over $130 billion worldwide. This increase is the highest growth rate seen in seven years.
This trend is gaining strength as employers learn that employee development can have an enormous economic impact on a company. R Magazine reports that companies that invest $1,500 or more on training per employee annually average 24 percent higher profit margins than companies that invest less. Additionally, the American Society for Training and Development found that across 2,500 firms, the companies offering comprehensive training have 218 percent higher income per employee than those with less comprehensive training.
Of course, the real benefit to increased training in our industry is compliance risk mitigation. Failure to do so can lead to costly compliance errors that will threaten the continued existence of the financial services company the vendor serves.
However, investing in employee development is not solely for the benefit of the company and its clients. Employees reap the benefits, as well, through career advancement—one of the highest-valued non-financial motivators for employees. This contributes to longer tenures, keeping the best employees working for the company, which is one way leading service providers maintain their leads.
Furthermore, an active training program sends the message to employees that they are valued. It helps workers understand that management wants to keep them in the company. This leads to more engaged employees.
According to Gallup, companies that have engaged employees outperform other companies by up to 202 percent!
All of this means that American business owners and managers have come to realize the importance of training and that you are more likely than ever to find out that someone you work with maintains an active employee training program. But how will you know if it is sufficient for our needs in the mortgage industry?
What a Good Training Program Looks Like
In our industry, regulatory compliance is a matter of following both the letter and the spirit of the law, as handed down primarily by the industry’s largest and most powerful regulator, the CFPB. But before we take any comfort from the fact that there is a top regulator, we should remember that regulators at every other level have the right and the ability to lay down their own requirements. Furthermore, each major investor levies its own requirements, under the threat of the dreaded buyback request.
It is very difficult to provide a checklist that will let the lender or servicer know if a potential vendor knows everything it needs to know in order to deliver a fully compliant service. One may hope that a well-written RFP will uncover any shortcomings in the company’s knowledge level and should request detailed information about the various training systems or processes in place. Quite often the business plans that come back simply call for “routine or continuous training.” This doesn’t tell buyers what they need to know.
The answer to this question may well include information about the individual training programs provided by the company, the trade associations it works with, or other educational institutions, but that’s not nearly as important as the company’s overall approach to employee development.
Editor's note: This select feature originally appeared in the May 2015 issue of DS News.