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Your Vendor Talks Risk Management Talk, but Does It Walk the Walk?

2 min read
Jan 9, 2019

The words “manage, mitigate, and reduce risk” are music to the ears of a risk manager. When a third-party vendor puts this phrase front and center, it inspires confidence that the company has a strong risk management culture.

Unfortunately, talk is cheap—and legal settlements are expensive.

Just ask Celink, a reserve mortgage servicer billing itself as “your reverse mortgage ally.” The company’s homepage prominently promotes its dedication to risk management and protecting its client's brand reputations.

It promises it has:

  • “the most experienced team of reverse mortgage servicing experts.”
  • “developed a comprehensive, detailed set of operating procedures that covers virtually every servicing duty and responsibility.”
  • The ability to offer “peace of mind in this very dynamic and highly regulated industry.”]

Yet the Michigan-based company recently settled a federal lawsuit claiming it violated the False Claims Act through its participation in a federally insured Home Equity Conversion Mortgage (HECM) reverse mortgage program and will pay $4.25 million, according to the Justice Department. Celink did not admit to wrongdoing.

The Justice Department alleges that Celink collected insurance payments for interest from the Federal Housing Administration (FHA) but didn’t disclose on insurance forms that mortgages weren’t eligible for them because they missed deadlines for appraisals, commencing foreclosures or foreclosure due diligence. The result was these loans serviced by Celink allegedly received interest they shouldn’t have.

“This investigation and settlement should serve as a stark reminder of our ongoing efforts to ensure that our mortgage industry partners adhere to mutually agreed upon program rules and business practices which help mitigate financial risk associated with FHA programs,” said Wyatt Achord, Acting Special Agent in Charge, U.S. Department of Housing and Urban Development, Office of Inspector General.

It's not the first time a reverse mortgager has come under fire from the Justice Department. In 2015, Reverse Mortgage Solutions paid a settlement of $29.63 million for allegedly failing to follow FHA regulations for servicing HECM loans while Financial Freedom reached an $89 million settlement in 2017.

Related: Poor Vendor Risk Management Costs Bank $4.75 Million

You Must Monitor Third-Party Vendors

Revelations like these lawsuits are a reminder that it’s essential to monitor third-party vendors on an ongoing basis. A settlement like the ones paid by these reverse mortgage companies not only suggest that a firm isn’t fully compliant with applicable laws and regulations, it also can impact the financial strength and stability of the firm.

Whenever your institution learns that a vendor has a potential issue, it must adjust the vendor’s risk assessment to determine if the relationship is still appropriate and whether there are grounds to terminate the relationship, if desired. You don’t want a key supplier to go under, leaving your institution in a lurch. You also don’t want to disappoint customers with a vendor that doesn’t live up to its obligations or be publicly associated with a company that’s receiving negative attention.

Don’t leave discovering news about a vendor up to chance. Have policies and procedures in place for ongoing vendor monitoring. It’s not enough to determine if the vendor is delivering the products and services and security it promised your institution. It also needs to be a compliant corporate citizen.

Even if a vendor’s legal issue doesn’t directly impact your operations, it could be a sign of serious deficiencies across the enterprise.


Related: Creating Reliable Risk Assessments

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