5 Mortgage Servicing Tasks to Outsource to Enhance your Operation
Mortgage servicing is a head-scratcher right now. Do you sell the servicing away and lose the customer relationship? Do you keep servicing despite razor-thin profit margins and toughening regulations? Do you trust a sub-servicer to represent you in terms of customer service, compliance, default management, and meeting investor requirements? Is it financially viable?
Well I'm here with some servicing operations to consider outsourcing short of the whole kit and caboodle. Financial institutions considering these decisions, there's something you can consider to keep servicing in-house while minimizing the financial and other risks involved: outsourcing specific servicing tasks. These ideas allow you to run a leaner department with fewer fixed expenses while enhancing overall servicing compliance.
Outsourcing Targets:
Statement processing
Regulatory changes have placed greater emphasis on borrower communications.
A greater focus has been placed on the level of detail and information that is to be presented. This becomes increasingly difficult for ARM and HELOC loans.
Most vendors provide an e-statement alternative. Further, they may be able to provide a private label web site solution or link to your web site.
Payment Processing
Why continue to manually process payments or spread payment processing around the teller network. How many payments are you having to re-enter or customer inquiries do you have to respond to that are caused by mispostings?
A lock box may provide a centralized and easy solution to implement. It will help misapplied payments and facilitate the cashiering routines.
Tax Processing
Real Estate Tax oversight involves two different functions: payment of taxes as they come due for accounts that have escrow provisions and determination that taxes have been paid by the borrower for non-escrowed accounts.
Tax outsourcer providers will obtain tax information prior to the due date. Often the process is fully automated and integrated with your operations, dependent on the capabilities of your servicing system. One key consideration here is the amount of penalties that you may be paying for delinquent payment of real estate taxes. This is a cost that can be fully eliminated by outsourcing.
Investors and regulators expect that you will certify that non-escrowed accounts have been reviewed to determine the status of real estate taxes and that appropriate actions have been taken for any non-payment. Tax vendors will undertake this research and even, if desired, process delinquent letter cycles to the borrower.
Costs of this service can be collected from the borrower at closing. Are you selling loans service released? This is a charge you may already be collecting. There are individual state limitations that you will need to be aware of.
Hazard Insurance
How do you monitor hazard and flood insurance coverage? Ask your servicing department. The insurance industry is a paper intensive operation. How best to manage this? I will say that it is not through your errors and omissions policy.
There are outsource providers that will fully manage this process for you. Their involvement can entail customer service and inquiries through hazard insurance oversight, premium disbursement, borrower communications and follow up, and force placed coverage. Regulators have taken and increased interest in borrower communications and continuous hazard and flood coverage. Letter timing is important. Lapses are not to be tolerated.
HELOC and second mortgage portfolios have their own special needs. Do not rely on first mortgagees to provide coverage to junior lien holders. You can manage these similar to first mortgages, monitoring individual policies. Alternatively, most vendors will provide a special blanket insurance program specifically designed to cover HELOCs. Going this route eliminates any needs for on-going hazard insurance monitoring for this portfolio.
Lien Release
Recording jurisdictions have become sticklers to time lines. If you don't meet them then you may be faced with penalties. As you are aware, timelines and requirements vary state-to-state, county-to-county. Forms and signature requirements differ by jurisdiction. And just to keep things interesting, they seemingly change all the time.
There are variety of options provided by outsource providers. You have the choice of a total outsource solution where the vendor prepares the release on your behalf. Whether they execute the release is up to you. Some will provide software that you will maintain but that will update with required document verbiage and recording criteria. You will prepare all of the releases. Another alternative is combination of these two: they will prepare and execute the release or provide you access to their system allowing you to prepare the release. (Or a combination of the two, in the event, for example, you purchase or sell a portfolio. You can manage your day-to-day releases and have the vendor process the bulk transfer.)
In all cases, the vendor will maintain the system and keep reporting requirements for all jurisdictions up to date. This is important particularly if you have portfolios with loans in multiple states.
To summarize, there are a variety of outsource solutions available to you for almost each and every servicing function. Take a look at the way you are managing your portfolio today and ask the "whys". There may be smarter and better ways to operate that improves service delivery and enhances the bottom line.
Thank you for reading.
My name is David Miner and thank you for reading. I've been in the servicing business a long time, and am thoroughly enjoy opportunities to tackle the new challenges that this industry presents to us almost daily.
Please contact me with any questions you may have regarding outsourcing or suggestions for future newsletters. My e-mail is DMiner@scapartnering.com and phone number is (413) 775 - 3002. To learn more about me and Spillane Associates, please check out my SCA profile.