Servicing a loan is an afterthought for many lenders. Most lenders aren’t prepared to properly service the loans they close. Here are seven reasons why lenders should outsource their servicing.
1. Compliance Risk – not only does federal regulation govern the loan servicing industry but many States require additional rules at the local level. Those rules also get updated from time to time, more frequently than not. An experienced loan servicing company is constantly monitoring case law, federal and local rules for industry updates.
2. Software – sophisticated loan servicing software is REALLY expensive. It also requires industry understanding and many customized features for high volume processing. Today’s world requires that the software must be convenient, easy to use and robust. Borrowers must have tons of information at their fingertips, with many payment options and flexibility. Not cheap.
3. Escrow – many lenders do fully understand the processes related to escrow. Property taxes and insurance can be complex. Escrowing for a mortgage loan is a specialized understanding of the insurance business along with understanding of local taxing units. Most lenders do not know what to do if a borrower falls delinquent and there are deficiencies in the escrow account when the property tax or insurance payment is due. It can get messy.
4. Licensing – many US States require licensing to service, escrow, and/or collect mortgage loans. Loan servicing companies have dedicated compliance officers constantly monitoring processes and procedures of the company, ensuring compliance. Regulators audit loan servicing companies from time to time to ensure compliant handling of funds and treatment of borrowers.
5. Overhead and Staff – in addition to software, loan servicers maintain special mailing equipment, office supplies, and dedicated staff to servicing. Many lenders do not understand they must specialize in servicing. It’s a dedicated department for some companies.
6. Litigation – borrowers sue loan servicers frequently. An experienced loan servicing company maintains substantial amount of insurance. It’s expensive but worth it. Litigation is a serious threat to any business that involves consumers and real estate.
7. Customers – this reason alone is enough lenders to outsource their loan servicing. Customers can be huge PAINS IN THE REAR.
Covey Financial a premier loan servicing company based in San Antonio, Texas. Any lender that currently outsources their loan servicing should contact Covey Financial. Lenders should focus on growth and closing loans, let the servicing experts service the loans.
