How to achieve seamless transitions in loan acquisitions and service releases.
By Adrienne Williams & Dionne McBride
In today’s market there are numerous benefits and challenges in loan acquisition and service releases. Growth in revenue, for example, is a benefit, but there are challenges, including ensuring a seamless transition, paying taxes that are due within 30 days, advising borrowers of the transfer in a timely fashion and complying with the changing regulatory climate. Although it is very common to sell and transfer the service of a loan, some of the latest regulatory changes require servicers to make some adjustments.
In order for servicers to meet changing requirements, they simply must follow the rules. With the focus on transfers, it is more important now than ever that a lender create an effective and transparent transfer process. Even with new regulations in place, if lenders follow regulations and requirements from the purchasing lender, have sufficient staff, conduct training and implement internal controls, they should have a smooth transfer.
There are some strategies servicers can take to ensure they are in compliance with existing regulations and lay a solid foundation for future changes. These strategies include the following:
- Developing customized transfer instructions for each deal: Servicers should discuss and clarify key issues and identify ownership with all parties involved in a timely manner. For large transfers, these discussions should take place months in advance. Some of the key issues that may arise include descriptions of proprietary modifications, detailed descriptions of data fields, known issues with document indexing and specific regulatory or settlement requirements applicable to some or all of the transferred loans. All of these concerns should be addressed early to prevent any problems.
- Use customized testing protocols to evaluate the compatibility of the loan data: for example, transferred data with the transferee servicer’s systems and data mapping protocols. Engaging in quality control work after the transfer of preliminary data will validate that the data on the transferee’s system matches the data submitted by the transferor.
- Audit all loans included within the transfer to ensure all tax information is complete: Servicers should manage and confirm that all taxes due are paid 30 days prior to transfer. This will prevent customer service issues related to tax payments.
- Perform a delinquency search for non-escrow/B service portfolio immediately: Servicers will benefit from creating a daily, weekly and monthly delinquency status and lost mitigation reports. This will allow servicers to stay apprised of any portfolio changes before they become an issue.
- Conduct parcel verification on all loans being transferred: By verifying the information listed on the loan, such as the borrower’s name, address and tax identification number, lenders can ensure that the property truly exists.
- Request an initial escrow analysis exception review: This will prevent any glitches with tax payments and allow the purchasing lender to ensure the loan information is correct.
Communication between all parties is a key component during this transition. As new pools of loans are under review, the data regarding property tax due dates and information regarding the collecting agency can help with the due diligence process. All the parties involved must be aware of dates for the service release or transfer and the time frames for when taxes should be paid.
Creating a pipeline report with the following questions will prove universally beneficial to track any future service releases or acquisitions:
- What is the overall condition of the loans at agency/municipality level?
- What is required to provide immediate servicing of the loans upon receipt from the prior servicer?
- Does the prior servicer have the responsibility for paying taxes that will be due 30 days out from the transfer date?
- What is the time frame for the new servicer to go back to the prior servicer to be reimbursed for any penalty and interest paid on taxes that were not paid timely?
- What business rules to manage reimbursement of fee penalties (due to late payments) are necessary?
New regulations require lenders to provide detailed information to a new servicer. They also require lenders to provide borrowers with more detailed information about the process. What follows are some basic steps servicers should be aware of during the process:
- Move data from origination to servicing systems: This process is complex and time consuming; however, the longer the data onboarding process takes, the longer it will be before a provider can begin servicing a loan and collecting revenue.
- Automate the onboarding process: This will prove to be instrumental in archiving information and auditing for compliance and customer contact purposes. Service providers can manage a number of issues, such as traffic volume, the cloud, on-premise applications, server setup, security, data format, data transfer method and more, by correctly deploying automation. The goal should be 100% client base automation. This will save time, money and IT resources in the long run. All of these important factors, such as onboarding and manual exception management, create serious pain points for servicers and have detrimental consequences for an organization, including a loss in revenue.
- Compile historic data: This will help in the due diligence process and prepare for the possibility of loans with high delinquencies.
- Request a search for B service delinquencies: Having a clear picture of whether the portfolio includes loans in which the consumer was responsible but had not paid his property taxes will allow a servicer to address the issue quickly.
By creating internal teams to effectively manage the onboarding and conversion process, servicers can help the process. One team could handle conversion and acquisition and review all data elements that could affect the initial escrow disclosure to the lender. Another team, the loan board team, could be responsible for tax line set up and could build data into the servicing platform in a timely and accurate manner to match how the records were presented by the previous servicer. The post-audit team could conduct monthly reviews of the real estate tax data elements to ensure all information presented to the borrower is always accurate.
Unfortunately, there is no clear picture of the future of service releases and acquisitions, as the industry is unpredictable and regulations are likely to change. Hopefully, we will see introduction of automation that will lessen the complexity of the entire onboarding process.
Maybe regulatory compliance is not an issue. Imagine looking into the future and seeing no risk or uncertainties, no penalties and no fines. Imagine looking into the future and seeing nothing but revenue and profit. These hypotheticals are possible if the industry is proactive in developing and implementing effective internal controls and procedures.
Adrienne Williams is Vice President and Outsource Current Disbursement Manager and Dionne McBride is Tax Line Setup/Conversion/Audit Manager for LERETA, a provider of tax and flood services to the mortgage industry.