Lenders with complex and varied community loan portfolios – which can include housing, commercial, community development block grant funds (CDBG), developer loan programs, HOME investment partnership funds and more – frequently reach a crossroads with loan servicing: Does continued investment in an in-house servicing solution make sense as loan operations grow?
For some municipalities with small, easy-to-manage loan portfolios, keeping “back office” functions in-house using Excel or other business software may be valuable. But for most, this arrangement hampers the city’s ability to scale their loan programs.
In an increasingly digital landscape, cities, counties and regional authorities need an easier way to service complex portfolios. With multiple programs, interest rates and repayment terms, maintaining a frictionless process is difficult without help.
Common Concerns
As municipalities consider using a third-party servicer, a few common concerns include:
Trust
Some worry about accountability from a third-party or worry about losing control of their tried-and-true processes. Concerns about alienating customers and creating unnecessary friction also can impact the decision to keep loan servicing in-house.
Flexibility
Some fear that their preferred reports, views and organizational methods wouldn’t be retained; they don’t want to lose flexibility. As loan portfolios grow and change, and as new loan products are introduced, some worry that a third-party solution may not be easily implemented.
Technology Capabilities
Some may feel that their technology environments are not capable of handling greater volume or more “cooks in the kitchen.” Concerns include the need to ramp up technology resources, the functionality of third-party technology and the fear of having to replace a third-party solution more quickly than anticipated.
Cost Savings
Some anticipate a third-party solution costing more than in-house servicing, even when considering all of the costs involved with hiring, training and other investments, not to mention staff time adapting in-house solutions to fit the portfolios being serviced.
What’s Right for You
When assessing in-house vs. third-party servicing, it’s essential to preserve customer relationships. Any third-party provider and every in-house loan servicing specialist must take a collaborative approach with borrowers in order to minimize friction and maximize interest in your loan programs.
Many loan servicing providers also offer excellent, hands-on service and guidance to the businesses and homeowners of your communities. After all, you’re making a significant investment in your local economy; helping your borrowers succeed is of paramount importance.
Why Contract?
Some of the most frequently-heard reasons for engaging a third-party loan servicing provider include:
Expertise
Even with the most well-trained crew, in-house loan servicing can be complicated, especially with multiple types of loans in a portfolio. Expert servicers will hold licenses and credentials from reputable industry sources like Standard & Poors as well as others.
Streamlined Operations
With multiple asset types, you need a solution that can handle both your existing loan portfolio and future growth. Automation can create efficiencies in servicing a wide range of loan programs while creating a process for adding new products.
Specialization
Some third-party experts have a deep understanding of the cities, economic development agencies, Community Development Financial Institutions (CDFIs) and other non-traditional/mission-driven lenders that benefit from contract loan servicing.
Community Development Impact
Outsourcing your “back office” loan servicing functions can drive efficiencies and allow you to focus on your core strengths and community development goals. These cost-saving services deliver all the administrative, compliance and reporting processes you require to help achieve your mission.
Creating a Frictionless Borrower Experience
When using a third-party servicer, how can your borrowers know you’re still taking care of their loans? Rather than putting distance between you and your borrowers, technology-based loan servicing solutions can strengthen your customer relationships.
The best solutions help you create “white label” statements, URLs with your branding and online access with customized views for borrowers. You can also maintain your relationship with borrowers by retaining some customer interactions during the loan life cycle.
Third-party loan servicing is often designed to make your loan processing flexible, seamless and hassle-free. Working with an established, recognized provider with a track record of success – particularly one experienced with many different asset types – can help keep the process consistent and predictable when considering your city’s values, mission and programmatic shifts.
Are You Ready?
Instead of slogging through hours of manual processes in-house, hiring specialists and managing delinquencies, regulatory reporting and portfolio performance, why not contact an expert who can help you take your loan portfolio management to the next level?
