Collateral management is a crucial but often-overlooked element of any loan’s lifecycle. However, establishing the state of that collateral at the start can help avoid headaches and pitfalls later.
From origination, through secondary market efforts and loan servicing, there are many sources of revenue that support the mortgage finance industry. The role that collateral has throughout the life of a loan is often overlooked, as is the effect that the state of that collateral will have on profitability throughout the process.
Nationwide Title Clearing, Inc. (NTC) has spent more than 30 years helping lenders, servicers, and investors realize additional profits by way of collateral management and collateral-related services. Here are some of the best practices NTC has picked up along the way.
Why Perfect Collateral Upfront?
It’s no secret that servicing costs have exponentially increased within the past decade. Investor penalties, remediation costs, consumer escalations, foreclosure delays, late release penalties, etc. have all played a large part in this.
However, these expenses can be reduced, controlled, and accurately budgeted for through the application of sound collateral management processes. What’s more, MSR or whole-loan transfer expenses can be greatly reduced with proactive collateral cleanup efforts prior to identifying pools for sale. The results have a huge impact on many pain points in this area of business, such as post-transfer exception handling, repurchase demands, reactive remediation costs, missed recertification deadlines, and delay in holdback payments.
When dealing with acquired aged loans, additional challenges and unplanned expenses accrue due to closing agents no longer being in business, the accessibility and cooperation of the borrower for any execution needed, and new, more stringent regulatory guidelines, for example.
What Are the Challenges to Consider?
1. Loan Source
Branch, wholesale, retail, broker, and correspondent lending all provide new mortgages to our industry. Add to this the inflow of mortgages a servicer can have from servicing acquisitions—all creating considerations and challenges.
Inconsistencies in procedures and processes across each source present many challenges, which have contributed to the vast amount of problematic collateral unnecessarily clogging up lines of business.
Closing agent follow-up, onboarding of seasoned loans by acquisition, third-party tracking and reporting, tracking collateral exceptions, managing MERS compliance, etc. are all challenges to be considered.
Understanding these issues and developing workflows to accommodate and manage these various products’ inconsistencies properly is key to the success or failure in maximizing profits and minimizing the amount of resources and personnel needed.
2. Life of Loan Events
There can be many milestones throughout the life of each loan. Starting with origination and then moving through servicing/subservicing agreements and any loss mitigation, bankruptcy, or foreclosure, collateral plays an integral role in each step along the way. Then you have loan maturity and the payoff process, where complete collateral is key to the release of lien compliance. Problematic collateral reduces the efficiency of each of these milestones and opens the door to additional expense and exposure.
Maintaining control of collateral workflow helps decrease servicing costs, maximize gain on sale, and reduce exposure, all of which lead to increased portfolio value and servicing profits.
It really is not a matter of if you need to address the state of the collateral, it is when. The collateral will have to be addressed at one point or another. NTC’s experience in building services around reactive and proactive approaches proves that the expense and exposure involved in handling the issue upfront are far less than the costs of handling it when the situation demands.
NTC has had proven success in identifying and building processes that effectively and efficiently manage collateral throughout the life of a loan.