Mortgage lending has become a loan portfolio staple … and for good reason. It offers convenience to members, adds value to the balance sheet, and strengthens the credit union’s role as primary financial institution. That’s smart business.
But as mortgage portfolios grow, loan-servicing challenges such as technology system limitations, lack of staff resources, and increased regulatory requirements become apparent. A smart solution: sub-servicing.
Sub-servicing to Enhance Your Member Focus
According to Nizar Hashlamon, outsourcing loan servicing is a trend catching on at credit unions of all sizes. As vice president of Prime Alliance Solutions, a CUSO that provides credit unions the tools to excel in real estate lending, Hashlamon works closely with Charlie Mac. This trend is happening, he says, because sub-servicer CUSOs dedicated to credit union-specific needs are making that role much easier.
“Why get bogged down by operational details and regulatory compliance issues when sub-servicing lets you focus on managing the relationship with your members and growing your business?” asks Hashlamon, whose company co-owns the Prime Alliance Loan Servicing CUSO along with several credit unions and a leader in the sub-servicing industry.
By using the right servicing partner, you continue to own the servicing rights, control how the loan is serviced, and most significantly, keep your member relationships. But it is important to note that not all servicing providers are equal. With the right partnership, sub-servicing can help lower the costs, reduce the risks, and provide advanced technologies, allowing you to provide your members with state-of-the-art service.
According to Hashlamon, some of the servicing tasks that should be performed by sub-servicers include:
- All loan-administration functions in the credit union’s name
- All investor reporting and reconciliation in the credit union’s name
- Credit-bureau reporting in the credit union’s name
- Preparing management reports on portfolio status and behavior
- Providing statistics and service-quality reports to management
- Managing delinquencies and collections activities
- Overseeing compliance with all government regulations and secondary-market investors’ requirements
- Understanding the credit union’s unique relationship with its members and committing to providing the same level of service
Debunking the Myths
While the benefits of sub-servicing are many, some remain hesitant to make the switch. But some of the common reasons cited for not using outsourcing loan servicing do not measure up when you look at other factors.
We can do it cheaperA Mortgage Bankers Association servicing cost-study estimates the per-loan cost of servicing falls between $180 and $290 annually, depending on the size of the portfolio. While your in-house servicing costs might be lower without having dedicated staff or related overhead expenses, your costs quickly exceed the expense of using a sub-servicer when you factor in elements such as collections, compliance and reporting.
No one serves our members as well as we do. With dedicated resources and state-of-the-art technology, sub-servicing providers have the tools to provide the quality of services your credit union cannot provide on its own. With sub-servicing, your members generally receive higher levels of service while you retain the relationships.
Our loan volume is too low for sub-servicing. That is generally not true of all third-party sub-servicers, especially those dedicated to serving our industry. Many have low volume limits and some provide the same services for the same price, regardless of portfolio size.
We don’t have the resources to dedicate to the conversion. While any conversion is full of challenges, in the case of outsourcing mortgage servicing, the sub-servicer does the bulk of work. Taking the time to make the switch now, rather than later, positions you to better compete for your members’ business.
Today, many credit unions are looking beyond the reasons to avoid sub-servicing mortgage loans … and welcoming the significant benefits such an option provides. Working with a reliable, credit union-specific sub-servicer, you not only positively impact your bottom line; you expand and enhance your overall mortgage-lending program. And ultimately, it’s your members who win. That makes for a smart choice.
Charlie Mac, LLC is a CUSO and secondary-market investor formed by the Corporate Credit Union Network and committed to helping credit unions minimize the cost of managing liquidity and maintain member relationships. Contact your corporate credit union investment representative for more information.
Prime Alliance Loan Servicing is CUSO founded with the sole purpose of bringing the highest level of real estate servicing solutions to credit unions. For more information, contact Nizar Hashlamon at firstname.lastname@example.org.