Top 5 Myths About Outsourcing Mortgage Loan Services
After creation of mortgage loan application, borrowers are left to face long anxious moments leading up to the loan disbursal. Although it is a routine for lenders to carry out loan servicing in-house, some firms elect to outsource processes to a third-party service provider because it brings better benefits - cost-competitiveness, regulatory compliance, and process efficiency. Lenders pause in indecision because of popular myths propagating in the industry.
Many organizations are in dilemma regarding mortgage loan servicing outsourcing, so before throwing your weight behind the in-house operation, have a look at this write-up which is focused on dispelling top 5 myths about outsourcing mortgage loan services.
Common Misunderstandings about Outsourcing Mortgage Loan Services
Lenders are often fed inaccurate information weaved by those who are poorly advised on the benefits of outsourcing mortgage loan servicing process. If you are the one facing a barrage of myths, this article will set straight some of the commonly held views. Top 5 myths that are preventing lenders from outsourcing mortgage loan services are listed here -
Myth #1 - Credit Unions Say that Per-loan Cost Remains the Same Whether it is Outsourced or Serviced In-house
Look for what is covered by credit union's per-loan cost. In many instances, mortgage servicers miscalculate the per-loan cost because some key financial components are omitted. Not accounting fixed and variable costs in the per-loan cost formula can lead to high default rates and other costs arising from service miscalculation. For example, payroll components such as staff salary, licensing fee, training, stationaries, etc. are mandatory for mortgage loan services.
According to a survey on loan-portfolio size, financial establishments can face expenses of $312 annually with in-house servicing. However, outsourcing mortgage loan services to a subservicing vendor brought the per-loan cost to $75 - a whopping 77.96% cost savings. The results of a survey indicate that significant cost reduction can be achieved by outsourcing mortgage loan services.
Myth #2 - Many Organizations Fear Losing Hold on Servicing Portfolio Which Cannot Be Afforded
Partnering with trustworthy outsourcing firms can result in transparent operations where institution's involvement will remain a key part of the equation. While primary tasks can be taken care of by the outsourced firm, it is important for lenders to be involved with the loan servicing portfolio. Also, lenders will have to exercise due diligence to decide how much of control an outsourcing partner will have over loan services.
Mortgage loan services outsourcing is a dependable choice if a vendor of the servicer can provide round-the-clock access to member data and internet-based compliance tools. In this way, lenders will feel more confident and in control of mortgage servicing rights (MSR). Pay close attention to how outsourcing vendors make a strong case for your brand while warming up borrowers with the better value proposition.
Mortgage origination and loan processing are made easier by outsourcing the task to a capable vendor. That begs the question. What happens on instances of loan delinquency? In most cases, loans are owned by credit unions. So, all loan modifications and loss containment report have to be compiled and submitted to the credit union for further approval.
Myth #3 - Outsourcing Firms Can Compete with Servicer by Cross-selling to Member Base
The concerns surrounding cross-selling policy should be discussed with your subservicing vendor before outsourcing mortgage loan services. Check with the vendor if their service policy includes guarantees not to cross-sell mortgage servicing rights to other credit union or members without consent or unless an explicit request is made by the lender.
Myth #4 - Credit Unions Claim that their Profound Knowledge of Client is Sufficient to Keep Operations In-House
Establishing a good rapport with the client base is the key to running a successful enterprise. Borrowers expect vendors to meet certain fundamental service requirements and quality standards. A more experienced subservice vendor knows best how to anticipate borrowers' expectations and address their practical needs through servicing platform.
A forward-looking policy is necessary to enhance the quality of service presently offered to your borrowers through an outsourcing vendor. Payment channels covered by credit unions and the money held in escrow are core areas where well-planned workflow pattern can prevent problems from compounding.
That said, quality of in-house servicing is not inferior, but the technical functionality of an outsourcing vendor is superior to many small and mid-sized mortgage servicers. In the long term, it can bring better ROI. Deep knowledge possessed by a subservicing partner in regulatory compliance will help the vendor to circumvent unnecessary hassles imposed by human resource and financial constraints.
Myth #5 - Credit Unions Claim Having Foundational Knowledge of Compliances Makes it Unnecessary to Outsource
Mortgage origination and servicing is a highly regulated process that falls under the guidelines laid down by Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), and Options Clearing Corporation (OCC). It is an arduous task to ensure compliance with respective regulatory bodies. Moreover, servicers face the risk of bearing unfathomable penalty in case there are internal errors in servicing documentation.
Hence, lenders find it practical and convenient to delegate tasks to a qualified subservicing vendor whose thoroughness in compliances of local and federal laws makes servicing a seamless process. It is also imperative to evaluate whether their past performance resulted in better service experience for their client's members and also if they strictly adhered to the comprehensive compliance in bringing desirable results. If you have reasonable answers to these questions, it will bring peace to the lender and its members.
Plenty of misunderstandings about outsourcing mortgage loan services prevent organizations from taking the easier path. However, the driving force behind lenders choosing a subservicing partner to process mortgage services is to deliver better value to borrowers while at the same time bringing profitable ROI into their credit union. In the present day, challenges are aplenty that restricts lender's ability to keep services in-house, thanks to prohibitive costs involved in rectifying errors and a number of regulations. Due to enormous challenge that lay ahead, many feel it is the right decision to partner with subservicing vendors who can mitigate the risks for lenders and borrowers while providing better value to mortgage servicing rights.
Choose Flatworld and Have a Stress-free Mortgage Loan Processing Experience
Flatworld Solutions has over 19 years of experience of serving top clients in the industry with mortgage loan processing support services. With a team of well-experienced loan processing agents and robust servicing technology, we deliver unmatched results that are cost-effective and result-driven. Outsource your requirement to us without having any concerns because our global delivery centers are well-equipped with the right technology to present your members with the best value in a short turnaround time. We also offer mortgage underwriting services, mortgage appraisal support services, and many other mortgage support services that will help you garner more clients and expand your business reach.
If you are looking for a reliable, quick, efficient, and cost-effective mortgage loan processing support service provider, then look no further. Get in touch with us today!