Managing Corporate Advances In the Servicing System
With default levels soaring and margins squeezed from every side, servicing organizations face greater challenges in handling corporate advancements than they have at any other time in recent memory. To complicate matters further, the current economic landscape makes it especially crucial for servicers to reclaim those funds.
Today, there is literally billions of dollars worth of outstanding advances owed to servicers across the industry. With so many financial institutions already struggling under the pressures of the mortgage crisis and the shaky economy, every outstanding balance must be addressed and resolved.
While servicing systems have always been able to record outbound disbursements made by an organization to a third party, tracking the steps to reclaim those funds has been another matter entirely. Ideally, such functionality would be seamlessly integrated into the servicing platform, but unfortunately, most platforms today still lack this option. Instead, servicers generally handle these tasks - though inefficiently and prone to error - through some combination of bloated spreadsheets or cumbersome local databases.
Particularly when losses are so common in the industry, servicing organizations need a more effective and timely way of tracking advancements and reimbursements.
Of course, for servicing organizations, payouts in the form of advances occur for many reasons. Cash outlays could be for anything from nonpayment of property taxes by a prior servicer through foreclosure claim expenses. Most servicing platforms have functionality for recording these advances so servicers know which third parties they have paid and how much. Unfortunately, they haven't been nearly as successful at issuing invoices in a timely manner, tracking outstanding reimbursements over time, or managing the necessary follow up that is required to ensure that reimbursements are received.
Certainly, the first step servicers must take is to initiate a centralized method of identifying reimbursement eligibility, regardless of the source. It then becomes a matter of tracking reimbursement requests over time and according to acceptable timetables, and then ensuring that outstanding funds are received and marked "paid" in the servicer's accounting system.
Once the organization has a way of centralizing information regarding the advances that have been made and to whom, the next step is to develop an accurate method to track reimbursement invoices through the process to resolution.
In the best-case scenario, an obligor should be associated with each disbursement that is made within the servicing system. The system should also be able to generate invoices and submit them to the various obligors. This might be done in batches or for individual loans, depending upon the unique details of a disbursement. In this way, organizations can track which third parties owe them money and establish an appropriate timeline for payment from day one.
For example, a servicer may be required to pay property taxes on a recently acquired escrow loan. Perhaps the prior servicer didn't make previous tax payments on time, and the resulting delinquency fee is not the borrower's responsibility. The acquiring servicer must pay the tax bill along with the associated penalties. When the disbursement is made to the taxing authority, the prior servicing organization should automatically be associated with the advance as the obligor for the penalty fees, and the servicer should begin the process to recoup that outlay. If this can be accomplished through automation, so much the better.
In another example, a servicer may make a disbursement on behalf of a borrower that subsequently goes into irresolvable foreclosure. There may well be outstanding advances due to the servicer that should have been reimbursed by the borrower, but at this point the bank owns the property and the borrower is out of the picture. As a result, reimbursement for these advances would most likely be sought through a claim to the PMI provider. This entire process must also be tracked.
What servicing organizations need is workflow management capabilities married to a cash application that can apply incoming reimbursements to their associated invoices. Traditionally, servicing systems have lacked this functionality, forcing organizations to use some form of offline method to attempt to track and match reimbursements to invoices. Unfortunately, this often leads to errors as well as lost reimbursements.
By integrating corporate advance tracking and management into the servicing platform, the timing and tracking of the reimbursement process can be better managed, resulting in an improved success rate. Through the smart use of technology and workflow enhancements, the servicing system could certainly be configured to do everything from identifying reimbursement opportunities and generating invoices to ongoing tracking and recovery.
This would also allow servicers to assign a group of invoices to specific staff members for additional follow up. In essence, each collection representative would "own" a group of outstanding reimbursements, and the system would provide queues when communication with obligors is appropriate given the timeline associated with each invoice. Once funds have been remitted, the system would automatically apply them to the appropriate invoice.
Another benefit of this approach comes from the metrics that can be developed around these timetables, and the business intelligence those metrics provide. Servicers can better assess the performance of collections personnel and objectively determine those who are doing their jobs effectively and those who may need additional training.
More importantly, though, it will enable the organization to gauge the reimbursement history of the obligors themselves and determine which of them regularly fail to pay reimbursements on a timely basis. In this case, the system could be used to provide queues based on the payment history of particular obligors and allow the servicer to assign more seasoned collection processors to difficult cases.
Clearly, with billions of dollars hanging in the balance, it is essential that organizations reach out to their servicing platform provider to determine what enhancements are possible. The stakes are simply too high to allow the reclamation of reimbursements to remain anything other than a highly efficient, successful operation.