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Midland Pioneers Shared Servicing for Commercial Portfolios

Midland Loan Services, based here, is at the forefront of a subservicing niche that it is labeling "shared servicing."

Stacey Berger, executive vice president of the Overland Park, Kan.-based company, recounted that Midland identified this niche as a possible area for growth back in 1998.

At that time, Midland saw that life insurance companies and portfolio lenders presented opportunities for Midland to expand its servicing business. Life insurance companies were seeing their business altered because of the growth of the CMBS market, as well as through the "demutualization" of these companies.

Midland realized that while it was essential for these companies to maintain their relationships with borrowers, in the case of their portfolio loans, there were also opportunities for them to outsource the servicing of their loan portfolios.

Mr. Berger noted, "We concluded that there was an opportunity to deconstruct the (servicing) process."

This would be done by disseminating the various aspects of the servicing functions between the different parties involved, with the Internet serving as a facilitator.

Thus, in a shared servicing situation, the lender performs certain functions, while Midland performs certain other functions, in real time. For instance, clients have the option of outsourcing processing and administrative activities, while retaining their customer relationships and asset management activities.

Mr. Berger said, "We give them a menu, they pick activities they want to be responsible for."

Usually, Midland finds, clients want to retain the "high touch" activities.

Clients can outsource on a "private label basis" so that the borrower involved doesn't even know that Midland is involved in any way with the servicing, Mr. Berger said.

By outsourcing servicing functions, clients benefit by not having to invest in technology.

Clients also derive an additional benefit from outsourcing of servicing functions, through the elimination of servicing-related employment, according to Mr. Berger.

Currently, Midland's shared servicing portfolio stands at $11 billion.

Mr. Berger believes that the key to Midland's success in this niche is its technology.

Midland's acquisition of Univest Financial, a Little Rock, Ark.-based company, in 2000 facilitated their growth in the shared servicing arena by giving them a technology platform for the service.

While other companies might be interested in this "shared servicing" niche, the challenge for them is that they, with the exception of GMACCM, do not control the necessary technology, Mr. Berger believes.

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