Food for thought when deciding on a loan management platform

Many folks believe the main way to reduce the amount of loan defaults is to manage loan origination. However, once a loan is issued, your loan management systems and software is the only method you have at your disposal to minimize defaults and delinquencies. Frequent audits to identify cash flow drains such as interest miscalculation and inaccurate principal reduction are a great way to increase profits. The importance of having effective automated loan servicing system to reduce defaults and increase collections cannot be stressed enough.

Residential loan servicers have a wide variety of options to help them manage their assets. However, picking the right one from the beginning is a fundamental decision. Picking a system that will let you manage a few notes or thousands of notes will allow you to save money on training, minimize errors, keep you compliant by not missing deadlines and increase earnings.

Fortunately residential loans are fairly standard especially when compared to commercial loans so automating their management and standardizing processes is not an insurmountable barrier.

In summary, cash flow improvement for your company correlates directly with loan portfolio control. Increased profits can be achieved by scrutinizing current loan management practices to identify problem areas, upgrading current procedures, and effectively implementing automation and standard processes.

Grading and Upgrading your current system

The first step in improving loan servicing is to evaluate your current loan management system objectively. What are your current and long-term needs? Some servicers and note investors mistakenly assume automating their loan servicing processes will be a panacea. Unfortunately, if manual controls do not work – and the reasons are not identified – automating these controls only speeds up your mistakes.

Evaluation checklist

Should you bring an outside advisor to evaluate your processes? This might not be necessary. Much of the evaluation task can be accomplished with your existing staff if you maintain objectivity and use a checklist. The following questions should reveal whether your current note management system is meeting standards:

• Can it calculate interest accurately?
• Does it correctly reduce principal when required?
• Can it produce timely, consistent and correct reports?
• Does it flag delinquent loans and first payment defaults?
• Does it react instantaneously to a changing prime rate?
• Can it process all loans in the portfolio?

As we have established above, delinquencies and defaults are one of the main drivers for cash flow leakage and declines in profits. It is extremely important to shed light on the cause, which many times is inadequate or non-existent reports. Since this doing this manually can be time-consuming and expensive, reports are drafted infrequently and lack precise information. If the data cannot be transformed into useful information, these become useless and tend to be produced even less often and less accurately.

During your checklist verification you also need to highlight the functions you are doing correctly. This will aid you to decide which elements of your operation needs automating and which functions need to be left untouched. This review can point out which problems can be eliminated or minimized with automation. During this review, it will become apparent which issues need to be resolved immediately and which ones can be deferred with minimal loss.

Finally as you complete your review, you should also be creating a wish list. These will be items that your software should be able to help you but are not critical and instrumental today for your day to day loan management. Once you perform the review of your current systems, you will be better prepared to engage in the selection of a software system that will meet most of your current needs and future growth.