Loan Servicing Requirements?

Question

Hey guys,  not sure if anyone would know, since this might be kind of random, but:

If I'm wanting to start a small "loan servicing" company that is looking to handle PITI between sellers/lenders and tenant-buyers in seller financed deals, are there any requirements/prerequisites (classes?) or any type of licensing needed for this? Or is it just a matter of opening up escrow and going from there?

If it helps, yes I am a licensed Realtor and I am in Indiana (figured it probably wouldn't vary much from state to state).

Any information, however little, that would point me in the right directions would be IMMENSELY appreciated.

Cheers

Bill Gulley · Answer

LOL. ha ha ha, not that simple!

With seller financed transaction you'll have the same servicing requirements as a secondary serviver, bonded, insured, net worth, and collection experience will be required to obtain bonding.

While you real estate experience would be helpful, servicing is not real estate, it's finance and without experience, you're way over your head. Now, if you have money, about $500,000.00, then you can hire experience and star a servicing company.

You'd probably be better off being a "birddog" for a servicing company, saome have programs for referrals. :)

Steve Babiak · Answer

@Bill Gulley might be able to offer more info here ...

Bill Gulley · Answer

Servicing is more complicated than loan origination, ultimately HUD and the CFPB would be the agencies overseeing owner occupied note servicing, non-owner or commercial adds more layers of agency oversight depending on who or what the transaction entails. All states have regulatory finance agencies that will have oversight.

Be careful who you select as a servicer! Are they licensed in the state, are they insured and bonded? What reserve requirements to the hold? What kind of entity are they and who regulates them, such as a bank or secondary market servicer?

If they mess up, you can lose your note!

Cheap is not always the best way to go, services can be limited and you need someone who can modify a note and take it to foreclosure if necessary, not all can or will do that. There is much more to it than the accounting side or disbursing checks. For example, a servicer may be required to have recorded phone conversations kept on file, they have time limitations in answering inquiries, records of borrower interaction are required and the note holder carries the liability for compliance. :)

Brian Gibbons · Answer

@Alain Perez-Majul

You need to understand how loan servicing works

and yes you need to be licensed

I use

www.notecollection.com

There are others but I think they're the best for the money

Justin M. · Answer

How much to loan servicing companies normally charge to manage a private loan? Ballpark?

Aleks Gifford · Answer

To loan service you essentially have to become a bank, insurance, bond, assets to cover lose, litigation, book keeping, disclosures and notifications. This information is based on my being a Licensed SR Loan Originator # 1157855 serving IN, FL and OH. Most companies sell their loans to the 6 major players there are a few banks that retain their own loans. Services are frequent targets of the CFPB and can get with even bigger penalties than originating banks.

Alain Perez-Majul · Answer

This is fantastic information, Bill, thanks so much! You're right, it's definitely more complicated than just the accounting side or disbursing checks, which I naively thought it would be like. On the plus side, this really puts me on the right track; back to the drawing board!

Alain Perez-Majul · Answer

Well, had I read this, my reply to Brian wouldn't have been necessary lol! We must've been typing them at the same time.

Thank you, Bill, for clarifying. If it's all that complicated, I'll have to look for an alternative!

Alain Perez-Majul · Answer

@Brian Gibbons

Thank you for your two cents!

Is loan servicing more complicated than I previously thought? Is it much more complicate than handling the receipt of payment from buyer, getting it over to the seller, and handling taxes/insurance? I figure there are different varying amounts of "services" one can provide?

Also, which entity deals with the licensing for loan servicers?

Thanks a lot for the Evergreen recommendation; I'm checking them out now!

Alain Perez-Majul · Answer

Excellent, thank you Steve. I'l reach out to Bill!

Loan Servicing Requirements?

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