Changing Relationships between Servicers and Subservicers

David J. Miller, Jr.
December 27, 2006

Have you ever considered having your portfolio subserviced? Or, have you thought about using your staff and operations to subservice for others? Before you embark on either of these directions, it is important to understand what subservicing is all about.

There are considerable differences between a servicer and a subservicer, as you might imagine.

As a servicer, you service your portfolio generally according to agency standards. However, you make a lot of other decisions based upon your specific company needs. You develop the reports that are needed by your senior management team, your board, your investors, and yourself to manage the daily activities of the portfolio. You handle the default process based on your own default management guidelines and perhaps offer loss mitigation alternatives on your owned portfolio based on criteria that is acceptable to your credit policy committee. You also handle escrow for your portfolio—for example; analyze all loans in your portfolio based upon a predetermined basis, which selects loans by state with a consistent methodology. And, most important of all, you provide exceptional member service all of the time. Right? Right!

At all times, you handle all of the servicing activities consistently, with one set of standards, which YOU define and live by. Until you need to change them. But you also service your own portfolio well.

As a subservicer, you must do all of these things, for each of your clients, recognizing that each one will differ based on the requirements of your client, the owner of the servicing.

The subservicing business starts and ends with the member. Can you provide a private-label experience to the member, the end mortgagor, for your client? You will have to be able to deliver call statistics, turnaround times, performance measures, and high-quality contacts with the member. You must be able to support multiple-member contact management programs. This alone is a significant issue to manage and requires a strong relationship management program to assure that your client and their members receive the required support from your subservicing operation. The private-label program will require you to be able to service the loan in your client’s name—letters, coupon books, or monthly billing statements, notices, year-end statements, and all other member contact activities.

The subservicer will need to be able to also deliver an enhanced member experience that is beyond the typical phone contact. You will have to provide 24 x 7 member support. Many of the companies utilizing a subservicer are not only delivering a website for member information access, but are also customizing the site to cross-sell their products and services to the member. Many credit unions that are subservicing are offering the member the ability to make payments in their branches, so a branch payment processing system will also be needed.

In addition to the superior member service that you will deliver as a subservicer, you will need to be able to support your client’s varied reporting and accounting needs. Of course, you will have to provide all of the normal accounting and default reports to the investors, but you will also need to develop management reports for each of your clients. You will be required to interface with a variety of general ledger systems, asset liability systems, profitability systems, CIF systems, and a host of other third-party systems that your client utilizes to service their portfolio.

If you are considering having someone subservice your portfolio, here are a few more questions to ask: Does the subservicer compete with me for business in any way? Is the subservicer in my marketplace competing for deposits, loans, or other services? Does its business plan match my business plan? Is subservicing a core business, and therefore is the subservicer committed to my portfolio and my member? Is the subservicer owned by credit unions and does it offer credit-union-focused solutions? Does it really know what member service means? What about its technology? How is the subservicer improving its service-delivery channels? And lastly (and probably most importantly), does the organization that will be servicing your portfolio (down to the last manager), really understand the difference between servicing and subservicing? After all, it’s your member, not theirs.

David J. Miller Jr. is senior vice president and business development director for Prime Alliance Loan Servicing, powered by Cenlar. For more information, call 1-888-SUBSERVE, send an e-mail to marketing@cenlar.com, or visit www.choices.primealliancesolutions.com.