Bulletproof loan servicing backup is more important than ever
Amid all the challenges presented by the pandemic and the economic upheaval it caused, importance of backup systems to stay the course has skyrocketed. In loan servicing, it’s more critical than ever to have reliable, first-class backup servicing firmly in place when something fails with primary servicing.
Ultimately, the best backup servicing system implementation is essentially “invisible” to investors, portfolio managers, ratings agencies, and customers making loan payments. Properly deployed, the backup transition should be seamless, smooth and non-eventful for stakeholders.
Putting into place the appropriate backup servicing protocols well ahead of any potential need is the best loan servicing insurance policy any owner/originator of consumer receivables could acquire.
Best case, retain a backup servicer with secure and stable cold, warm, and hot backup programs to capture all critical loan and receivables data as frequently as warranted—depending on complexity and risk level of the portfolio. With ability to handle cold, warm, and hot, all options for both efficient and cost-effective solutions can be customized to specific companies and circumstances.
A hot backup program typically backs up account information from the primary servicer frequently and creates a mirror database of assets managed by the primary servicer to be ready if called upon. Warm backups typically involve monthly backups with loan data validation, while cold backup is truly a standby system that receives monthly data.
Ultimately, backup servicing needs to cover any “what if” scenario long before an issue arises. As one energy efficiency/home improvement finance company spokesperson points out, “We focus on someone who can provide peace of mind that if something happens, they can step in, provide servicing, fulfill duties to customers, and give owners of assets the most they can get. It needs to be someone who can serve the interests of investors by getting as much out of the remaining portfolio as possible. And it needs to be someone already familiar with the organization, to handle servicing at a level that doesn’t raise eyebrows.”
Shaun O’Neill, President and CRO, Concord Servicing Corporation