Key criteria for selecting the right backup servicer

Ultimately, backup servicing needs to cover any “what if” scenario long before an issue arises. Here are six key criteria for selecting the right backup servicer:

1. Strong reputation in the marketplace. If they haven’t “been there and done that,” assessing performance when needed can be a risky proposition at best. A consistently positive backup servicing track record establishes trust, instills confidence, and offers peace of mind that if needed, the solution will be there without fail.

2. Availability when needed, during and after regular hours. When the situation changes from warm to hot servicing immediacy, it’s important that the backup loan servicer be available to address any issues that arise. Again, look for a backup servicer with a documented history of reliability and consistency in this critical area, as well as having a current bandwidth for emergency response.

3. Compliance that is second to none. Even if all the right backup servicing operations systems are in place, there also must be a comprehensive, current and bullet-proof compliance infrastructure to back it up. Consumer protection is a high priority in any loan and collection environment. Backup servicers must know the federal requirements, state regulations, and pending/impending developments—and ensure that such vital functions as contact center operations and collections are 100% compliant. Full knowledge of and compliance with The Uniform Commercial Code (UCC) is especially important to safeguard lending and collection integrity. It requires continuous research and due diligence to ensure being up to date. One misstep in this area can cause a variety of painful and costly consequences.

4. Availability of aligned services as needed. In some cases, a backup servicer offers more than what’s readily apparent at first glance. Document custody services, plus loan validation and auditing, are vital value-added services that a backup servicer can—and should—bring to the table when needed.

5. Ironclad data protection and disaster recovery. The time to learn that data protection and disaster recovery systems are fully safeguarding information is long before there’s a challenge to them. A backup servicer must make an ongoing and comprehensive commitment to maintain the most current and complete protection possible. As part of the process, there should be ability in warm and hot backup protocols to store data on the backup servicer’s system to cover any disaster recovery contingencies.

6. Certifications and credentials that cover all bases. A backup servicer must go the extra miles to ensure adequate controls and compliance. Among requirements are SOC 1® Type 2, and PCI DSS. System and Organization Controls (SOC) Report/Attestation, under the aegis of the American Institute of Certified Public Accountants (AICPA), audits and reports on internal controls in the areas of risk management, logical access, change management, data security, and data availability. Type 2 attests to controls at a service organization over a minimum of a six-month period (versus Type 1, which only looks at one point in time).

The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard for credit card payments that is mandated by card brands. A backup servicer must carry this credential to safely and securely handle loan payments via credit card. As one energy 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.”

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