While many lenders opt for third-party loan servicing, there’s a growing trend toward in-house servicing – the practice of managing loan administration internally, without outsourcing to a third party. For private lenders, this shift holds numerous advantages that go beyond the basic functions of tracking payments and managing borrower communication.
Why In-House Servicing?
1. Full Control Over the Borrower Experience:
Perhaps the most significant advantage of in-house servicing is the complete control lenders have over the borrower experience. Borrower relationships are vital, especially in private lending, where trust and rapport dictate long-term success. By servicing loans in-house, private lenders can maintain direct communication with borrowers, ensuring that interactions align with the lender’s values. For example, lenders who pride themselves on quick decision-making and flexibility can provide the same high level of service throughout the life of the loan. This continuity is difficult to achieve when outsourcing, where customer service might be handled by individuals unfamiliar with the lender’s specific style or borrower expectations.
2. Customizable Processes
Private lenders often deal with unique borrowers and diverse loan products, requiring flexible servicing solutions. In-house servicing allows lenders to tailor processes according to their needs and preferences. Whether it’s specialized payment structures or a one-off loan modification, in-house teams can be nimble and make adjustments quickly. Customization when using third-party servicing is typically limited, and any adjustments often come with additional costs or delays. With in-house servicing, private lenders can tweak and modify processes on the fly, ensuring efficiency and borrower satisfaction.
3. Real-Time Insights and Reporting
Having access to real-time insights into loan performance and borrower behavior is critical for lenders looking to optimize their portfolios. With in-house servicing, lenders can access up-to-the-minute data, allowing for immediate adjustments to strategies, more proactive borrower management, and better decision-making. For example, let’s assume a borrower asks for a construction draw and on that same day their monthly interest payment is returned due to an NSF (non-sufficient funds). An in-house servicing team can identify that the borrower may be having cash flow issues and get ahead of the problem before exposing more capital.
4. Cost Savings and Revenue Growth
Outsourcing loan servicing may seem like an easy way to streamline operations, but the costs can add up quickly – especially as your loan portfolio grows. While building an in-house servicing function may involve an upfront investment, it eliminates ongoing servicing fees paid to third-party servicers. Over time, this can translate into significant savings, particularly for lenders with high volumes of loan under management. Going one step further, in-house servicing can also drive revenue by helping lenders identify an opportunity to refinance loans or offer other loan products.
Why Some Private Lenders Choose Not to Service In-House
Despite the advantages, many private lenders opt not to service their loans in-house due to several valid reasons. Building an in-house servicing function requires an investment in technology and training, which can be daunting for smaller lenders.
Outsourced servicing is also the standard for traditional loans, originated by banks or credit unions. However, the differences between traditional lending and private lending are significant. In traditional lending, borrowers are typically one-time customers. Most borrowers don’t return for another loan in the near future, so maintaining a long-term relationship with them is less of a priority. This contrasts sharply with private lending, where lenders often work with repeat borrowers and depend on strong, ongoing relationships to build trust and secure future business.
The Role of Technology in In-House Servicing
Loan servicing software in recent years has improved drastically, and removed some of the deterrents mentioned earlier. Advanced platforms like Baseline empower private lenders to manage all aspects of loan servicing with ease including electronic payment processing, borrower notifications, and auto-generated statements. With the right servicing software, lenders can automate many administrative tasks, improving both efficiency and accuracy.
Technology also provides the scalability needed for growing portfolios. Lenders can scale up as their business expands with a fraction of the headcount previously required.
Conclusion
In-house loan servicing is becoming a strategic advantage for private lenders looking to enhance control, reduce costs, increase revenue, and improve borrower experiences. With the right systems and servicing software in place, lenders can enjoy greater operational flexibility and scale.
At Baseline, we provide the tools private lenders need to manage their loan servicing operations efficiently and confidently. Contact us today to learn how Baseline can support your in-house servicing needs.
