There are many elements that go into an effective loan review process, which is just one of the many reasons why it can get so complicated. In recent weeks we have discussed what goes into a smart loan review process as well as the importance of understanding the FDIC’s regulations, which brings us to today’s topic: the role of the vendor. When it comes to minimizing risk to your loan portfolio, a smart way to do so is outsourcing certain services to a knowledgeable and professional third-party vendor. If you’ll remember, one of the key elements of an effective loan review is objectivity. In order to truly achieve objectivity in this realm, you must turn to an outside party.
A third party will be able to come in and assess a given institution’s loan portfolio, making sure all documents are standardized and in compliance with both federal regulations and the institution’s internal guidelines. Today we will dive a little deeper into this topic, going over what some of the potential risks to an institution’s loan portfolio are as well as which services can be outsourced in order to help mitigate these risks.
What Are Some of the Potential Risks To a Loan Portfolio?
In order to determine when it is time to bring in a third-party vendor to help with your loan review process, it is important that you understand what some of the potential risks are to a loan portfolio:
- Delinquent taxes
- Any changes made to the property itself
- Including a parcel split
- So an institution can take action when necessary
These are just a few of the potential risks lenders need to be aware of. As always, the first step to addressing any problems is awareness. By bringing in a third-party vendor to perform an in-depth review of your loan portfolio, you will be on the right path to fixing any issues and ensuring you are in compliance.
The Role of the Vendor
Third-party vendors can provide an objective and professional review of an institution’s loan portfolio, giving them the information they need to address any compliance issues or red flags. When institutions choose to handle the loan review process internally, it can lead to more problems down the road. There are several important services that can be outsourced to a third-party vendor that may help minimize risks and take the pressure off of lenders, including:
Real Estate Tax Monitoring
Outsourcing this service to a third-party vendor is one of the best decisions an institution will ever make, as it can go a long way in helping mitigate risks. There are several different ways this can be done, namely by providing transparency in regards to property taxes. A good vendor will make sure customers are aware of the taxes they owe so that they don’t fall behind, which will in turn help the institution avoid any loan delinquencies.
This is another important service that can be outsourced and will provide lenders with accurate and up-to-date flood zone information. It is fairly common for flood zones to change and adjustments be made to maps, much to the surprise of property owners. When an institution outsources flood determination services to a vendor, they will keep you informed of any map changes, make sure the institution is charging for flood insurance, and monitor FEMA to stay on top of any flood zone changes.
Finally, a lender may also consider outsourcing escrow processing to a third-party vendor, as they will provide transparency and information on any delinquencies pertaining to escrow accounts.
There are many different vendors out there today offering services that lenders could benefit from. However, not all of these vendors have the technology, capabilities or commitment to providing institutions with the services they need in order to mitigate risks. This is why it is important that you look for a vendor that will offer you transparency, accuracy, real-time data, excellent customer service and customization. For more information on the role of the vendor in regards to minimizing risk to a loan portfolio, download our latest ebook, Is Your Vendor Minimizing Risk to Your Loan Portfolio?