Increased Property Tax Escrow Burden for Lenders Leads to Increased Outsourcing of Services

February 23, 2022

Escrow Webinar

Outsourcing Escrow Services Helps Lenders Efficiently Manage Amounts and Payments

Anyone involved in real estate would attest that the past year-plus has been busy. When mortgage rates were at near-record lows, buyers flooded the market, and refinances skyrocketed. And now that rates have begun to creep up, buyers are racing to get into their first or new home and lock in those rates, and experts predict a robust housing market in 2022. Unfortunately, this avalanche of new mortgages for banks and credit unions has translated to a significant increase in property tax escrows to monitor and pay, straining already overloaded loan departments.

In a recent Info-Pro Lender Services Educational Webinar, Mark Daniels, SVP of Sales, Marketing, Account Management & Client Services at Info-Pro, highlighted the benefits of outsourcing escrow processing services, especially as the volume of escrow accounts grows.

Driven by changes in regulations and loan requirements, Info-Pro’s data shows an increase in escrow loans.

“Over the last five years, we have seen a 40% higher rate of loans and parcels coming into our system that are requiring escrow,” Daniels told those in attendance. “There are a lot of varying reasons for that but probably most notably are regulations that grew from the housing crisis of the early 2000s.”

Additionally, as more first-time homeowners entered the market due to rising rents and near record-low interest rates, the number of loans requiring escrow jumped as well. And that isn’t expected to change either. 

“Escrow is required on most mortgages where the down payment is less than 20 percent. Now, as millennials are that next group who are starting to get into home buying, you could see that likelihood of those falling under the 20 percent and needing to escrow increase in the coming years,” said Daniels. “Tie that to any type of government-backed mortgages could also lead to an increase of who has to escrow.”

With the Rise of Escrows Comes the Rise of Outsourcing Escrow Services

Of course, with all these additional escrow accounts to monitor and staff already under pressure, there are more opportunities for errors, missed payments, and the costs and unhappy customers that come with them.

To help free up staff time and ensure accuracy and on-time payments, institutions of all sizes turn to third-party vendors to assist with property tax escrow servicing.

Outsourcing to a third-party vendor who has automated the processes of escrow servicing can help keep banks and credit unions on top of the information needed to make timely and accurate payments.

But, outsourced services must be done well, or problems could mount as readily as if done by an overtaxed staff.

Borrowers count on their escrow being sent to their local municipality accurately and on time to avoid extra paperwork, fees, refunds, and worse. Therefore, you need to be able to count on your third-party vendor to keep you updated and prepared for making those payments—or even making them for you—without error.

Outsourcing Escrow Services for Success

While you may not need every service a vendor offers, finding one that can provide what you need and fits your budget to save time and money monitoring and paying escrow is essential to success. Among some of the service options you will want available from a vender include:

  • Delivering customized reports electronically and on-demand
  • Providing access to a tax agency database and escrow management tool
  • Provide physical tax bill collection and payment files with tax agencies
  • Reviewing who to pay, what to pay, when to pay, and how to pay
  • Standardizing payment processing
  • Streamlining and standardizing all payments by accepting payments via ACH or wire and, in turn, paying the municipalities

In the end, outsourcing escrow tax services can not only help your institution keep up with the current workload, but it can also help you stay ahead of trends indicating there will be even more escrow accounts to maintain in the future.

Watch the on-demand webinar “Reduce Your Workload in 2022: Why Escrow Processing is Better Off Outsourced” to learn more about the intricacies of outsourcing your tax escrow services. For a quick summary, you can also watch our recap video.