Understanding the Importance of Risk Management for Commercial Loan Portfolios

December 6, 2016

Lender Services Real Estate Tax Monitoring Lender Challenges

Understanding the Importance of Risk Management for Commercial Loan Portfolios

Last week we briefly mentioned the importance of proper risk management for commercial loan portfolios, and today we are going to dive a little deeper into that subject. Commercial loan portfolios are at more of a risk than other types of loans because of the big dollar amounts. In many cases, commercial loans are approved for hundreds of thousands of dollars—which in turn creates big fees when it comes to delinquencies. As you can imagine, this creates a series of problems for lenders. While in the past many have opted to take their chances and allow these accounts to rack up delinquencies, this is no longer good practice. The federal government has recently cracked down on delinquencies for commercial loans, posing numerous challenges to lenders.

By outsourcing commercial loan portfolio tax monitoring to a knowledgeable vendor who offers competitive fees, you will be putting both your customers and your financial institution in better standing. As we discussed last week, virtually all loan portfolios on the residential side are monitored, whereas less than 50% of commercial loans are tracked in the same manner. By choosing not to have these loan portfolios monitored, lenders are putting their financial institutions at risk. Smart risk management means taking a proactive approach to a wide range of services, including real estate tax monitoring for commercial portfolios.

Regulations for Commercial Portfolios

One of the main reasons many lenders choose to not have commercial loans tracked is because of the traditionally lenient regulations. Many banks don’t track commercial loan portfolios because they don’t mind being a little delinquent, knowing they can get caught up a few months down the road. And given the fact these portfolios aren’t as highly monitored or regulated by the government, this often seems like the easy way to go. However, the risk levels are much higher in doing this. The loans are heavier, which means the losses and tax levies can be much, much more. Making the conscious decision to allow the loan to go delinquent, thinking you will get caught up eventually, is a risky one. And given the fact regulations are becoming tighter, it is more important than ever for lenders to make sure they have all their ducks in a row.

While many lenders avoid outsourcing this service to a third party vendor because they are afraid of the fees associated with this service, it is important to realize that not all vendors charge these high fees. In fact, if you can find a vendor that offers competitive fees and charge just one life of loan for up to 20 parcels, you will be in good hands. The low fees making having your commercial portfolios tracked a no-brainer.

Why Outsource This Service?

These days more institutions are getting in trouble for lending out money that was actually delinquent. This has caused quite an uproar and is leading to more regulations and tighter compliance. Thankfully, there is a solution. In order to avoid any compliance issues and mitigate any risks to your financial institution, outsource real estate tax monitoring for commercial loan portfolios. Because the loans are heavier and there is a greater risk of being charged high delinquencies, it is in your best interest to find a vendor who will help manage these risks by tracking your commercial loans.

Next week we are going to discuss what to look for in a real estate tax services vendor for your commercial loan portfolio, so be sure and keep an eye out for that blog. If you want to learn more about the benefits of commercial loan portfolio tax tracking for your institution, take a look at this ebook.

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