Loan subservicing is the future and it’s now
There is no end to the number of challenges banks and credit unions face today. Between keeping up with ever-changing regulatory compliance standards, fighting off an increasing number of cybersecurity threats and working to modernize core systems all while delivering best-in-class customer service, banks and credit unions’ bandwidth has been pushed to the max.
Given all the demands on banks and credit unions today, even though they can service their own loans, many are coming to the realization that it just doesn’t make sense for them to do so, which is a marked change.
In 1990, virtually no financial institutions outsourced their loan servicing, but the market has grown in recent years and compliance costs have increased, resulting in more work on the part of banks and credit unions. Going forward, the loan servicing market is expected to continue to grow from $2.51 billion in 2024 to $5.4 billion by 20291.
Recognizing the constraints, many banks and credit unions are partnering with subservicers.
“Using a subservicer can be very advantageous,” says Jason Kwasny, chief servicing officer for Servbank, a national banking and subservicing institution that is currently servicing 338,000 loans for 81 client partners. “If you are a bank or credit union trying to decide if a subservicer is best for your business, you should ask yourself if you are currently challenged with, or lack the ability to, competently scale in one or more of the following areas: operational efficiency, cost of servicing, regulatory compliance, customer experience or technology. If you answer yes in any of these areas, working with a subservicer is probably the right move.”
6 reasons working with a subservicer is the right move
1. Offers a superior member/customer experience. “First and foremost, what it comes down to is: Are your members or customers getting the caring experience that they seek and is it reflective of your brand? That is what matters most. If the answer is not unequivocally yes then it’s time to seek a subservicing partnership with a subservicer who not only shares that foundational objective, but can actually deliver upon it,” says Kwasny. “At Servbank, we are customer-experience obsessed. This approach emphasizes treating customers as individuals, and not just numbers. We focus on providing a caring, convenient experience with quick issue resolution across all interaction channels.”
2. Ensures regulatory compliance. With a change in presidential administrations, compliance standards are likely to change once again. Managing compliance with ever-changing regulations can be complex and resource intensive. Using the right subservicer ensures you are in regulatory compliance and reduces the risk of becoming non-compliant. “While regulatory compliance in the subservicing sector may be an afterthought for some, at Servbank we live and breathe it. We make sure we are always up-to-date with the latest compliance regulations so our customers do not need to worry.” says Kwasny.
Risk is everywhere and it usually materializes at the most inopportune time. “If you get caught ‘flat footed’, it can be not only costly in the form of regulatory penalties, but it can damage your reputation. Furthermore, if the exposure is great enough, the remediation can consume the institution at a magnitude that it leaves little resources left to advance other key initiatives,” warns Kwasny.
3. Provides operational efficiency. Banks and credit unions can often struggle with managing the basic operational aspects of loan servicing, such as payment processing, escrow administration and customer support. “For subservicers that are doing this every day, this is basic blocking and tackling,” says Kwasny. When subservicers like Servbank allow access to real-time loan data, even more efficiencies are seen. By automating processes through real-time data integration, modern subservicers allow financial institutions to eliminate the time-consuming manual data entry and processing.
4. Decreases cost of servicing. With all the additional costs banks are incurring today, servicing loans in-house shouldn’t be one. Maintaining an in-house servicing infrastructure is expensive, especially if a bank or credit union does not service enough loans, which is often the case for smaller banks and credit unions. Using a quality subservicer like Servbank can reduce costs and offer scalability, which is key to sustained growth.
5. A steady hand through changing market conditions. Market conditions can, and will, change on a dime. An unexpected increase in delinquencies and/or foreclosures can pose both risk and an increased workload on a bank. Subservicers are typically better equipped than a bank or credit union to deal with unexpected challenges that often arise during tougher economic times or downturns. Default activity is always closely watched and managed by subservicers such as Servbank.
6. Offers an enhanced experience through technology. In the end, it’s no secret that banks and credit unions are laggards when it comes to technology adoption. This applies to loan servicing as well. Banks and credit unions frequently lack the technology to be efficient and accurate in their loan servicing operations. Equally important is the ability to leverage technology to enhance the customer experience. “Subservicers like Servbank are always keeping up with the latest technology because it’s core to what they offer and how they continue to offer clients and customers a first-rate experience,” says Kwasny.
Choosing the right subservicer
While the benefits shine through, banks and credit unions must determine which subservicer is right for them because not all subservicers are built the same.
“The standard in the marketplace for servicing is pretty low. Most servicers do the bare minimum for both their clients and their customers. Perhaps it’s their belief that it would be cost prohibitive to deliver service and a high-quality experience for their clients and customers, or maybe they lack the technology to do so, or maybe they simply don’t care,” says Kwasny.
Servbank is rated by S&P, Fitch and Morning Star, and has a perfect IDC score of 300. Being one of the nation’s only bank subservicers, Servbank is uniquely positioned to offer clients both superior subservicing performance along with commercial banking products, all with the surety that comes with being a depository institution. This is truly a rare combination in the marketplace.
“We are a core values driven organization, with a culture that ensures that no matter who we serve, our people, our customers, or our clients, we do so with sincere care and a human touch,” says Kwasny. “We really do have a heart and that may not be the most business-y thing to say, but it’s what truly sets us apart.”
1https://www.thebusinessresearchcompany.com/report/loan-servicing-global-market-report
2https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3302740
