Commercial Servicing Software Must be Flexible

Sherri Carr is Vice President of Commercial Servicer Product Development for FICS (Financial Industry Computer Systems Inc.), Addison, Texas, a mortgage software company specializing in in-house mortgage origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, banks and credit unions. The company also provides document management and web-based capabilities in its full suite of products. She can be reached at SherriCarr@fics.com.

Commercial mortgage servicing can be particularly challenging. Like residential mortgage servicers, commercial servicers communicate with customers, take payments, manage escrow accounts and meet strict investor reporting requirements. Unlike residential servicers, commercial lenders often service a wide variety of loan types and provide more complex payment options.

Therefore, residential mortgage servicing software usually cannot handle the unique needs of commercial mortgage lenders. Commercial servicing software needs to be flexible and scalable. It must accommodate a variety of loan products; include commercial-specific reporting, payment and escrow administration functionality; and provide support for asset managers.

There is No ‘One-Size-Fits-All’ Software

Contrary to popular belief, commercial lenders’ portfolios do not consist solely of commercial or multi-family loans. Commercial lending encompasses a wide variety of loans, such as small business, municipal airport, agricultural and taxi medallion loans. Commercial servicers must remember that there is no ‘cookie cutter’ approach available to accommodate all their needs. Servicing requirements differ for each loan product, so servicing software must be flexible enough to meet those unique needs, in addition to handling basic commercial loans.

Commercial servicing software must be flexible enough to automate most of the servicing and reporting requirements, since commercial loans are not held to the same constraints as residential mortgage loans. The best software allows room for growth. It fits the current business structure of a company while also providing room for expansion into other types of loans and financing.

Accommodating Investor Reporting

Any form of investor reporting can be challenging. But investor requirements for commercial loans have become increasingly more involved, including expedited reporting, loan performance updates and electronic file delivery. Servicers must meet the requirements of a multitude of private investors as well as agency lenders.

Therefore, flexible loan products and robust investor reporting capabilities are essential to meet the demands of commercial investors. Servicers must provide accurate and detailed information to retain amicable investor relations.

Providing Flexible Payment Options and Escrow Administration

With complex financial transactions, loan payments contain more attributes and are larger, and operating income can be subject to seasonal variations. Furthermore, less common payment frequencies such as quarterly or semi-annually tend to be used instead of monthly as is customary with residential mortgages. Therefore, payment options may need to be more flexible. 

To ensure payment, some land acquisition, development and construction lenders require borrowers to establish a borrower-funded interest reserve account. These funds are usually withheld from the principal amount disbursed and can be tapped to pay the borrower’s debt service during leaner months of property income.

Interest reserves provide funds to service the debt until the property is developed, and cash flow is generated from the sale or lease of the property.

Most importantly, servicers must be able to apply payments and make disbursements to varying escrow buckets, so the buckets need to be customizable on a loan-by-loan basis to facilitate this process.

Comprehensive Asset Management Tools 

Asset managers must ensure properties securing their loans are performing at a high enough level to cover the debt service. They are required to collect information to judge the current financial performance of their loans and make informed decisions based on that information.

They also evaluate neighborhood trends to predict future performance. If they find the market in that area is declining, this could be cause for concern. For example, if a shopping center loses an anchor store, such as Toys R Us, mall traffic and business, in general, tends to decrease. This, in turn, could affect revenue. Asset managers need commercial servicing software that helps them track this crucial information. They also need to be able to generate system reports, as well as custom reports for easy access to information – such as property income and expenses, tenant lists and inspections – to effectively analyze risk.

Consumer-Facing Web Application

Commercial borrowers need the ability to conveniently access their loan information. A web application gives borrowers the flexibility to make payments, submit requests, provide necessary loan information, and view documents online 24/7. Borrowers should also have an efficient way to verify their taxes and insurance have been paid by their servicer and confirm their payments were applied correctly. 

Benefits to Offering Flexible Loan Products

Offering flexible loan products is one key strategy to promote repeat business from commercial borrowers. These borrowers want their lender to care about them and their unique needs. By meeting borrowers’ individual needs, servicers demonstrate their commitment to their borrowers’ satisfaction and business success.

Satisfied borrowers are more likely to bring another loan or refinance an existing loan with the same institution. Utilizing flexible loan products and finding outside investors that will buy these loans allows commercial servicers to bring in additional new business opportunities by accommodating unique lending avenues that other lenders may not be able to reach.

Flexibility is crucial for successful commercial loan servicing. Commercial servicing software must be flexible enough to meet the unique needs–including complex investor reporting and multiple payment options–of a variety of loan types. By choosing software that accommodates various types of loans and financing, commercial servicers can satisfy borrowers and take advantage of new business opportunities. 

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)