How Smart Servicers Are Positioning for BPL Success

Kim Hare is President of Fay Servicing, with over 30 years of experience in mortgage servicing and financial services.

Mortgage servicing plays a critical role in the health and stability of the broader housing market. For homeowners, strong servicers provide the infrastructure that ensures payments are processed correctly, escrow accounts are maintained, and assistance is available when financial hardship occurs. For business-purpose borrowers, effective servicing enables investors to manage cash flow, execute investment strategies, and preserve equity in their properties. In both cases, the quality of servicing has direct implications for borrower success, investor confidence, and overall market stability. Simply put, when servicing companies are strong and well-managed, the mortgage industry functions more smoothly for everyone.

Against this backdrop, business-purpose lending (BPL) – sometimes referred to as fix-and-flip, DSCR or rental investment lending – has emerged as a fast-growing segment of the mortgage market. Unlike traditional owner-occupied mortgages, BPL products are designed for investors who purchase, renovate, or hold properties for rental income. These loans are typically shorter in term, underwritten to the asset rather than the borrower’s household income, and structured with provisions that reflect investor strategies rather than consumer protections.

What’s Driving Demand

Over the past several years, business-purpose lending has steadily grown from a niche product into a mainstream alternative for real estate investors. According to Colonnade Advisors, BPLs now account for roughly 8% of U.S. home purchases – a figure that is expected to climb as investors continue to seek opportunities in a higher-rate environment.

Several forces explain this growth. Traditional mortgage origination has slowed dramatically, with affordability challenges sidelining many would-be homebuyers. Originators searching for new ways to maintain volume have increasingly turned to the BPL space. These loans are attractive because they support multiple investment strategies, including fix-and-flip projects where borrowers renovate and sell homes for profit, cash-flow properties where investors acquire and hold rental units, and portfolio acquisitions that allow borrowers to secure financing across multiple properties at once.

In my experience, it helps to think of BPLs less as a one-size-fits-all product and more as a flexible toolbox. For example, a borrower may need interest-only payments for 12 months to free up cash for construction costs, while another may need a structure that consolidates cash flow across multiple rental properties. The ability to tailor terms to each strategy is a large part of what makes these products appealing.

As more originators and investors enter this space, demand for specialized servicing has increased in parallel. Traditional mortgage servicing platforms are not designed to handle the nuances of BPLs, and without experienced servicers in the market, lenders risk operational bottlenecks, compliance missteps, or unsatisfied investors.

Where Things Get Tough

BPL servicing differs from residential mortgage servicing in several important ways. Loan terms are often more complex, with provisions such as default interest, prepayment penalties, and cross-default clauses. These provisions are not theoretical; they frequently come into play when loans exit performing status.

Multi-collateral loans add another layer of complexity. It is common for one BPL loan to be secured by several properties, each with its own tax, insurance, and escrow timelines. Servicers must track each property individually while also treating the loan as a unified obligation. If one property falls into tax delinquency, for instance, the servicer needs systems and processes that ensure it does not jeopardize the stability of the entire loan. This type of detailed asset-level management is simply not required in traditional residential portfolios.

Investors’ expectations also differ. Many BPL borrowers hold multiple loans and prefer consolidated billing or reporting that mirrors how they manage cash flow. From my time overseeing portfolio accounts, I’ve seen how crucial it is to design systems that can provide consolidated invoices while still maintaining accuracy at the loan level. This requires not only flexible technology but also a servicing team trained to reconcile complex account structures.

Another common challenge arises during loan transfers. Because BPL originators are sometimes newer entrants to the market, loan files may arrive incomplete or inconsistent. Servicers must have strong intake processes and data validation checks to reconcile missing information quickly and avoid downstream issues. On top of that, although BPLs are not subject to every consumer-protection regulation, they are still governed by a patchwork of federal and state laws. Navigating this landscape takes specialized compliance expertise.

Creating a Winning Framework

The servicers that succeed in this environment are the ones who recognize that BPLs require a fundamentally different approach. At Fay Servicing, our BPL business took off when we built a dedicated team to manage these loans almost 10 years ago. We realized early that trying to process them through the same channels as residential mortgages created too many inefficiencies. Instead, we trained a team of specialists who understand the calculations involved, the unique loan terms, and the expectations of investor borrowers.

A strong framework also depends on data management. BPL servicing requires precise, property-specific data that can be reported accurately to investors and used to generate notices or track compliance deadlines. From experience, I’ve seen how costly even small data errors can become in this segment – especially when multiple properties are tied to a single loan. Investing in data modernization has been one of the most impactful decisions we’ve made.

Call center operations are another area where adjustments are needed. BPL borrowers often want to discuss portfolio-level strategies, rather than individual loan payments. Training agents to understand investor priorities, and in some cases setting up dedicated phone lines for BPL inquiries, ensures conversations stay productive and tailored to the borrower’s business objectives.

Finally, asset management strategies are essential. In default scenarios, servicers must evaluate all the assets tied to a guarantor before determining recovery strategies. I’ve seen situations where understanding the borrower’s full investment portfolio enabled a workout plan that preserved value for both the borrower and the investor – outcomes that would not have been possible with a one-size-fits-all residential approach.

Looking Ahead

Business-purpose lending has grown from the margins of the mortgage industry into an exciting and competitive sector that is reshaping opportunities for originators, investors, and servicers alike. As interest rates remain elevated and affordability challenges persist, this segment will continue to offer a vital source of volume for lenders and diversification for servicers.

For servicers, business-purpose loans are more than just another product line. They demand systems, training, and expertise designed specifically for their complexity. Those who invest now in building the right framework will not only keep pace with growing demand but also position themselves as leaders setting the standard for excellence in this evolving space.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)