Published : 4 months ago, on 15/05/2024

Understanding Loan Servicing and Why It Matters

By: David Johnson, Vervent Founder & CEO

When taking out any type of loan the general narrative focuses primarily on borrowers and the upfront approval process, rates, benefits, and securing the funds they need. However, in the financial industry one of the most crucial conversations is about the long-term management of that debt through loan servicing to ensure portfolio performance. Loan servicing drives return on investment, helps to remain compliant in a complex web of regulations, and delivers quality customer service to protect your brand and generate customer satisfaction that supports reputation and repeat business.

Loan servicing encompasses all the administrative tasks and procedures involved in maintaining an active loan for its full lifecycle post-origination. While often overlooked, this key function ensures loans remain compliant, payments are generated and processed correctly, and borrower-lender communication runs smoothly for the duration of the loan which could be years. As a servicer, Vervent provides cutting-edge primary servicing designed to drive your business forward, faster. We help maximize returns on consumer and commercial portfolios with progressive technology, platform-wide artificial intelligence, and six full-service capabilities centers. As your behind-the-scenes partner, let’s explore the loan servicing process in more detail and how it impacts financial institutions and borrowers alike.

The Role of the Loan Servicer

Most major lenders utilize specialized loan servicers like Vervent to handle their servicing functions. This dedicated third-party servicer acts as the main point of contact for borrowers once their loan is approved and payments begin.

Typical loan servicer responsibilities include:

• Processing monthly payments from borrowers.
• Responding to borrower inquiries and requests.
• Pursuing delinquencies and handling loss mitigation.
• Disbursing payments & ensuring secure fund flow to the portfolio owners/investors.
• Ensuring superior investor, regulatory and credit bureau reporting.
• Maintaining compliance with all regulatory guidelines.
• Delivering one-call voice contact resolution and proven non-voice servicing to support documentation and service execution.

Rather than having to build out complex servicing infrastructures and technology enabled operations centers, lenders can transfer the operational burden to a trusted partner. The support covered by an experienced servicing partner can include dialer and servicing systems, technology infrastructure and support, human resources – from recruiting to payroll, workflow management, facilities maintenance, and, of course, expert servicing and delinquency management all done under a private-label service.

Benefits for Lenders and Investors

Managing portfolio servicing is no easy feat, so portfolio owners rely on servicers to protect their investments and revenue streams through proper servicing.

This covers:

1. Customer Service – Servicers support customers with specialized agents to turn to with any questions or issues regarding their payment schedule, loan terms, escrow accounts and more.
2. Payment Management – Servicers send regular statements, manage payment allocations, and handle processing of principal, interest, and escrow disbursements so borrowers don’t have to.
3. Delinquency Resolutions – If borrowers encounter financial hardship, servicers can provide guidance on available remediation options like forbearance, deferment, or loan modifications.
4. Risk Reduction – Servicers monitor for delinquencies and navigate loss mitigation efforts to reduce loan defaults and align with the complex compliance requirements of servicing financial products.
5. Cash Flow Management – Through accurate payment processing and secure fund flow and control, companies like Vervent deliver turnkey services to maximize dollars collected and ensure lenders/investors receive scheduled distributions regularly.
6. Portfolio Tracking & Reporting – Servicers provide complete borrower records and reporting to offer full visibility into loan positions and portfolio performance. They also provide audit support for financial oversight and regulatory necessity.
7. Regulatory & Compliance Adherence – Servicers operate within all relevant compliance and licensing requirements to safeguard assets legally, protect the client and borrowers, and to help avoid servicing and communication errors which can result in significant fines if not managed properly.

This level of loan servicing helps client partners, but also helps the borrowers with the support and communication needed to make payments on time and keep their credit in good standing.

Let’s look at auto loan servicing in particular. Many auto lenders rely on dedicated servicers to enable a seamless experience for millions of customers who are buying cars or commercial entities who are financing fleet vehicle purchases. Auto servicing includes customer service and collections, but also requires specialty services like collateral and title management. With over 650K auto loans currently under management, Vervent has the proven track record and essential infrastructure to manage these accounts. Without that experience, effective servicing would not be possible due to the lack of resources, staff, processes, industry partnerships and an established, national repo agent network to support effective recovery and remarketing.

By ensuring high-quality servicing across their auto loan portfolios, lenders minimize defaults, missed payments and customer frustrations. Servicers not only generate billing statements each month but also act as customer support addressing inquiries such as early payoff quotes and inability to make payments quickly which helps the portfolio performance and the customer. How does that make a difference?

For example, when a client partner was in distress, in just 30 days Vervent managed to assume servicing of a portfolio, reassign to our proven national network of repo providers, initiate repossession, and begin liquidating a large industry auto backup trigger event (that was backed by one of the largest capital providers). Quick reactions resulted in the recovery $7M+ in sales proceeds in the first 6 months and effective scaling and management of inbound call volume that was 7x the expectation, all of which helped to keep the portfolio healthy, and the customer connected.

Smooth servicing keeps things on track so lenders can focus on other aspects of their business.

As we can see, servicing plays a vital but often behind-the-scenes role across all loan types.  While largely invisible, servicing provides the scaffolding that protects assets from origination through payoff or disposition. When executed properly by experienced partners, like Vervent, servicing eliminates friction and enables portfolios to thrive.