DIMONT Insights

Perhaps more than any other part of the mortgage business, mortgage servicing stands to benefit from economies of scale, but only if the business can actually be built to expand. In the wake of the foreclosure crisis, many servicers are facing bloated staff rosters and struggling with workloads that would be better outsourced, but setting up a servicing business to effectively outsource is not a simple task.

Vendor management is one of the most import functions in the modern mortgage servicing operation. Much of the work the servicer must do to maintain compliance and to effectively service its portfolio is outsourced to trusted third-parties who perform that work on the servicer’s behalf. Over the past decade, the vendor management function has become much more complex and the corresponding penalties for mistakes have increased in severity.

As a result, vendor managers working within mortgage servicing firms spend a great deal of time determining exactly what functions must be outsourced, evaluating potential partners, contracting with preferred partners, and then managing those relationships – risk management work that must be performed according to a rigorous set of standards and best practices.

The government requires any homeowner with a mortgage to buy flood insurance through the National Flood Insurance Program if the structures on the property fall within the Special Flood Hazard Area (SFHA) of the map. The flood maps are updated periodically; and, it is the servicer’s responsibility to make sure that the properties in its portfolio are properly insured.

In a previous post, we touched on the federal government’s National Flood Insurance Program (NFIP) that requires any property within a Special Flood Hazard Area (SFHA) to carry flood insurance. Determining the sufficient level of insurance coverage for lender placed insurance has presented a problem for some servicers. Failing to insure the property to the correct amount of coverage exposes the servicer to compliance risk.

Federal law requires properties within a flood special hazard area to have a flood insurance policy. The government regulations for determining the correct amount of coverage for lender-placed flood policies are not clear. Over-insuring or under-insuring lender-placed flood policies can cause compliance problems for servicers in addition to having a negative impact on the borrower’s experience.

There are three primary risks for lenders associated with lender-placed flood insurance on properties with multiple structures:

Ensuring auto loan borrowers maintain adequate automotive insurance coverage on their vehicles is an important task often overlooked. Most lenders have excellent processes in place to ensure insurance coverage at loan origination, however they often fail to maintain a sound process to ensure proper insurance coverage is maintained throughout the life of the loan.

In many cases, by the time we are called upon to assist the bank in filing a claim with the insurance carrier for damage on a repossessed vehicle, the borrower has either changed or canceled their insurance coverage, or signed a policy with an abnormally high deductible or one lacking in overall coverage.  

There are few components of the modern mortgage business where technology is not a requirement for efficient operation; indeed, without our modern technology platforms, we would simply not be capable of operating in a compliant manner. This is particularly true when it comes to managing the complexities of the hazard claims business, where technology plays a pivotal role.

Historically, we had trouble finding software platforms on the market that met our needs and those of our clients, so we have chosen to develop our own proprietary platforms. As a result, we are able to interface directly with many of the systems used by our clients, as well as the systems in use by the nation’s property preservation companies, who often work closely with the same mortgage servicers with whom we partner. Additionally, we can interact directly with providers of lender-placed insurance products, allowing us to more easily share data, file claims quicker and report back to our clients with extreme accuracy.

Many auto lending executives would be surprised to learn that filing insurance claims is one of the most effective ways to reduce overall loss severity on their repossessed auto portfolio.  Maximizing the institution’s return on auto insurance claims requires the right process be in place. Below we will share four ways to ensure your auto claims process is successfully managed.

Time is money in the mortgage business and every day of processing time that an institution can save directly impacts its bottom line. That is certainly true in the case of hazard insurance claims. In fact, failure to adhere to a timeline can lead to much higher expenses and the possible loss of reimbursements or loan guarantees.

Naturally, it’s common for our customers to ask us how long it will take to process their hazard insurance claims. We resist the temptation to reply that “it depends,” though that is actually the truth. Instead, we help our customers understand which steps take up the most time in this important process and where we can more rapidly reach a favorable conclusion.

After over two decades of helping banks and mortgage servicers file claims and recover losses from insurance companies, we understand the criticality of having sufficient insurance coverage on collateral properties.

Investors face increased risk of loss when they have insufficient insurance coverage or the wrong kind of insurance coverage on a property that serves as collateral for a mortgage loan. Making sure that the coverage is both sufficient and of the proper type is critical for effective risk mitigation.

Having the Right Kind of Coverage for Your Collateral

Most servicers know that there are many types of insurance and only hazard insurance protects the mortgagee from risk should the property be damaged before the loan is paid off.