FICS’ Sherri Carr shares her view on what makes for effective commercial servicing software
In early 2020, the U.S. economy tanked as the COVID-19 spread. The mortgage industry has focused heavily on the impact the pandemic is having on homeowners and the residential mortgage market. But the coronavirus has also affected the commercial mortgage industry via drastically reduced income from residential commercial property, restaurants, and retail businesses.
For owners of multi-family properties, record numbers of workers facing unemployment have resulted in decreased rental income. The Center on Budget and Policy Priorities reported that in September 2020, nearly one in six renters were not caught up on rent during the pandemic. To assist borrowers, the GSEs have set guidelines in accordance with the CARES Act for properties facing adversity because of the United States’ weakened economy. The requirements for forbearance vary, but in general, multifamily borrowers may qualify for up to a 90-day forbearance period on monthly principal and interest payments.
The pandemic’s financial impact is not limited to residential commercial properties. According to accounting consultants BDO USA, 29 name-brand retailers filed for bankruptcy protection and more than 6,000 stores have closed in 2020. If bankruptcies continue at this accelerated pace, the number could surpass the amount of bankruptcies caused by the Great Recession. Restaurants have lost billions in revenue during the pandemic, with some permanently closing their doors due to the drastic and unexpected reduction in their income. And let’s not forget about the impact on office space. Aside from companies downsizing, the future demand and design of office space is changing due to an increase in employees permanently working more days from home.
A common misconception of commercial servicing is that lenders’ portfolios only consist of multi-family and commercial loans. However, commercial lenders work with a variety of property types that have been affected by the pandemic. This includes, but is not limited to, small business, taxi medallion, vineyards and more.
Consequently, commercial lenders need mortgage servicing software that is flexible enough to rapidly respond to a changing marketplace. COVID–19 changed our economy quickly and without warning, necessitating an immediate response to implement new short payments, forbearance, and payment deferral programs.
Commercial servicers must remember that there is no ‘cookie cutter’ approach available to accommodate all of their needs. Servicing requirements differ for each loan product, so servicing software, in addition to handling basic commercial loans, must be flexible enough to meet those unique needs. Servicing software must be able to handle the requirements of each payment plan, property type and service operation, such as producing commercial reports, tracking financial transactions, and providing support for asset managers.
4 key features to look for in commercial servicing software
Commercial lenders should choose comprehensive servicing software that includes these four capabilities:
1. Strong investor reporting capabilities. Throughout the years, investor requirements have become stricter for commercial lenders. Lenders must have the capability to develop detailed reports that include loan performance updates and electronically share them with investors. To meet these demands, lenders must have current software that can provide investors with the requested information. When working with borrowers impacted by COVID-19, reporting to the GSEs and investors becomes even more critical as default mitigation programs often have strict requirements to gain or maintain eligibility.
2. Flexible payment options and escrow administration. Lenders need adaptable software to manage a plethora of payment plans and escrow agreements. Loans in forbearance or other loss mitigation plans also require flexible options that allow lenders to effectively manage their portfolio.
3. Asset management tools. Asset managers collect information on loan properties to determine if they can cover their debt service. To produce a report based on this information, asset managers need software that can quickly generate customized reports. Servicers also need to work with distressed property owners to update asset data regularly as they monitor potential revenue losses.
4. Borrower-facing web applications. Commercial borrowers need web applications that allow borrowers to conveniently access their loan information and verify that taxes and insurance have been paid by their lender. Comprehensive web apps allow borrowers to make payments, submit requests, provide necessary loan information, submit new documents, and view existing documents online around-the-clock.
Flexible commercial servicing software benefits lenders and borrowers. The right software saves lenders time and money by allowing them to efficiently manage loan properties, products, and reports. When using the right software, commercial lenders also have the opportunity to strengthen both borrower and investor relationships by retaining accurate data and executing thorough reports.
Flexibility is essential for successful commercial loan servicing. Borrowers want a lender that can accommodate their unique needs. To do that, lenders must have flexible software to handle the variability and complexity of commercial loans. This flexibility is particularly important when lenders and borrowers are facing financial challenges due to volatile market conditions. By choosing the right servicing software, commercial lenders can attract and retain clients, maximize revenue, mitigate default losses, and report accurate data to investors and government agencies.
Sherri Carr is Vice President of Commercial Servicer® Product Development for FICS® (Financial Industry Computer Systems, Inc.), 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. Reach Carr at [email protected].