QC: Now Officially Dead?

In 1995, with the advent of automated underwriting systems, I co-authored an article entitled “Is Quality Control Dead?” that appeared in the Mortgage Banking magazine. At that time there was a strong belief that QC was only used to find underwriting errors and with automation taking over the underwriting process there was no need to review these loans. At the time, the agencies, Fannie Mae, Freddie Mac and HUD must have been part of that trend because they made no changes to the existing antiquated QC programs they required for seller servicers.

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Unfortunately, as we all have learned to our great regret Quality Control was needed more than ever. From the turn of the century through 2007 lenders rode roughhouse over the underwriting requirements and triggered the greatest financial crisis since the Great Depression. Even as the QC Committee of the MBA meet with agencies, Congress members and consumer groups asking that they support stronger QC requirements, less and less attention was paid to QC. Despite the white papers developed showing the extent of fraud and documenting proof of what the lack of support for QC was conjuring up in the “magic elixir” that were the subprime ingredients of the collapse, QC was so weak there was no hope that the industry would listen. None of these warnings were heeded. Since then of course, QC has been revived and strengthened and the economists say we are fully recovered.

Yet once again we are hearing and reading about the latest and greatest mortgage program; the digital mortgage. According to the developers and purveyors of these programs, we have once again eliminated the need for Quality Control. These programs and their supporters claim that by using these programs have the capability of electronically validating the information entered by the consumer, running the data through an AUS and providing an approval within minutes. It is only if the loan cannot be electronically approved does it go to a loan officer to amend and approve.

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However, just as in the initiation of the automated underwriting systems, there are opportunities for mistakes inadvertent or otherwise. One of the biggest concerns is the inability to validate the information. While it sounds good, how many consumers are willing to give bank account information on-line, or those who work for small companies that don’t report the information to these on-line employment services. Sure, we can get tax returns, but they are at least a year old and not helpful in giving current income information. How is that validated?

Furthermore, despite the restrictions placed on lenders regarding DTI limitations, product and document types, non-QM loans are thriving. Just today I saw an advertisement for a “new” mortgage type, “No Income, No Employment”. There has also been a myriad of statements from the current political administration that the controls put in place to prevent another crisis will be loosened and/or eliminated in the near future.

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The question then is, can this alternative QC process that leaves numerous loopholes for bad loans to slip through and provides little incentive to do things right, stop another housing crisis. More than likely the answer is no, and because of that, it is likely that Quality Control really is dead. May it rest in peace because the rest of the industry surely won’t.

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Fighting Blight

As we say good-bye to 2017 and we set our sights on 2018 and beyond there are always a number of articles on predictions for the New Year and trends that will be taking place. This not only occurs on a grand consumer scale, but also in niche industries such as asset and default management.

In 2017 we experienced historically low foreclosure rates with many industry experts predicting those levels to remain pretty constant in 2018. With so much talk and articles being written about foreclosures reaching historical lows, many people falsely believe that our work is done. This is one thought and trend that could not be further from the truth.

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Foreclosures are still taking place, individuals are struggling to pay their taxes, and communities are forced to deal with vacant properties and the negative impact they have on our communities. Yes, we have come a long way over the past couple of years- but our work in helping restore communities is far from over.

Blight is real and continues to plague communities nationwide. Municipalities across the country are working to turn the page on the housing market collapse and address the ongoing concerns of community blight. The negative impact has been well documented that blight has on communities. These include: abandoned buildings and vacant properties, which create opportunities for crime, violence, drugs and other illegal activity.

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Blight has additional adverse effects on communities besides crime, such as a decline in property values, lower tax base and heavy burdens on the resources of municipalities. These challenges are real and will not go away just because foreclosures are declining.

The goal in 2018 is to make these communities Safe, Sound and Secure. It starts by helping to restore these communities one property at a time. To accomplish this, there needs to be collaboration amongst mortgage servicers, municipalities, local governments, policymakers, state and federal regulators, contractors and vendors who have boots on the ground and the individuals living in these neighborhoods.

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It is clear that a “one-size-fits-all” approach to blight doesn’t work. There are some over-arching strategies such as clear boarding, improved vacant property registration, and new regulations from Fannie Mae and Freddie Mac that can be applied across the country to help reduce blight.

The key to successfully fighting blight is collaboration between the parties listed above to create individualized community programs- that increase awareness of blight, leverage skills and expertise, and pull together resources for the common good.

As we close out 2017 and prepare for 2018, let’s not forget that there is still a great need to come together to fight and eliminate blight in our communities.

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Data Shows That The Median Down Payment Is Rising

Data from ATTOM Data Solutions shows that the median down payment for single family homes and condos purchased with financing in the third quarter was $20,000, up from $18,161 in the previous quarter and up from $14,400 in Q3 2016 to a new high as far back as data is available, Q1 2000.

The loan origination report is derived from publicly recorded mortgages and deeds of trust collected by ATTOM Data Solutions in more than 1,700 counties accounting for more than 87 percent of the U.S. population. Counts and dollar volumes for the two most recent quarters are projected based on available data at the time of the report (see full methodology below).

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The average down payment of $20,000 was 7.6 percent of the median sales price of $263,000 for financed home purchases in the third quarter, up from 7.1 percent in the previous quarter and up from 6.1 percent in Q3 2016 to the highest level since Q3 2013 — a four-year high.

“Buying a home has become a full-contact sport in many markets across the country, and buyers with the beefiest down payments — not to mention all-cash buyers — are often able to muscle out those with scrawnier savings,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “Despite the increasingly competitive nature of homebuying, the number of residential property purchase loans nationwide increased to a 10-year high in the third quarter.”

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The median down payment was more than $50,000 in 12 of the 99 metropolitan statistical areas analyzed in the report, led by San Jose California ($247,000); San Francisco, California ($170,000); Los Angeles, California ($118,000); Oxnard-Thousand Oaks-Ventura, California ($105,000); and Boulder, Colorado ($99,900).

“Across Southern California factors such as low available listing inventory have resulted in many consumers turning to cash or leveraging investment accounts for cash as alternative methods for funding home ownership and beating out competitors for acceptance of their purchase offers in a highly competitive market,” said Michael Mahon president at First Team Real Estate, covering the Southern California market.

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Other markets with median down payments above $50,000 were San Diego, California; New York, New York; Fort Collins, Colorado; Bridgeport, Connecticut; Boston, Massachusetts; Seattle, Washington; and Naples, Florida.

“Rising home prices in the Seattle area combined with changes in the mortgage underwriting process have pushed the median down payment over $50,000 and the average down payment to over $100,000,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “We’ve also seen an increase in new mortgages which is an indication of rising home sales. Most interesting to me is the big jump in new lines of credit which is likely a result of frustrated buyers deciding to stay in their existing homes and remodel rather than deal with the highly competitive Seattle housing market.”

Mortgage Marketing Trends For 2018

At this time of year there are a number of articles that focus on the key trends in a certain discipline or industry for the coming year. I found some interesting articles on marketing trends for 2018. Here is what some of the predictions included.

In an article entitled “5 Trends Marketers Need to Prepare For In 2018” by AJ Agrawal, CONTRIBUTOR to Forbes, he states.

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1.) Establishing A Conversation

In 2018, look for marketers who are doing more than ever before to generate high-quality, relevant content and optimize their sites to encourage users to participate in the content they share. Marketers will need to find ways to connect more authentically and leverage social listening to strategize successfully in the new year.

2.) Short Planning Cycles

When it comes to marketing strategy, it’s important not to get too far ahead of yourself. Consumer tastes change frequently, so businesses can’t put all their advertising eggs in one basket. Kate Sayre, global head of consumer goods strategy at Facebook, explains that when it comes to marketing, the only real constant is change: “We do six-month planning cycles at Facebook because we don’t know the future. A lot of it is driven by the consumer.”

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3.) Contextual Marketing

Contextual marketing is driven by the insights afforded by big data, including market and customer analysis and predictive analytics; understanding the context in which consumers seek to engage with your brand can help you determine customer intent and drive conversions. Contextual marketing is the future of marketing, as consumers continue to demand greater personalization online.

4.) Purpose Driven Purchasing

As much as 79 percent of consumers would prefer to purchase products from a company that operates with a social purpose, and high-performing marketers are more than two times more likely to be leveraging purpose-driven marketing methods.

5.) Artificial Intelligence and Machine Learning

“In 2018, chatbots will become a far more common solution for brands wishing to serve their customers in a smarter and more cost-effective way,” explains Matt Navarra, director of social media at TheNextWeb. “With AI now being easier to integrate into various tools and services, chatbots will become far more useful and personalized with each interaction it has with users.” Artificial intelligence will also help to power big data interpretation and analysis, making it possible for startups to glean greater insight from the information collected.

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AJ’s predictions got me thinking about what which marketing trends the mortgage industry will see in 2018.

>>Content is Still King. You must be able to create and deliver highly relevant content when and where your potential borrower is ready to consume it. The content must be specific to that individual and help them along their specific home buying journey.

>>Big Data and Analytics. There is an enormous amount of data available about your potential borrowers. The lenders that can best utilize this data and turn it into meaningful content can engage with potential borrowers before they begin shopping around for the best mortgage rates.

>>Mobile. Mobile is not just important in delivering on the digital mortgage, it actually begins when the potential borrower begins their housing search. This usually starts on mobile devices; therefore, your mortgage marketing must be mobile and highly engaging to capture their attention and to keep them engaged.

>>The Need for Print & Digital. While more and more of today’s borrowers are starting their searches online and looking for a digital mortgage experience, what we have found is that the most engaging mortgage marketing campaigns combine both print materials that are highly personalized to that specific borrower and digital marketing. Because so many people are getting inundated with emails and digital ads, combining strategically placed print with your digital campaigns truly captures the attention of the borrower.

>>Marketing Automation. The days of lenders using their outdated CRM or email marketing tools to drive business are long gone. With big data, analytics, the need for personalization, and the need for event triggers to send highly targeted marketing materials at the exact time the potential borrower will consume them requires sophisticated marketing automation.

 What mortgage marketing trends do you think lenders are looking to incorporate in 2018?

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Can Older LOs Really Serve Younger Borrowers?

STRATMOR Group, a mortgage industry consultancy, released the December edition of its STRATMOR Insights Report.  This month, the company draws upon aggregate results from four years of STRATMOR’s Originator Census Survey to address the belief held by some in the industry that loan officers (LO) today are too old to meet the needs of younger borrowers, particularly the much-sought-after Millennial homebuyer. According to STRATMOR Senior Partner Jim Cameron, the perception that loan officers, as a group, are “old” and borrowers aren’t satisfied with their LO — at any age — isn’t reality.

“There’s a concern expressed by many lender CEOs that their loan officers are getting too old for the borrowers they need to serve,” said Cameron. “Many believe that the average LO is 52-55 years old, that the LO’s age makes a difference in his or her productivity and that younger borrowers — like Millennials —would prefer dealing with an LO closer to their own age. The data just doesn’t support this view. STRATMOR’s Originator Census Survey, covering thousands of LOs working at both independent and bank-owned lenders, shows both the average and median LO age to be between 46 and 47 years old. That’s about four years higher than the median age of all American workers, but just two years higher than financial industry workers. Likewise, the data shows that age has no discernible impact on an LO’s ability to produce.

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“Looking at things from the borrower side, we see some interesting findings as well,” Cameron added. “The average age of a purchase borrower is just under 43 years old — hardly an impassable age difference from that of the LO. If we take first-time homebuyers out of the equation, that average age climbs to 46, right on par with the LOs themselves. Loan officer age doesn’t seem to matter to borrowers, either — not even Millennials. Based upon borrower satisfaction data from STRATMOR’s MortgageSAT program, there is little difference in satisfaction levels, regardless of the age of the borrower. The story here is that, like much of corporate America, the mortgage industry is facing an aging workforce and as an industry, we need to be bringing in younger talent to become the knowledgeable, dependable loan officers that serve borrowers of all ages.”

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Cameron goes on to note that lenders must develop better tools and techniques for attracting and developing new originator talent and retaining existing talent. The alternative is to grow market share by cannibalizing successful LOs from other lenders. This “business-as-usual game of musical chairs” often involves costly signing bonuses and guarantees, a situation that is obviously beneficial to LOs, but not for lenders. “If current trends continue and consumer direct and self-service origination technologies become dominant long-term for both refinance and purchase originations,” Cameron says, “The problem may simply go away, with LOs losing the market power and leverage that they have today.”

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Click here to download the December 2017 edition of STRATMOR Insights for much more. To sign up to receive the report each month, please click here.

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Giving Your Customer Experience Wings

While life in the drama, “It’s a Wonderful Life,” may have been wonderful for the Baileys back in the day, jump ahead many decades and Uncle Billy and Mr. Potter are the least of George’s worries at the Building and Loan. George’s biggest concern would likely be keeping up with the Joneses, in today’s competitive mortgage marketplace. Today’s mortgage consumers have ever-evolving customer experience expectations that are expensive to deliver, and survival will take a lot more than some divine intervention from Clarence Odbody.

Mortgage consumers, their real estate professionals, and their loan originators have a common goal: a smooth and efficient process that results in a timely closing. This process creates a good experience for all parties involved. Most regional banks and successful non-depository mortgage lenders have mastered the art of personal customer service, but today, everyone involved expects a high level of communication and technology throughout the process. An emphasis on service and technology is critical to attracting new customers and even more important to retaining a customer base as well as talented loan originators.

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Bringing that necessary technology to the market requires that lenders streamline and improve internal processes and offer self-service technology and multi-device functionality to consumers. These efforts require resources as well as a dedicated and experienced staff to execute. There are some lenders that are not keeping up. Not for lack of want or need, but simply because the current marketplace and the return might not warrant the investment.

After investing heavily in the staff, processes, and systems to meet the regulatory challenges posed by guidelines like TRID, many banks and non-depository lenders find themselves needing technology to enhance the customer experience and maintain market share in what has been an increasingly competitive mortgage market place. While there are the behemoths rocketing the online consumer experience into the future, there are also a few other players delivering big gains in technology and process enhancements to the customer experience. It is proof of the “technology” concept.

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So what do you do when investment seems impractical but necessary?

A consumer relationship is a hard-earned, expensive proposition for any lender, be it a bank or non-depository lender as consumers are increasingly being enticed by the shiny concept of “technology.” In addition, finding and retaining the most productive sales staff is equally as challenging and expensive – you cannot let quality employees go.

Okay, are you ready for a financially viable option?

It’s simple – outsource your technology, processing, underwriting and closing functions.

The revelation of outsourcing might bring a gasp of disbelief, rather than a ringing of a bell, but this is not a new proposition. The question remains – can you trust anyone else to maintain your expected service levels while adding technology and remaining compliant?

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Two banks that are ranked the highest in customer satisfaction in New England by JD Powers and Associates for 2017 did just that. They outsourced their technology needs and they outsourced their processing, underwriting, closing and secondary market functions. They did this while improving market share and their compliance posture, all while maintaining their award-winning customer service levels. These banks gained immediate market advantages and did it without making a capital investment in mortgage-related technologies.

So, it is possible to keep up with the Joneses in this race for mortgage technology that could be likened to putting a man on the moon, all while maintaining the personal service levels that have built your brand. It’s just a matter of finding the right partner.

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Use Content To Get New Business

Everyone wants to succeed in 2018. How do you make that possible? One way is content marketing. In the article “How To Move Customers to Buy With Content Marketing” by John White he says that solid content marketing strategy is critical to your company’s success.

How do we make more sales? Companies everywhere are asking themselves this most basic yet fundamental question as the new year approaches.

Consumers are greater informed, and they have more choices on how to spend their money than ever. Getting them to buy your product or service takes some serious skill.

To get them to buy, you need to move them to take action.

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Your content should be attractive to get people’s attention. This can be achieved by having eye-catching visuals in your content. Another way to do it is by crafting a show-stopping headline that will make them stop scrolling and click.

Then, to keep their attention, your content must be compelling, and it needs to educate the buyer about something new and exciting. People love to learn. If your content lacks value and is nothing more than a pitch, it will turn most buyers off.

Buyers want to make a connection with the companies they do business with. So humanize your brand with your content whenever possible. Use storytelling with real examples of how your product or service solves actual problems and improves lives.

Research over the years has consistently shown that emotional response has more influence on buyer’s behavior than the claims made within the content. In other words, if people aren’t feeling it, they’re not buying.

Your content should make buyers begin to envision themselves using your product or service. This is a critical step, and if you don’t get past it, you won’t make a sale.

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Next, consumers want to know how the product or service gets delivered to them. If you are selling a furniture set and part of the visual people get when envisioning buying is them spending their entire weekend assembling it, they will not be moved to buy. Make sure that your content reassures buyers that the setup will be quick and easy, and that it won’t cause significant disruption to their lives!

Buyer advocacy is one of the best ways to get others to make a purchase. Encourage your existing customers to comment on your content. We all know that FOMO (fear of missing out) is a massive trigger for buyers these days. When your existing customers comment, it validates the claims made within your content.

While price alone is not enough to make people buy these days, they do want to feel like they are getting a good offer. Your content should make the buyer feel like they are spending their hard-earned money wisely.

Remember, there are lots of places people can buy. You don’t want to warm them up to the idea of buying your product or service only to have them shop around because the offer you presented did not make them feel good about spending their money.

Your offer should have a little bit of scarcity associated it with it. In other words, after consuming your content, buyers should feel like your company is the industry-leading expert and they can’t get exactly what you are offering them anywhere else.

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Always be thinking about SEO with your content marketing. Create content that is written for SEO using strategic keywords placement within the content that buyers are likely to use when they do a search online. When someone goes to Google or Bing, they have intent and an expressed interest in your product or service.

Creating fresh content that tells your company’s story is the best way to connect with buyers in today’s market. Your content marketing is what makes your business discoverable on the Internet, and getting it right is vital to your success.

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New Mortgage Industry Search Engine Seeks To Revolutionize The Sourcing Of Vendor Partners

Vendor Surf, LLC, a mortgage industry technology company located in St. Louis, Missouri, has launched a new search engine, www.VendorSurf.com. Vendor Surf encompasses the entire mortgage ecosystem – from originations through secondary markets – and features an industry-wide vendor directory that supports virtually all industry roles and departments.

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Unlike other search engines, Vendor Surf has custom filters that span 75+ different vendor categories which can be used to narrow down the field to only those value-added partners that best answer the unique requirements of individuals. Searches, which are free, are comprehensive in that vendors are identified from all industry categories on a single site. The filters, in turn, pinpoint specific vendors based on a variety of qualifiers, such as loan type, product, service, location, etc.

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In addition, Vendor Surf works as a single educational resource, allowing searchers and directory vendors to promote events, white papers, trade shows, webinars and trainings. It includes “My Dashboard” that lets searchers track their history of vendor profiles viewed and bookmark them for later reference, a “Solution Showcase” that highlights the very latest industry innovations, and weekly polls to gauge what mortgage professionals think about pertinent issues that are impacting the industry.

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Scott Roller and Craig Leabig, Co-Founders of Vendor Surf, have designed a search engine that makes finding value-added business partners easy and efficient, putting searchers in control of desired filtering criteria.  “We clearly understand the many challenges, so we wanted to create a solution that truly revolutionizes the way vendor partners are sourced in terms of the depth and breadth of the online searches conducted,” Roller said. “We view Vendor Surf as a game changer not only for those searching for the perfect vendor, but also for the vendors who are listed on the site. It’s a strategic advantage for them to be listed on Vendor Surf as it is a means to differentiate their businesses while reaching a broad, new universe of potential customers,” Leabig added.

Vendors who would like to create a profile may do so by going to www.VendorSurf.com.

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Refunds: Whose Money Is it?

The fourth quarter is the busiest time of the year for tax payments. Borrowers want their taxes paid by year end for tax purposes, which creates a mad rush to pay, pay, pay. The title company pays, the lender pays, the borrower pays and/or the third party pays. All of these different sources of payments could ultimately lead to refunds. Those refunds mean the servicer is faced with refunds and the time consuming task of conducting research to determine who the money belong to.

Let’s take a closer look at a few factors around refunds including what causes a refund; what effect do they have on the servicer; and what can be done to prevent them.

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There are several factors to consider when determining what causes a refund. One of the primary causes of a refund is when more than one person or entity pays taxes on the same parcel and for the same tax year; this results in a duplicate payment. In some cases, the borrowers are not educated about who is responsible for paying the tax bill. So when they receive a copy of their tax bill, they will pay it and at the same time, the lender has paid it. Therefore, the tax agency may apply the first payment received and return any payments later received. Or they may apply the additional payment to the next installment or they deposit the funds and require a refund request to get them back.

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Another scenario that could cause a refund situation is the initial set up of tax line data on an escrowed loan. Generally, tax lines are set up according to the closing documents. If the documents show that taxes will be paid at closing, then the tax line would reflect a future date to avoid a tax payment. If the line has a current date indicating the taxes are due and the servicer pays them when in fact they were paid at closing, the result is a duplicate payment and the need for a refund.

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Yet another scenario that could create an overpayment is tax exemptions that could cause a decrease in the tax amount due, especially if the tax bill was paid and it was not reflected as tax exemption, which would cause an over payment. Paying the incorrect amount based on human error when keying an amount to pay or an error with the agency reporting an incorrect amount could require a refund as well. If the incorrect amount paid is more that the tax bill, it would create an overpayment possibly resulting in a refund or the agency may choose to simply apply the overpayment to the next installment. This could create a problem for future installments if the agency does not provide a notification that funds were posted to the next installment. When the next installment is due, the full amount would be paid, again creating yet another overpayment.

While over payments may not seem like a big deal, there are some serious effects refunds have on the servicer. For example, the amount of research involved to resolve the refund is costly. The servicer must contact the agency to determine what caused the refund, duplicate payment, overpayment, etc. Then the servicer needs to verify if the intended parcel matches the borrower’s name and address. The taxing agency should be able to advise who made the payment, whether it was title company, borrower, third party, etc. And if the servicer is requesting a refund, it has to provide proof of payment. Very few agencies automatically refund overpayments. Most agencies require a refund request be provided along with proof of payment.

Other time consuming and costly activities that are often prompted by refunds are an escrow analysis of a borrower’s account and additional resources in the call centers as activity generally increases due to borrower inquiries regarding refunds.

There are ways servicers can prevent or reduce refund volume including:

>>Establishing rules with closing agents regarding the payment of taxes,

>>Reviewing tax line due dates with closing agents to ensure business rules are well documented to prevent the duplication of tax payments,

>>Conducting an audit on new orders to ensure tax lines are built correctly to avoid duplicate payments,

>>Performing root cause analysis of refunds and addressing the findings,

>>Educating borrowers to understand what tax bills they should or should not pay, and

>>Advising borrowers to always examine their property assessment.

Left uncheck, taxing authorities could take months to acknowledge duplicate payments let alone sending a refund. This could create the need for additional research on the part of the servicer and will increase customer inquiries from borrowers. Being vigilant in addressing the cause of refunds can save a company time and money as well as build confidence among borrowers.

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