Many of our current customers that have elected to implement blanket insurance to mitigate the risk of uninsured or under-insured collateralized loans did so from some type of insurance tracking program. Some were tracking internally, and some were outsourcing the function to a third party. Two questions they all had in common as they considered moving to a blanket program were, “How do we make this switch?” and “What kind of work will be involved on our end?”
Have You Reviewed Your REO Insurance Policy Lately?
As the foreclosure moratorium initiated by the CARES Act during the pandemic comes to an end, tens of thousands of distressed home buyers are starting to come out of forbearance agreements which suspended monthly mortgage payments for a year or more for many borrowers. It’s important to note that forbearance agreements do not waive payments, but they must be paid back with interest according to the terms provided by the lender. This will inevitably lead to a significant increase in foreclosed and bank-owned properties in the next year and beyond. Does your financial institution have the proper REO insurance policy in place to weather the storm?
Insurance Salesman. Now that’s probably not exactly what my parents had in mind for me as they sent me off to college many years ago. After over 30 years in the financial services industry, I didn’t see this type of career coming either! A “sales” position in general carries a certain stigma with it. As a lending institution that has relationships with numerous vendors, do you think of your insurance agent and agency as just another vendor or a trusted business partner?
Vendor due diligence is a term used to describe the process a company goes through to determine if a potential business partner “checks the boxes” to be deemed worthy of providing the service(s) desired by said company from a reputation, strategic, compliance and transaction standpoint. While almost all financial institutions have some process in place for evaluating third-party vendors, what happens after all the boxes are checked? Are they just another approved vendor, or are they a trusted business partner? Only time and experience with the vendor will tell.
The last several years have been a whirlwind of change in the banking world, and this trend will only intensify as we move into a new decade. Technology advances are occurring at breakneck speed making it virtually impossible to keep up with. Who really heard of the terms “data analytics” or “cybersecurity” 10 years ago? Now they’re at the forefront of business planning. While the challenges to FI’s will be many, insurance on your loans doesn’t need to be.
Many lending institutions made the decision long ago to outsource the important function of tracking insurance on secured loans including auto, mortgage, and equipment portfolios. From the outside looking in, this sounds like a perfectly logical process enhancement. After all, the very nature of making sure your collateral is insured can be cumbersome for an administrative staff already stretched thin with other duties. Unfortunately, sometimes the best-laid plans end up causing more grief than relief!