Solutions

Share on facebook
Share on twitter
Share on linkedin

Portfolio Cleansing – An Ounce of Prevention is Worth a Pound of Cure


The mortgage servicing industry landscape is shifting. Over the past decade, the industry has experienced growth from two primary sources. The first, and more traditional source, is organic growth through new loan originations. The second method, which has become increasingly more common, is growth through either loan portfolio or company acquisitions. This shift is happening because of the increased willingness of private investors to invest in servicing and the government sponsored enterprises’ focus on reducing their footprint. This can cause problems for servicers in instances where loans are acquired with unknown, pre-existing property tax delinquencies missed in the due diligence phase.

What risks are incurred through the acquisition of a loan portfolio?

Under the second method mentioned above (growth through acquisitions), loan portfolios change hands, where one party acquires a set of loans while the other transfers ownership. With this exchange, there is an element of risk transfer for the new servicer after acquiring the new loan portfolio. Some of these risks include:

  • Minimum due diligence on a new loan population incurred from the previous servicer
  • “Pre-existing” conditions (e.g. tax sale critical items) within the loan portfolio that can lead to unrecoverable or lost properties, or large penalty/interest payments
  • Borrower dissatisfaction and erosion of borrower confidence
  • Limited time to collect or recover loss from the prior servicer

What is portfolio cleansing?

The challenge for the portfolio buyer is to identify the “high-risk” loans at the time of the ownership change so they can mitigate these operating risks. To resolve this industry challenge, a new approach has been identified to address these concerns— portfolio cleansing. Under the new approach, tools are provided to support servicers’ needs. This includes:

  • Pinpointing high-risk accounts based on loan history and attributes
  • Identifying and resolving ownership and delinquency issues at the time of the portfolio onboarding
  • Remedying existing delinquent property taxes, thereby improving the borrower experience
  • Reducing the risk of unrecoverable properties and decreasing penalty and interest accrued
  • Securing quicker delinquency payments to recover loss from the prior servicer

What does the portfolio cleansing process look like? 

Upon the transfer of loans, a comprehensive property tax dataset is used to identify if there were any known delinquencies on the accounts at the last time the tax records were updated. At that point, potential delinquencies can have taxes procured and paid so the accounts are proactively remedied. This approach helps portfolio buyers get paid sooner rather than waiting for the borrower inquiry to respond or until the next tax cycle.

To illustrate the power of the approach, CoreLogic tracked the results of a national prime lender use case for the portfolio cleansing methodology. Click here to learn more about the expected benefits and return on investment for the lender.

© 2020 CoreLogic, Inc. All rights reserved.

Share on facebook
Share on twitter
Share on linkedin
Get The Latest Updates

Subscribe To Our Newsletter

By submitting this form I agree that CoreLogic may contact me at the email address I provided for information about products, services or insights. I understand that consent can be withdrawn at any time by clicking the unsubscribe link contained in email messages.

Most Recent

Related Posts

Header Loan performance
Find Stories

Loan Performance Insights

Introduction The CoreLogic Loan Performance Insights report features an interactive view of our mortgage performance analysis through July 2021. Measuring early-stage delinquency rates is important

Header Intelligence Houses
Buy Stories

Potential Hotspots for Distressed Sales

While many consumers are planning to buy homes, cars, and major appliances, there are still about 2 million homeowners behind on their mortgage payments and/or in forbearance programs.

Appraisal

What’s the Secret to Increasing Appraised Value?

In this episode, host Maiclaire Bolton Smith is joined by the Appraiser Coach, Dustin Harris. He discusses the value of truth, the impact of appraisal bias and reveals the secret to increasing the appraised value of a home.