The mortgage industry has expanded from two main sources for more than a decade. The first and more conventional form is the organic expansion brought on by the creation of new loans. The second approach, which is gaining popularity, is expansion through purchasing businesses or acquiring loan portfolios.
One side purchases a group of loans, while the other transfers ownership as loan portfolios are traded. After the new servicer buys the new loan portfolio, there is some risk transfer with this transaction. To reduce these operating risks, it will be difficult for the portfolio buyer to identify the “high-risk” loans at the moment of ownership shift. A new strategy has been devised to address these issues and overcome this industry challenge, known as “portfolio cleansing.”
Here, a thorough property tax dataset is utilized to determine if there were any confirmed delinquencies on the accounts at the time the tax records were modified upon the transfer of loans. At that moment, taxes can be acquired and paid for future delinquencies, proactively correcting the accounts. Instead of waiting for the borrower’s inquiry to be answered or until the next tax cycle, this strategy enables portfolio purchasers to get paid sooner.
Tools are made available for the servicers’ needs under portfolio cleansing, including:
- Identifying high-risk accounts based on loan characteristics and history
- Finding and fixing ownership and delinquency problems while onboarding the portfolio
- Resolving current unpaid property taxes to enhance the borrower’s experience
- Reducing the possibility of unrecoverable assets and the amount of accumulated interest and penalties
Click here to read more on the portfolio cleansing approach for loan servicers.