Interest rate is the No. 1 priority for most
businesses or individuals seeking loans.
The behind-the-scenes activity — the servicing component — is largely overlooked. If you don’t ask about loan servicing, you may pay for it down the road.
“Business representatives and individual
borrowers alike should ask this one simple
question: If I have questions regarding my
loan, whom will I contact?” says Vincent L.
Cassano, assistant vice president of business
development at Brentwood Bank in Bethel
Park, Pa. If you don’t find out “what’s next”
after signing loan papers, there may be more
at stake than you realize, Cassano says.
Smart Business spoke with Cassano about
loan services and the specific indicators of
quality servicing.
What goes on behind the scenes at a bank
after a loan is approved and processed?
Servicing begins once the loan deal is
closed and documents are signed. It includes
things like: billing you and collecting payments of principal, interest and escrow; disbursing funds from the escrow account to
pay taxes and insurance premiums; and (in
some cases) forwarding funds to an investor
if the loan is sold in the secondary market.
If you have a problem or question about
your loan, you call the entity servicing your
loan. If your loan has been sold, this will not
be the same entity you worked with to close
the loan, since they sold the servicing obligation to another entity. This can be common
when dealing with some larger financial institutions. They seal the loan deal and push the
loan papers through the approval process,
then they sell it off to another company for
servicing. The disadvantage for you is when
you must call an 800 number and track down
a contact person to answer your questions.
Conversely, a portfolio lender processes
the loan transaction, services the loan and,
generally, holds the loan until its maturity.
Your file stays in-house, and as the lender
gets to know you and your business, he or
she can serve as a trusted adviser. In many
ways, it can be like having a private banker.
For you, this means you can associate a
face with a name. When you have a problem
or question, you go back to the source — the
same person who helped close the loan deal.
Other than service continuity, what’s the
advantage of working with a portfolio lender?
Undoubtedly, the biggest benefit is flexibility. If you have unique circumstances that
require special terms, or if you need to modify the terms down the road, the portfolio
lender simply has more latitude to accommodate these (and other) situations. Once
the loan has been sold off, there may be no
recourse. The remaining and more costly
option is to re-finance and start over.
Therefore, the real value a portfolio lender
can provide (in keeping the loan in-house and
providing the servicing) is in the flexibility he
or she has in certain situations. This can be
especially beneficial to a growing business in
a dynamic and competitive marketplace. The
more growth and growing pains you experience, the more ways servicing and flexibility can potentially benefit you as a loan
customer.
What problems can arise for owners when a
loan is sold to the secondary market?
First, when a loan is sold off, it means your
business and/or personal information is circulated. Your file is sold and sent along to the
new entity that will service the loan. Second,
if you need an answer to a question, you contact the servicing company, which will have to locate and research your file. You don’t
have any relationship with this company.
For example, say you’re building an office
and you receive a letter saying that the loan
for your construction financing has been sold
to another company for servicing. This company will then manage payments for escrow
and taxes. There could be interim tax bills,
and if those slip through the cracks as the
loan is transferred, you may get a call from
the tax collection agency.
When a loan is sold, you must rely on the
person on the other end of the line to clear up
any problems or important issues, and he or
she won’t know about your project or your
business. The response time on servicing will
probably not meet your expectations.
Can a business owner be sure that personal
information is safe when a loan is sold to
another company for servicing?
There should not be privacy issues but, in
reality, the more confidential information is
exposed or transferred into the hands of others, the greater the opportunity for something to happen. Identity theft is a significant
concern. Borrowing from a bank that also
services your loan is a way to minimize the
exposure of confidential information, because the file is not being moved around.
Can a portfolio lender accommodate business owners with special needs, such as
multimillion-dollar loans?
You may think that you need to go to a big
bank for a large loan, but, as noted, some of
these big banks sell their loans to other companies for servicing. Many portfolio lenders
are capable of meeting the needs of clients
that require large loans, and their associates
are often involved in every facet of the loan
process, from beginning to end. They originate the loan, help underwrite it, and then
close and service the loan. Thus, they’ll be in
a better position to help you down the road.
VINCENT L. CASSANO is assistant vice president, business
development for Brentwood Bank in Bethel Park, Pa. Reach him at
(412) 409-9000 or [email protected].
