A LENDER RECEIVES WHAT IT IS DUE WITH PROPER SERVICING - We show how a lender increases earnings on a portfolio by having a professional servicer take over a portfolio.
For this fund manager lender we found three areas that increased yield:
Collection of Stub Interest – We found two loans that had collection of stub interest only to the first of the month rather than through 8 days as specified in the loan documents. This additional stub interest would not have been discovered without a servicer’s diligence.
Interest Calculations – Our client’s law firm kept replicating interest calculation language in the loan documents at a 30/360 rate rather than Actual/360. As an example, using an Actual/360 calculation on a $1 million 10% interest-only loan yields an additional $1,389 in interest annually for the lender. For our lender client this increase in earnings equated to $135,612.
Late Fees – With an automated servicing system used by a professional servicer, complex fees including late fees can be automatically charged on a loan. These fees are often ignored by busy lenders. A best practice is to have the system charge proper fees and waive them if necessary. Collection of one 10% late fee on a $1 million loan can increase yields by over 8 basis points.
Summary – Without considering late fees, just properly collecting the right amount of stub interest and using more lender-favorable interest calculations yielded this client $151,509 in additional earnings. This resulted in an increased portfolio yield of 4.08%. This type of favorable result is a routine occurrence when a professional servicer is engaged.