20 Hacks for 2020: Loan Operations and Credit Management 20 Hacks for 2020.pdfOptimizing Operations and ... training webinar so that new employees going forward have it as a quick

20 Hacks for 2020: Loan Operations and Credit Management

Specialized for Community and Regional Lending Institutions

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Optimizing Operations and Reducing Risk in 2020

After 30 years and counting of supporting community and regional

financial institutions, you tend to accumulate a few tips and tricks. In

that spirit, we’re passing along to you our 20 best hacks for 2020 for loan

operations and credit management teams.

We know these hacks work because we’re seeing them in practice every

day at the more than 200 lending teams that we support.


Contents

1. Fortify Against Recording Rejections

2. Prepare For Scale

3. Reduce Training Load

4. Shared E-Mail Addresses

5. Create A Commercial Renewal Assembly Line

6. Robot Everything, Including Reports

7. Careful With The Roboting

8. Recheck Vendors For This Consideration

9. Ordering? If It’s Not Like Amazon, It Should Be

10. Be Ready For Manual Flood Determinations

11. Confirm Your Lien Position

12. Adopt Valuation Rule Changes (Or Get Left Behind)

13. Careful With Credit Reports

14. Vendor Scale—Are You Properly Matched?

15. Need Support? If It’s Like Big Business, You Might Be In Trouble

16. Portfolio Monitoring Means Collateral Monitoring

17. Streamline Stat Fees

18. A Question When Approving Invoices

19. Gain Leverage With An ‘Option B’ At The Ready

20. E-Recording Is A Blessing. Except For This…


No. 1: Fortify Against Recording Rejections

The Problem: Few things can thwart a smooth loan documentation process quite like a recording rejection. Between your institution’s growth into new counties, employee turnover, and changes in requirements at different jurisdictions, preventing these rejections can be a sneakily daunting task.

The Solution: Documentation, documentation, documentation. Get your workflow process centrally documented—this way universal changes can be noted once and your team can check the central resource document for guidance. Here’s a quick tip: for those stubborn recurring causes of rejection, stamp them out with a basic checklist. We use a checklist here at SearchTec for our lender clients. Some of the items we’re always double-checking are: 1) verifying that the names match the signatures and acknowledgment, 2) checking for any unique requirements for that jurisdiction, 3) checking that the notary stamp is legible, active, and proper, 4) verifying the accuracy of the parcel number, book, and page, and 5) generally examining the document for legibility and clarity.

Key Question: Are you tracking your recording rejection rate? Are you comfortable with this rate? Is it moving up or down?

The Win: Your Time

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No. 2: Prepare For Scale The Problem: Loan and credit due diligence operations are difficult—but not impossible—to scale.

The Solution: If your institution is on the hunt for a new acquisition, or organically expanding with new branches, finding solutions to scaling is not an option, it’s a must. Many functions, such as county-level public records research and document recording quickly become more complex as your geography of coverage grows. In these cases, be on the lookout for county-focused service providers, often law firms and title agencies. Similarly, re-evaluate county-focused work done by employees. Reconsider how these functions are completed. One area that can often be optimized is non-origination workflows that follow origination-oriented solutions. Specifically, commercial renewals and portfolio monitoring. Your operational pipeline for that work can likely be standardized with a service provider scaled to accommodate your full footprint. Similarly, some tasks, such as UCC research, might be doable internally on a smaller scale, but become unwieldly with growth.

Key Question: What tasks in your operations are inflexible to change? Is there a better way to accomplish these tasks so that the next time your institution grows you’re prepared?

The Win: Reduced Risk

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No. 3: Reduce Training Load

The Problem: In this economy financial institutions are growing, but employee retention has never been more challenging. This results in a double-whammy for managers struggling to keep their operations routine and optimized.

The Solution: Document, document, document. But also, video! It’s never been easier to document workflow processes with screen-recording software. Your vendors should be your partners in this endeavor. Do they remain at-the-ready to provide refresher training? And can they provide you with a customized video-recording of how your institution should be utilizing their service? This might sound like a luxurious feature, but in reality it’s as simple as recording a training webinar so that new employees going forward have it as a quick and easy reference.

Key Question: Can your service providers provide you a brief, customized training video for how your institution can best utilize their service?

The Win: Your Time

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No. 4: Shared E-Mail Addresses

The Problem: Communication. Every month seems to bring a shiny new app or software designed to “solve” communication problems within institutions and between institutions and their service providers.

The Solution: It’s not shiny, but shared e-mail addresses can work like a magic bullet for the right process. For instance, at SearchTec, we love to provide client-dedicated e-mail addresses (i.e., [email protected]). Clients love the simplicity, and we love the ease of getting the right eyes on the right message. Similarly, we recommend our partners create group e-mail domains. For instance, what if you add a new employee of your Recording team? Well, if they’re added to the [email protected] e-mail group they can now see all new recording notifications that get directed to that domain. Easy!

Key Question: Are there any tasks that you currently perform that require a frustrating round-robin of communication? Could a group e-mail domain be a big step towards simplifying this problem?

The Win: Your Time

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No. 5: Create A Renewals Assembly Line

The Problem: The complex origination process for commercial loans often leads to an unnecessary culture of complexity in the renewal phase.

The Solution: Think of commercial renewals as an entirely different assembly line from the origination process. Due diligence processes that may have been tied to the original documentation process are not optimized for the simple-by-comparison update needed for renewals. For instance, retrieving information such as mortgage and deed details, or identifying any new judgments or liens. For this reason, tasks that might have been completed by a law firm or title agent in the origination could be re-directed to a much more specialized public records-focused vendor. This can translate to reduced costs, an easier method of retrieval, and increased turnaround speed.

Key Question: Is your commercial renewal process stifled by origination-oriented solutions?

The Win: Cost Savings

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No. 6: Robot Everything, Including Reports

The Problem: Complexity breeds complexity. Financial institutions are continually fighting against the complexity of geographical nuances. Different jurisdictions require different processes. As much as possible, this should not be experienced internally.

The Solution: Make incoming reports to your loan and credit operations team as standardized as possible. If a report on tax delinquencies or property information looks different from one county to another, your team is bearing the burden of this complexity and therefore more likely to miss noticing potential items of concern. The most elegant solution here is often as simple as consolidating overlapping services to your best vendor. Even if that means paying a slight premium for a vendor that can accommodate your full footprint on their own, you will more than save by making your process more standardized, and as a result, more loss averse.

Key Question: Think of the reports your team reviews—does the format vary on a loan-by-loan basis? Does it need to? Would a standardized report simplify the process?


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No. 7: Careful With The Roboting

The Problem: Databases can give the appearance of being the height of optimization, when in reality they are exposing your institution to significant risk.

The Solution: This is meant as a friendly word of caution to our advice on “roboting everything.” One potential pitfall of this approach is “optimizing” to the point of diminishing returns. When it comes to relying on databases for collateral monitoring, this can easily become the case. If you’re making renewal decisions based on outdated information, you could be exposing your institution to significant risk. For instance, what if a relevant new lien has been added to the public record since the database you’re relying on was last updated? When using database information, be sure to double-check on how often the database is updated, and consider if you can tolerate the potential gap in current information. Bottom line, when it comes to decisions on how you manage loans in your portfolio you likely want to be relying on service providers or employees that are actively searching the public record for the most current information available.

Key Question: Are you relying on databases for any aspect of your loan and credit decision making? If so, how routine are these databases updated?


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No. 8: Recheck Vendors For This Consideration

The Problem: Your needs are changing, but your vendors aren’t changing with your needs.

The Solution: Vendor review does not need to be a boring-but-necessary function of operational housekeeping. If you have decision-making power over an area of your institution’s service providers, you hold perhaps the single greatest tool for achieving new optimizations. As institutions grow and evolve, their service needs change as well. However, over time this can result in an island of misfit toys, with vendors performing tasks they’re simply not designed to be performing. So what’s the one consideration that can serve as a clarifying agent in identifying which of your service providers are now an ill fit? Geography. If you’ve grown into juggling a variety of locally-focused providers, it is likely time to find a regional solution that can accommodate your full footprint. Likewise, you may be unnecessarily relying on national providers for services like judgment and lien searches. Those providers are likely heavily reliant on subcontractors and, as a result, their fee structure makes the most sense for large national banks.

Key Question: Are you relying on national vendors scaled to national banks? Conversely, are you juggling an array of local vendors scaled to smaller institutions?


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No. 9: Ordering? If It’s Not Like Amazon, It Should Be

The Problem: In 2020, if your order systems aren’t following an Amazon-like workflow, you’re falling behind. Your team should be focused on processing and reviewing loans, not ordering supporting services.

The Solution: The solution here is quite simple: don’t tolerate sluggish order systems. What are you currently ordering with arduous one-at-a-time e-mails that could easily be completed with no back-and-forth via a streamlined online order system? Loan origination systems are built on this concept, yet several loan and credit functions, particularly for commercial portfolios, can still require e-mail ordering. This may seem like a minor concession on a day-to-day basis, but in the aggregate you’re wasting hours of productivity every month. If you’re relying on service providers that require you to e-mail orders, request a more streamlined system that mirrors Amazon’s one-click functionality. If they can’t accommodate this basic-in-2020 functionality, they’re telling you they’re not prepared to evolve their best practices. It’s time to find a provider dedicated to making your order process as simple as possible.

Key Question: Are any of your order processes reliant on e-mail? Do they really need to be?

The Win: Your Time

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No. 10: Be Ready For Manual Flood

Determinations The Problem: Flood zone determinations can appear to be a very straightforward task. However, it only takes one difficult determination (e.g., a property within 250 feet of a flood zone designation) and one tight timeline to make you rethink this assumption! Bottom-line, you want to be prepared to make a manual flood zone determination quickly and definitively.

The Solution: There are two ways to protect yourself from landing in the difficult situation detailed above. If you are relying on a database service for your flood zone determinations, have clear procedures in place so that you can perform a manual determination internally. Alternatively, you can team with a service provider that already incorporates manual determinations for those instances when a determination cannot be definitively made by a database.

Key Question: Does your current flood determination provider offer a manual determinations when needed? If not, is your team prepared to make a manual determination when necessary?


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No. 11: Confirm Your Lien Positions

The Problem: Most seasoned loan and credit operations professionals have a few painful anecdotes about an institution missing a lien position it should have had. A common culprit of this unnecessary risk-exposure is not verifying that your original recording was properly recorded in the public index.

The Solution: Verify, verify, verify. An “update” or “verification” public records check should be inexpensive, but could save your institution thousands if a mis-recorded loan goes bad. For this reason, be sure to add a verification search to your recording process. Thirty or sixty days after you’ve recorded a loan, a verification search and review should be standard operating procedure to be sure that your lien position is secured as intended.

Key Question: Are you verifying that your recordings are properly reflected in the public record?


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No. 12: Adopt Valuation Rule Changes (Or Get Left

Behind) The Problem: In the past two years valuation rule changes for financial institutions have quickly come to fruition. Regulators have proposed or passed increases to the appraisal requirement thresholds for banks’ residential lending, and credit unions’ residential and commercial real estate lending. For community and regional institutions, these changes can be challenging to incorporate quickly and efficiently, potentially giving larger institutions a competitive advantage.

The Solution: Community banks and credit unions are unlikely to be the trailblazer institutions in transitioning from appraisals to valuations. However, don’t let your institution wait too long to make this change. Valuations are much more cost-friendly than full appraisals, and institutions making the most of these changes will gain a competitive advantage over their slower-moving peers.

Key Question: Do your valuation procedures reflect the current threshold levels? Are you utilizing cost-effective AVM reports as part of your valuation process?


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No. 13: Careful With Credit Reports

The Problem: On July 1, 2017 the three major credit bureaus implemented their National Consumer Assistance Plan. In tightening their reporting standards, these bureaus chose to no longer show civil judgement and tax lien information. This is key information for lending institutions to include in their credit worthiness decision-making. As the full implementation of this change was gradual over many months, it could have easily flown under the radar of community financial institutions. As a result, today many lenders have still not yet fully updated their judgment and tax lien order and review process in accordance with the change.

The Solution: In light of the reporting changes detailed above, reconsider your civil judgment and tax lien review process with fresh eyes.

Key Question: Are you seeing all the judgment and tax lien information that you need to be aware of to make the most informed decision possible?


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No. 14: Vendor Scale—Are You Properly Matched?

The Problem: For community banks and credit unions, finding the sweet spot for service provider size and scope can be a precarious balance. As your institution grows, as best practices change, and as new solutions come into the market, there always seems to be cause for a fresh review.

The Solution: A piece of low-hanging fruit for any lending or credit manager looking to achieve new efficiencies in their vendor management is public records information sourced at the county level. That may sound like a fine distinction, but it can be easy to identify: judgment and lien information, and mortgage and deed information are all being pulled from county records. If you’re relying on a national provider for this information, you are likely paying subcontractor costs that are best scaled to the largest banks in the country. Conversely, if you’re juggling a handful of law firms, credit bureaus or title agencies to cover your full footprint for these reports, then you’re likely ready to scale up to a regional provider.

Key Question: How are you sourcing your judgment and lien information, and mortgage and deed information? Is it an efficient solution?


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No. 15: Need Support? If It’s Like Big Business You

Might Be In Trouble The Problem: Many service providers, either because they’ve been consolidated into a larger company, or because they’re trying to adopt a big-company posture, favor “efficiency” when it comes to customer service. This means an experience somewhat akin to going to the DMV. You call or e-mail, and after going through an excessive rigmarole just to get to talk to an actual person, you know your chances of getting a simple answer or fix are still slim.

The Solution: Don’t tolerate impersonal service. No matter the size of your relationship, you can’t afford to tolerate the lost time and employee demoralization that comes with inattentive service providers. If you or your team are frustrated by the client support experience of one of your partners, it’s time to start looking for an alternative.

Key Question: Do you have a dedicated representative for each of your service provider relationships that warrant it? Are you confident that this representative will get you the answers you need when you need it?

The Win: Your Time

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No. 16: Portfolio Monitoring Means

Collateral Monitoring The Problem: Collateral monitoring is especially difficult to achieve at scale, which can make it the forgotten element of portfolio monitoring optimization. No matter how you dress it up, there is only so much technology that can be thrown at collateral monitoring. Tasks like reviewing for new liens and judgments, or verifying lien position, require manual review. While this can be done by a credit consultant, you’re liking overpaying for the sourcing of those records. On the other hand, if you’re completing these tasks internally sourcing those records can be a significant operational challenge.

The Solution: Source these records from a single public records service provider that is dedicated to the efficient retrieval of this information. From there, you have the power of deciding how the substantive analysis is completed, whether that means relying on consultants or your own credit specialists.

Key Question: How are you sourcing your public records for monitoring collateral? Can this be done more efficiently?


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No. 17: Streamline Statutory Fees

The Problem: Statutory fees can easily become a cumbersome part of the recording process. If you’re handling these fees directly, and especially if you’re covering several jurisdictions, you’re managing an accounting and operational headache.

The Solution: Team with a service provider that can cover both e-recording and paper recording, and that also advances statutory fees (at no additional cost). This way statutory fees can be reviewed and paid for simply and clearly on one monthly invoice.

Key Question: Is the payment of recording statutory fees currently an operational or accounting frustration?

The Win: Your Time

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No. 18: A Question When Approving Invoices…

The Problem: Distributing your lending and credit expenses among your various cost centers is daunting enough. Making things worse, many service providers seem to not understand this dynamic and offer inflexible invoice formats that you’re forced to work around rather than with.

The Solution: For your major service providers, what would be the ideal invoice format? Once you’ve identified it, share your preference with the vendor—if they’re not willing to work with you towards a format that makes your accounting simpler and more transparent, then they simply aren’t working hard enough. For instance, instead of a PDF invoice, how about an Excel spreadsheet? And how about including your cost centers on there as a sortable column? These are reasonable requests, and they will make you your CFO’s new best friend!

Key Question: Can your service providers format their invoices according to your preferences, such an in Excel and sorted by cost-center?

The Win: Your Time

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No. 19: Gain Leverage With An ‘Option B’ At The

Ready The Problem: The total on-boarding time for a new service provider at a financial institution can easily exceed the one-year mark. If one of your providers begins to struggle at meeting your expectations, you may be left scrambling to hurry the on-boarding process and tolerating sub-par service in the meantime.

The Solution: Identify the tasks that you are currently subcontracting to service providers. Unless you are locked into an exclusive contract, identifying and on-boarding a “B” provider could be a prudent move that gains you leverage in how you manage your front-line providers. If you grow frustrated with your primary provider, now you can nimbly begin re-directing orders to your secondary provider.

Key Question: What aspects of your credit and lending operations are you currently subcontracting? For which of these can you pro-actively onboard a secondary vendor?


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No. 20: E-Recording Is A Blessing. Except For This…

The Problem: You’d be hard-pressed to find a loan operations professional that doesn’t love e-recording (in comparison to paper recording). However, e-recording is still very much in the process of being adopted. While most counties now accept e-recording, those counties do not accept e-recording for all types of recording. Financial institutions are left having to juggle a divided assemble line of e-recordings and paper recordings.

The Solution: Team with an e-recording service provider that also supports paper recording. This will allow you to optimize your operations pipeline by having one simple process for the completion of all recordings, whether they be electronic or paper.

Key Question: Do you currently have two processes for recording—one for e-recording, and one for paper recording? Is this adding complexity, time, and risk to your recording process?

The Win: Your Time

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Optimizing Operations and Reducing Risk in 2020

There you go, 20 loan and credit operations hacks for 2020! Which ones

will you incorporate? Please let us know! And, of course, if SearchTec can

help make any of these ideas a reality for you, we’d love to start the

conversation.

Serving the community banking industry for 30 years, helping to optimize

commercial renewals, portfolio monitoring and loan originations.

• Property Searches

• UCC & Business Searches

• Automated Valuation Solutions

• E-Recording

• Flood Determinations and Monitoring

[email protected] www.searchtec.com

1.877.2SEARCH

Documents

20 Hacks for 2020: Loan Operations and Credit Management 20 Hacks for 2020.pdfOptimizing Operations and ... training webinar so that new employees going forward have it as a quick