Now, more than ever, backup servicing moves to front of the line

By Shaun O’Neill, President and CRO, Concord Servicing Corporation

Scottsdale, AZ, Sept. 24, 2021 (GLOBE NEWSWIRE) -- Amid all the challenges presented by the pandemic and the economic upheaval it caused, importance of backup systems to stay the course has skyrocketed. In loan servicing, it’s more critical than ever to have reliable, first-class backup servicing firmly in place when something fails with primary servicing.

Ultimately, the best backup servicing system implementation is essentially “invisible” to investors, portfolio managers, ratings agencies, and customers making loan payments. Properly deployed, the backup transition should be seamless, smooth and non-eventful for stakeholders.

Putting into place the appropriate backup servicing protocols well ahead of any potential need is the best loan servicing insurance policy any owner/originator of consumer receivables could acquire.

Best case, retain a backup servicer with secure and stable cold, warm, and hot backup programs to capture all critical loan and receivables data as frequently as warranted—depending on complexity and risk level of the portfolio. With ability to handle cold, warm, and hot, all options for both efficient and cost-effective solutions can be customized to specific companies and circumstances.

A hot backup program typically backs up account information from the primary servicer frequently and creates a mirror database of assets managed by the primary servicer to be ready if called upon. Warm backups typically involve monthly backups with loan data validation, while cold backup is truly a standby system that receives monthly data.

Ultimately, backup servicing needs to cover any “what if” scenario long before an issue arises. As one energy efficiency/home improvement finance company spokesperson points out, “We focus on someone who can provide peace of mind that if something happens, they can step in, provide servicing, fulfill duties to customers, and give owners of assets the most they can get. It needs to be someone who can serve the interests of investors by getting as much out of the remaining portfolio as possible. And it needs to be someone already familiar with the organization, to handle servicing at a level that doesn’t raise eyebrows.”

Following are additional criteria for selecting the right backup servicer:

1. Strong reputation in the marketplace. A backup servicer must know the terrain. A consistently positive backup servicing track record establishes trust, instills confidence, and offers peace of mind that if needed, the solution will be there without fail.

2. Availability when needed, during and after regular hours. When the situation changes from warm to hot servicing immediacy, it’s important that the backup loan servicer be available to address any issues that arise. Again, look for a backup servicer with a documented history of reliability and consistency in this critical area, as well as having a current bandwidth for emergency response.

3. Compliance that is second to none. Even if all the right backup servicing operations systems are in place, there also must be a comprehensive, current and bullet-proof compliance infrastructure to back it up. Consumer protection is a high priority in any loan and collection environment. Backup servicers must know the federal requirements, state regulations, and pending/impending developments—and ensure that such vital functions as contact center operations and collections are 100% compliant.

Full knowledge of and compliance with The Uniform Commercial Code (UCC ) is especially important to safeguard lending and collection integrity. It requires continuous research and due diligence to ensure being up to date. One misstep in this area can cause a variety of painful and costly consequences.

4. Availability of aligned services as needed. In some cases, a backup servicer offers more than what’s readily apparent at first glance. Document custody services, plus loan validation and auditing, are vital value-added services that a backup servicer can—and should—bring to the table when needed.

5. Ironclad data protection and disaster recovery. The time to learn that data protection and disaster recovery systems are fully safeguarding information is long before there’s a challenge to them. A backup servicer must make an ongoing and comprehensive commitment to maintain the most current and complete protection possible. As part of the process, there should be ability in warm and hot backup protocols to store data on the backup servicer’s system to cover any disaster recovery contingencies.

6. Certifications and credentials that cover all bases. A backup servicer must go the extra miles to ensure adequate controls are in place. Among requirements are SOC 1® Type 2, and PCI DSS. System and Organization Controls (SOC) Report/Attestation, under the aegis of the American Institute of Certified Public Accountants (AICPA), audits and reports on internal controls in the areas of risk management, logical access, change management, data security, and data availability. Type 2 attests to controls at a service organization over a minimum of a six-month period (versus Type 1, which only looks at one point in time).

The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard for credit card payments that is mandated by card brands. A backup servicer must carry this credential to safely and securely handle loan payments via credit card.

It’s time to place backup servicing where it belongs: At the front of the line.

About Concord Servicing Corporation
Founded in 1988, Concord is a full-scope loan servicer delivering innovative, flexible, and scalable portfolio servicing solutions to meet the demands of loan originators and capital providers (and their customers) in a variety of asset classes—including home improvement, solar, energy efficiency, and vacation ownership. Three-plus decades and a positive reputation among existing clients and partners document the ability to handle new challenges efficiently, accurately, and completely. Concord's corporate headquarters and base of operations is in Scottsdale, AZ, with a regional office in Mexico City and a staff of 275+ professionals. Concord services 2 million+ consumer obligations, with a portfolio size of $7.7 billion ($2 billion+ is in asset-backed securitizations). In addition to primary loan servicing, Concord also serves as a master/backup servicer for approximately 110,000 loans with combined balances of $2.25 billion.

“Concord has a strong reputation in the marketplace, so it’s positive with them involved. They’ve always been a good partner, on point and there to provide the right resources as needed. When ratings agencies have questions, Concord can answer them. Concord works hard to earn trust, keep trust, and continue finding new ways to solidify trust. They’re responsive and ready to roll when issues arise. We know if an issue arose… Concord could jump in and take over.” –Longtime vacation ownership client



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