PERSON OF THE WEEK: How do servicers accurately keep track of whether local property taxes are being paid on the assets in their portfolios? Simple: They use one of any number of tax reporting services.
However, not all tax reporting services are the same – and not all are designed with mortgage servicers’ exact needs and concerns in mind. Very often, it comes down to the level of investment that the service provider has made in technology. You see, when these reporting services are designed, they require multiple data “hand-offs” between disparate databases and systems. These data “hand-offs” can sometimes result in errors that not only lead to significant losses at servicing companies, but also impact the borrower experience, leading to borrower complaints.
To learn more about the challenges that servicers face when it comes to managing escrow accounts and property tax payments, MortgageOrb recently interviewed Jim McGurer, first vice president at tax reporting services firm LERETA.
Q: What are some of the major challenges that servicers are facing when it comes to escrow accounts and property tax payments in particular?
McGurer: The single greatest hurdle for property tax servicing is data integrity. First, the hand-offs from either origination or an acquisition require significant diligence to ensure that each account has accurate information regarding the mortgaged property and about the tax bill(s) issued for that property. An incorrect property address or legal description, for instance, can result in a misidentification of the parcel numbers needed to secure each year’s tax bill(s).
Servicing data that reflects the key information needed to process a tax payment, such as the next tax due date, must also be accurate. Information errors have downstream effects to the servicer’s escrow management processes. Missed or incorrect tax payments can result in penalties and unintended escrow refunds sent to the borrower after an analysis. Recovery of these refunds is difficult and never results in a favorable view of the servicer by the borrower, even if the root cause was a title- or origination-related mistake.
Q: How can a servicer effectively minimize these data integrity errors?
McGurer: Proactive measures go a long way. Testing for data quality should be done prior to the boarding of a loan for servicing, whenever possible. Otherwise, at the time of loan boarding, a data quality program that can prevent certain errors and flag potential ones is a must-have. Servicers should seek technology and service providers that have strong data governance processes and systems designed around the investigation and resolution of data integrity problems.
Q: How has tax servicing changed over the years?
McGurer: The industry continues to press forward to use new technology to deliver data from tax collectors through more efficient means. Moving away from direct contact and data entry to data management and delivery increases the ability to service more accounts with better quality at a competitive cost.
Q: What influenced your decision to join LERETA after 23 years in the mortgage servicing industry?
McGurer: After having worked with the LERETA team as a client on several occasions over the years, I knew this was a company that embraced service. I felt my experience on the client side of the business could bring a strong perspective in decisions that LERETA makes as we look to grow into a world-class provider of information to the financial services industry.
Q: What does the future of tax service look like to you?
McGurer: Lenders have always relied on our industry to help effectively manage risk. As information becomes available through more channels and technology helps us better package data in multiple formats, customizable solutions will become the norm. One size does not fit all in this industry, given the variation of products that rely on the data we provide.