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Loan Servicing: Outsourcing VS. In-House Cost/Income Comparison |
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How
to provide great service to your Borrowers and Investors and Make Money
without
buying software or hiring
and training staff. |
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YOUR MORTGAGE COMPANY |
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Number of Loans Under $600k |
100 loans |
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Average Principal Balance |
$200,000 |
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Total Loan Balance |
$20,000,000 |
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10 Loans Over $600k |
$4,400,000 |
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Average Number of Investors per Loan |
1.5 investors per loan |
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Late Fees Received Annually |
$65,000 |
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FCI Standard Loan Servicing Fee |
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One time setup fee of $25 per loan. $15 servicing fee
per month/investor, or 0.075% of UPB on loans over $600k
($37.50 @ $601k). 50% of late fee for collection work. |
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Simple services provided by Broker at loan origination |
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Send a Loss Payee notice to insurance company to cover
Insurance Tracking. Pay LPS Tax Service $67 for Property
Tax Tracking, or check public records annually. Record a
Request for Notice of Foreclosure for any Senior Lien. |
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BROKER CHARGES NO SERVICING FEE:
Provide professional service, give the maximum return to
your investors |
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COSTS: OUTSOURCING |
Year 1 |
Year 2+ |
PAID BY |
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One time setup fee |
$2,500 |
0 |
Borrower |
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Per investor servicing fee |
$16,200 |
$16,200 |
Investor |
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Loans over $600k fee |
$3,300 |
$3,300 |
Investor |
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50% of late fees for collection |
$32,500 |
$32,500 |
Borrower |
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Broker's cost to provide loan servicing to his clients |
$0 |
$0 |
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COSTS: IN-HOUSE SERVICING |
Year 1 |
Year 2+ |
PAID BY |
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Software, 3 modules |
$20,000 |
0 |
Broker |
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Software maintenance |
$1,800 |
$1,800 |
Broker |
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LS Personnel, computers, space |
$50,000 |
$50,000 |
Broker |
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Liability Ins, Bond and DRE Audit |
$20,000 |
$20,000 |
Broker |
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Broker's cost to service loans In-House |
$91,800 |
$71,800 |
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BROKER CHARGES A SERVICING FEE*:
Provide
service, create a monthly income stream |
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INCOME: OUTSOURCING |
Year 1 |
Year 2+ |
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1% servicing fee charged to investor |
$200,000 |
$200,000 |
Broker uses FCI as Sub Servicer to do most of the work |
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Other 50% of late fees |
$32,500 |
$32,500 |
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Total Outsourcing servicing fees |
($19,500) |
($19,500) |
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Broker's net income |
$212,500 |
$212,500 |
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INCOME: IN-HOUSE SERVICING |
Year 1 |
Year 2+ |
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1% servicing fee charged to investor |
$200,000 |
$200,000 |
Broker buys software, hires personnel, spends time
servicing instead of lending |
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Late Fees |
$65,000 |
$65,000 |
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Total In-House servicing costs |
($91,000) |
($71,000) |
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Broker's net income |
$174,000 |
$194,000 |
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*) Brokers receive a servicing fee
by either including a Servicing Addendum in the loan
documents at origination stating that the Broker is
charging X% servicing fee, or by Assigning the loan to
an investor at a spread. For example the Note Rate is
12% and the Sold Rate (to the Investor) is 11%, creating
a 1% servicing fee. |
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