Service Your Own Loans or Outsource them?

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Most clients give a lot of thought into whether they should service loans in-house or outsource them to a loan servicer.  Here are some considerations and some common thoughts on those considerations:

Control v. Overhead

If you service the loans yourself, you have complete control over the information.  That comes in handy should an investor call you and ask how the portfolio is doing.  You can with a few clicks of the mouse button find the information while they are on the phone.  With a loan servicer servicing your loans, you may not be able to find out that information rapidly and may have to call the loan servicer to get that information.  However, by outsourcing your loan servicing, you lessen your overhead by not needing a person to service the loans and do the work and calculations necessary.

Income Stream v. Cost

 Along the same lines, some lenders bring servicing in-house to capture the complete income stream. That is because it is typical for servicers to charge more than their loan servicing fee.  They usually charge a portion of the late fees and default interest as well.  Again, as with the above example, to service loans correctly you will need to allocate time and resources (people and software) to it.

Focus on What You Do Well v. Less Income & Control

 The argument for outsourcing loan servicing is it allows you to focus on what you do well: originate loans and find investors.  Again, as noted above, you will have less income and control over your portfolio as a result of outsourcing the servicing.

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