The Importance of a Good Loan Servicer

Becoming a successful note investor requires having an entrepreneurial spirit and being a bit of a risk taker. These characteristics can help you realize a 20-40% ROI. Successful note investors also recognize when to let experienced partners do the loan servicing.  At the end of the day, chasing borrowers does not grow your portfolio or your ROI. Often it will become a distraction, taking you away from important tasks, such as finding notes to invest in, attracting JV partners, and growing your portfolio

Choosing a good servicing partner is paramount to growing your portfolio and maximizing ROI for a number of reasons:

  • The regulatory environment, with the addition of the CFPB at the federal level, and the multitude of vary state regulations are complex, changing, and require systems and compliance focused personnel in place to monitor, interpret, and adapt to the federal and state systems. 
  • Typically, whether you are a small investor or institutional investor, there are licensing requirements, not only to service loans, but to perform collection activities; there are both federal and differing state rules and laws that must be followed.  Investors would be wise to find a fully staffed compliance team and servicing platform with compliance built in to navigate this territory successfully for our investors.
  • Time is a huge factor, and has a real cost associated with it.  As an investor, the question you should be asking is, which activity produces both short and long-term income and returns, self-servicing or finding great deals; if you try to do both, one will suffer, and in this business neither can, since one will cause possible legal issues and could end up costing more than the investment, while the other may cost a great deal that will make a fantastic return. 

As you can see, the choice of using a competent loan servicer or self-servicing is a complex decision, and as such should be made based on a more conservative approach by choosing a servicing partner over self-servicing.  Again, you are not investing to have a second full time job, you are investing to see significant returns.