Sept./Oct. 2019 Issue

Managing Escrow Tax Cycles

A critical function for every mortgage servicer is ensuring real estate taxes are disbursed timely and without error. With more than 22,000 taxing jurisdictions across the U.S., managing and paying taxes can be overwhelming. These challenges are often compounded by a lack of tools necessary to manage tax cycles efficiently and to be able to clearly determine overall status at any point within the tax cycle. The prevalent process in the servicing world today is fraught with inefficiencies, guesswork, and needless penalties, which often become borrower complaints.    

Today, servicers rely on open-item report(s) generated from their mortgage servicing system to provide visibility to the upcoming and current tax cycles. However, they often discover their system report(s) fall short in providing the required data and functionality.  The report(s) must be converted to a usable format, such as spreadsheets or database tool, and then compared each day to determine what needs to be processed.  On top of that, these tools are often used to monitor status, assign work to team members, and generate management reporting.  This cumbersome process is largely inefficient, prone to errors and may lead to late or missed tax payments. 

Managing tax cycles can be further complicated by the servicer’s own complex business rules for processing tax payments. Real estate owned (REO) properties, loans in foreclosure, or loans in Bankruptcy are a few examples that may require special processing procedures. Many servicers use specific codes/fields to identify these loans and each code often represents a separate and specific business process that must be followed. Some servicers send these pending tax payments to their default teams for review before a disbursement can be made. Servicing systems often lack the functionality that allows a servicer to segregate the loans with these special conditions from the main population to ensure those specific processing procedures are followed. Without this functionality, servicers often default to using emails to distribute the work, adding to the cycle management nightmare.      

On top of all of this, taxing jurisdictions often add another level of complexity. Within the thousands of agencies across the U.S., there are a myriad of requirements that must be followed within the tax payment process. If not, servicers risk the timeliness and accuracy of completing the tax payments by their due dates. For example, in Texas some jurisdictions offer a discount if taxes are paid early while others do not. In Wisconsin, servicers are required to allow borrowers to select from multiple payment options and/or due dates. In these situations, a servicer needs a tool that allows them to segregate the work based on agency requirements and/or borrower options.  

Today’s methods for managing escrow tax payment cycles are long overdue for change. Servicers need tools that allow them to efficiently manage their tax cycles. The technology is available that can help servicers more effectively navigate these issues. These tools provide status updates in real time and give a servicer the ability to assign and segregate the work by state, agency, business rules, severity and staff’s tenure or expertise. The next step is to use that technology to affect the change that companies need that consumers want.   

A solution to age-old problems managing escrow tax cycles should be at the top of every servicer’s list in 2019. Living with these deficiencies should no longer be the norm. These tools are available to those servicers who not only want a better way, but also want to have more efficiently run tax cycles with fewer late or missed payments, as well as an overall better borrower experience.