Is It Smart to Service My Own Loans?

What is loan servicing?

Loan servicing is the process of collecting the payments on a loan, including all the documents, accounting, and tax requirements.  To service a loan you’ll likely be sending our statements and late fee notices to your borrower, calculating the balance on the loan over time, and sending annual statements for tax purposes, such as the 1098 mortgage interest statement in the United States.  It can also involve collecting funds into an escrow account and paying associated bills like property taxes and insurance, and providing an accounting to the borrower of the escrowed funds.

 

Is it hard to do all that stuff?

If you’re doing it by hand, then yeah, it’s pretty tough.  Getting an accurate loan balance and valid interest calculations that match the terms in your loan contract is actually a lot more complex than slapping payment amounts into a generic Excel amortization template.  Borrowers almost always pay something different from the regularly scheduled amount at some point, and often the timing of the payments will not be precisely to the day of the original schedule.  When these deviations occur, an accurate balance calculation involves much more complex management than you’re likely to be able to set up in a spreadsheet cell formula.

Our loan servicing software, Moneylender Professional is built to account for loans with as much simplicity and automation as possible.  Getting an accurate balance calculation in Moneylender is virtually painless.  Once your loan is set up so the amortization schedule matches what’s desired, you can just plug in the payments you receive and Moneylender follows the calculation rules to determine an accurate, legally enforceable balance.

Sending out regular statements is pretty much impossible to automate with Excel, save for just sending the excel file itself to a very savvy borrower.  Software like Moneylender Professional is built to streamline the statements so they can be emailed or mailed with just a couple of clicks.  That convenience scales painlessly when you have more loans, you just do the same clicks and send out the statements for all your loans in one shot.  The same applies to other communications like Late Fee notices.

When it’s tax time, reading the law and filling in your own tax forms is pretty tricky.  For example, the reported interest on a Form 1098 should include the collected late fees, but not other fees.  Also, the balance is the principal balance at the beginning of the year, not at the end of the year.  People are always calling in to ask why the numbers are wrong because they don’t know about these requirements.  A system like Moneylender Professional is built to follow the rules carefully and make everything as automatic as possible.  When it’s time to generate your 1098 forms, you can do it in about three minutes in Moneylender, including using our built-in service to file electronically with the IRS.  That’s three minutes whether you have one loan or 500 loans.

 

Should I pay someone else to service my loans then?

That’s really up to you.  Moneylender is a system for lenders that want to service their own loans.  It does all the math and reporting and accounting and even has a lot of extra features like managing attached files and reminder notes and tracking per-loan expenses.  People who use Moneylender are servicing their own loans, and Moneylender makes that process a lot easier to manage.

The alternative is to hire another company to service your loans.  This third party would send statements to borrowers, track payments and calculate balances on your behalf.  They would charge a recurring fee and forward the proceeds of the payments on your loan to you.  In fact, there are a few servicing companies that use Moneylender as the core of their business.

If you really want to be hands-off with your loans, hiring someone else to do the servicing is probably a smart move.  The people that choose to use Moneylender want to keep their loans in-house.  The hour or two each month to keep on top of their loans with Moneylender is easily worthwhile for the confidence of knowing exactly how your assets are performing.

Anyone who is reading about whether or not to self-service probably only has a few dozen loans or less, but Moneylender will happily grow into the thousands of loans with you if you are planning to grow your portfolio.

 

So self-servicing is cool?

It’s really cool.  But it sucks unless you have a solid structure to work with.  Trying to do it well with just spreadsheets is going to be a nightmare.  But a more specialized loan servicing program like Moneylender Professional can make servicing your own loans very manageable.  And it helps if the company that makes the software has really great customer service, too.  Give us a call or email, I bet you’ll be surprised how helpful we are.

 

Happy lending!

Josh Whitman, CEO
Whitman Technological
Author of Moneylender Professional

July 2021 – What’s Happening with Moneylender?

 Things that are in the works for our loan servicing software, Moneylender Professional.

 AutoPay Production Release is Delayed

Issues with the backing bank has held up development on the production release of AutoPay.  Development is stuck until the bank situation is resolved, so the AutoPay Production release is on pause for now.  Lots of cool features are already at least partially developed, so it’ll be awesome to get rolling again once the bank stuff is sorted.

 

Accounting Mechanism

A new feature set will be created for Moneylender that will allow users to create demarcation points for accounting purposes.  There has been a long-standing problem when it comes for balancing the books against Moneylender’s reports.  The accountants need the numbers to stay the same from month-to-month or quarter-to-quarter.  The servicers need to be able to retroactively adjust things like waiving late fees or correcting payments or settings.  These two needs are in conflict with each other.

A new system is going to be added that will allow users to set an accounting checkpoint for a specific date and Moneylender will record the balances and totals since the previous checkpoint.  Each checkpoint will also include an adjustment factor that represents the differences in amounts cause by retroactive changes to a loan.  This permanently formalizes and resolves the relationship between concrete numbers for accounting and retroactive edits for servicing.  CPAs rejoice!

 

Portfolio Hosting Service

A version of Moneylender that runs as a faceless Windows service has been in the works for a couple years.  An extension of this will be a new service where you can choose to host your portfolio on our servers.  Instead of housing your data on your own computer, we’ll house your data and ensure ongoing, off-site backups.

This service will be especially appealing to lenders that might need to travel and use different computers.  Especially so if there are multiple people working together.

 

Moneylender Academy

We’re planning on producing a series of videos structured like a Moneylender school.  This should really help with training new Moneylender users to get up and running quickly, and to make the most of what the system can do.  We’re thinking about having four level of topics, starting with the introductory and basics in the “Associates” level, and describing really niche and enterprise features in the “Doctorate” level.

At the moment, we only have one video up on our new Moneylender YouTube channel, but this is where we'll publish the academy videos when they become available.