Observations on Lending as COVID-19 Spreads Globally

 I hope you’re all safe and healthy out there.  I’m seeing a couple little ripples in lending amongst Moneylender users, and I though you might find the observations interesting.

The story told by Moneylender sales…

Sales slowed for the first several months of the pandemic, and then sort of adjusted back to regular levels.  The collections freezes and proffered forbearances in March and April of 2020 made the lending industry hold its breath.  Once the job situation began to stabilize, we could see who would be losing their jobs and who would remain employed.

We saw a surge in Moneylender sales as people adopted our software to help with their workload as refinances and reinstatements were officially structured into debts around May.  In spite of the surge, the overall sales numbers were depressed throughout 2020, alongside an apparent slump in new debts among Moneylender users, and I would speculate that uncertainty for the future is causing people to avoid new purchases, debts, projects and ventures.  We’re all hunkering down and it’s slowing the use of debt.

While personal, short-term loans still seem to be slower than typical, the very low interest rates available are partially propping up real-estate backed mortgages and other debts that can be refinanced.  New debts are being eschewed while existing debt is generating some churn to keep the industry idling.

The story told by AutoPay payments…

While Moneylender sales are an interesting bellwether for how willing people are to take their chances, the payments through AutoPay have begun to sing the song of how faithfully those chances are being fulfilled.  AutoPay is only in use by a statistically miniscule number of lenders (eighteen at the time of this writing), but patterns are emerging nonetheless.  The lenders using AutoPay are quite varied, and their loans represent a fairly continuous spectrum of the lending industry as a whole.

An important caveat: AutoPay is only able to process payments in the USA, so any meta-analysis of those payments is limited to that single country.  It’s quite likely that the global pandemic is having similar effects in other countries, however.

In the last week of August, it seemed like many borrowers’ bank accounts had simultaneously run dry.  The rate of returns for insufficient funds tripled, and has stayed higher than normal.  Even more stable debts like mortgages saw higher rates of bounced payments.  These higher rates of failed payments are only very slowly tapering off.

Because AutoPay only processes payments and knows nothing of the status of the underlying loans, I could only guess at how loans are performing overall.  What I can tell for sure is that people were taken by surprise by their sudden lack of funds.  Instead of recognizing there would not be enough money and cancelling the payments to avoid NSF and overdraft fees, the payments were allowed to process and fail.  This spanned loans and lenders of all types.

In conclusion…

What useful takeaway might we get from looking into the payments and sales figures?  Certainly that people don’t know what to expect right now, that funds are scarcer than normal, that core income has been affected noticeably, and that many borrowers did not have a contingency plan to fall back on.

You, my savvy lender friends, might offer a contingency plan to your borrowers that allows them to save face and save money in the short term, while ultimately garnering for yourself some additional profit, stability, and loyalty.

Consider your borrowers, consider how you might address unexpected partial or total income loss.  Reach out to your struggling borrowers with a reasonable escape path for them.  If you are careful when you help them out of their difficult situation, you will likely be putting yourself higher on their priorities list.

My standard advice applies even more so when “doing someone a favor.”  Posture yourself as the absolute authority.  The seriousness of the debt, and your credibility must remain fully intact.  If they start to see you like a buddy or a rich aunt/uncle, you will be facing an uphill battle to make a profit from their debt.

Carefully review any letters or conversations you plan to make, ensure your position will confirm in the borrower’s mind that their dutiful repayment is not optional.  Speak calmly and directly, avoid blame or criticism.  State clearly the borrower’s situation and how your propose to allow them to proceed.  Never do this for free.  As soon as you cut them some slack, cutting slack is how you’ll be known.  If you cut some slack, for example, in allowing them to skip a missed payment, you must pick up the slack elsewhere, such as capitalizing the accrued interest.

 

With some though and effort, you can help to relieve your borrower’s immediate worries, enhance their opinion of the debt you hold over them, and make for yourself a little extra coin down the road.  Good luck and happy lending!

-Josh

 If you're in the market for loan servicing software to track and mange your loans, consider using my system - Moneylender Professional.

 

 

Moneylender Professional in 2020

A lot has happened since the last time I posted.  The coronavirus outbreak that causes COVID-19 hit the world and put us all indoors.  I started a YouTube channel.  Moneylender has seen fifteenish updates, adding around 50 new things to the program alongside other fixes and changes.

Monthly sales of Moneylender went up and down during the pandemic.  Overall sales are growing.  In one two-week period we were getting one or two new customers almost daily.  It was an unprecedented rally – surpassing the highs from the December-January surge to set a new monthly all-time record in May.

COVID led to a lot of forbearance and other types of plans to ease the financial burden as businesses were shut down.  I wrote a new section onto the Settings tab – “Special Situations” where you can easily set up any combination of forbearance, reinstatement, waiving or capitalizing interest, and/or adjusting the escrow to be collected.  Of the handful of people that I’ve helped to use the new setting, the response has been very favorable.

I’m seeing a lot of referral sales, and for that I am immensely grateful.  I sent out a few thank you packages to customers that referred others, and that went really well.  I ordered more supplies to make more thank you packages in March, but didn’t want to send them amidst the urgent closures from the pandemic.  As we’re getting a grip on how to treat the virus, I’m looking forward to sending out another batch of thank you packages.

My YouTube channel is currently around 45 subscribers.  It’s not a tremendous number, by any measurement, but my videos are getting consistently better.  Each new video has seen a wider audience and better reception.  I’m also learning to be more proficient with the tools, so the production and editing of the videos has consistently gone up in quality.  It’s been fun to have no agenda for the channel except to share the things that make me happy.  Several videos revolve around Moneylender in one way or another, as it’s a really fascinating project with many opportunities to create things that really benefit people.

While Moneylender appeals to a broad audience, I think it’s really found a special place in the hearts of private lenders and note investors.  There are many large companies that use Moneylender, some have portfolios with 3000 to 5000 loans.  But most lenders that I see have between five and one hundred loans, with portfolios worth six to eight figures.  I’ve seen several nine figure portfolios, and maybe glimpsed a ten-figure portfolio once or twice.

Seeing my little program get such widespread use is a dream come true.  I’m so lucky for each customer that found their way to Moneylender over the years; for the customers that have paid me to add features to the software to meet their needs.  I’m grateful most of all for the people that found Moneylender, and then brought other people to the program.  Nearly half of recent sales say they were referred by a friend.  I am humbled and flattered and grateful.  Thank you, thank you, thank you.

AutoPay has been going very well.  Every month has seen growth over the previous, even in the midst of COVID.  Our sponsor bank, that hesitantly agreed to let me push and pull money, has gone through a couple internal upgrades because we’re using their ACH mechanism more than any other customer.  The AutoPay system is pretty much solid.  All the stumbling blocks for borrowers and lenders have been removed.  I’m looking forward to rolling AutoPay out of Beta and into production in the very near future.

There are lots of other, really exciting features that I’m looking to add.  I’ve heard rumors that .NET 5 will be cross platform.  This means it might be possible to finally get Mac and Linux compatibility.  I have looked, over the years, at getting Moneylender to run on a Mac, but it’s always been about as much work as rewriting the whole program in a different language.

With the ACH mechanisms happily dialed in, I’ll be taking a more serious look into Visa/Mastercard payments through AutoPay, and giving lenders control over the application of convenience fees and which payment types will be accepted.

I still really like the idea of sending SMS messages directly from Moneylender, and I know that’s critical in places where email is not widely used but text messages are.  There are around 150 items on my list of cool suggestions, and perhaps we’ll be seeing more of them getting implemented in the days ahead, too.

The future is bright for Moneylender Professional.  I know my end of the bargain is to keep improving and supporting the program, and it’s a role I’m thrilled to fill.

The best adventures lie ahead of us.

-Josh Whitman, CEO
Whitman Technological

Building the Best Loan Servicing System Because We Refuse to Settle for Anything Less

I had a customer ask me a lot of questions about making a report in a very specific way.  I explained that the information they were asking for isn’t always meaningful.  If a loan pays exactly on the amortization schedule, then perhaps what they wanted would make sense.  The moment the borrower missed a payment, or made several partial payments, the data they wanted would no longer look how they wanted it to look.  Furthermore, while Moneylender would be accurately presenting the information based on reality, that reality wouldn’t match the amortization schedule like this customer really wished it would.

I tried explaining this, and that having the requested data on a report wouldn’t really satisfy their desire to make a loan that pays irregularly look like it was perfectly following the amortization schedule. 

The customer asked me the same question again, almost word-for-word.  I was dumbfounded!  Did I fail to express my comprehension of the information they desired?  I deliberately restated what they wanted to see so they would know that I had understood their request fully.  They agreed that was what they were after.  I then described how situations where the borrower got off track with the payments – whether paying down the balance early, or paying late or in unusual amount – the information they wanted would look different than the cookie-cutter amortization they wanted to be presented. 

The person who handles the actual loan management understood my point and tried to show “the boss” actual places in their loans where the information wasn’t going to fit the cookie cutter.  After some explanation, and what seemed like the boss was getting it, we all breathed a sigh of relief.  Calculating the interest on a loan balance when payments arrive all over the place is a complex process.  It can be tough to wrap your head around the moving parts of a detailed scenario to see how the numbers will have to line up for a correct, enforceable, auditable, accurate calculation of interest.

I’ve worked directly with auditors, and with lenders undergoing an audit to make sure the calculations are being performed in compliance with the rules.  The calculations in Moneylender have been put through the rigors.  In fact, Moneylender is the loan servicing software used by more lenders than probably any other software out there.  Its low cost isn’t a symptom of low quality, it’s a symptom of a different business paradigm. 

Other businesses are selling their software to earn a living.  Whitman Technological built and sells Moneylender Professional as a mechanism to create and refine a sophisticated software system in a real-world environment.  The software itself is the goal.  Our goal is not the revenue.  The revenue is important to make sure the phone will always be answered, but one glance at our prices vs. our competitors will prove that the revenue is hardly a top priority.  We would much rather have Moneylender be used by a broad audience for the maximum exposure to what the world does with loans, than to focus only on maximizing profit from a handful of larger customers.

So, after the second response to the question, and some helpful pointers from his own staff, the boss proceeds to repeat the question exactly as he had twice before.  If I was dumbfounded before, I was getting annoyed now.  Was his misunderstanding a symptom of being unable to grasp the nuances of the situation?  Probably.  Was his determination to keep restating a question until he hears the answer he wants impressive?  I know of few children that would dare to be so blindly stubborn.  Biting my tongue as best I could, I provided a few examples of payments dates and amounts and how the information requested would appear under those scenarios, and thus would add very little meaningful information to the report.

Finally, the boss said he understood, and that he would try to figure out how to get what he wanted some other way.  With some relief, we ended our call.

That was Friday.  Then on Tuesday, I got an email from the boss.  He had printed one of Moneylender’s reports, and hand written a column showing the data that I had thrice explained might look great if a borrower never swayed from the amortization schedule, but would quickly become pointless if anything changed.  His email simply asked if it would be possible to add a column to a report to get the data he had hand-written.  The exact same question I answered three times on the phone.

Ok, you win.

I added a value to payment records that shows the oldest due date for which funds from the payment would apply.  Will this date look good?  If the borrower overpays, it’s all good.  If the borrower gets behind and gets caught up again?  Well, those dates are probably going to confuse someone wondering why a dates appear to be “missing”.  I preemptively wrote a post on the forum to address this issue, so when the inevitable question comes in, I can just point them there.

Then, from the same group of people, I got two more emails asking if Moneylender could make reports like ones in some screenshots.  The reports they wanted to match looked like a hodgepodge of unrelated pieces of data.  In fact, it looked like a poorly constructed spreadsheet with several errors in the formulas of the cells.  I pointed out a few places where a borrower’s over-payments were being “stolen” in the calculations.  Instead of paying down the balance, the report was essentially the principal, interest and balance columns from an amortization table, but dates and amounts of actual payments, sprinkled with several zero-dollar payment rows (yet still inexplicably paying interest and principal and paying down the balance).  The borrower had made a larger payment to pay down the balance, and the extra funds had absolutely no impact on the principal or balance.  The money just vanished.

The loan had subsequently gotten several months behind, and then the borrower made a big reinstatement payment.  The payment on this report was applied about half a year before it was received and only registered the normal interest, principal, and balance reduction from the amortization schedule.  There appeared to be no trace of the other five months’ worth of funds.  There were, however, several rows with $0 payments that seemed to indicate they were applying the overpayment from the large payment that was credited earlier although received much later.  The credit mechanism seemed to be the same one from which the earlier pay-down payment's extra funds vanished, and there didn't appear to be any mechanism to balance that information.  And above all, the borrower's performance on the loan had no impact on the interest or balance at all.

I told them that it would be impossible to make a report like that, because Moneylender can’t take funds from a payment and make them evaporate.  All funds end up on the loan somewhere.  If it isn’t paying escrow or fees or interest then it’s paying down the principal.  There’s no collecting payments and dropping them in a black hole in Moneylender.

In an effort to be helpful, I listed the columns they could put on a report to match the structure of the report, although the calculations would be radically correct.

Then I got an email from this customer, possibly by mistake, that those reports were actually from one of the most well established of my competitors.  I’ve talked with a couple people that have moved into Moneylender from their system over the years.  They cost more than 100x what Moneylender costs.

And their system doesn’t even calculate the interest correctly?!  Has anyone in their product ever undergone an audit or a foreclosure or a proof of claim in a bankruptcy?  Do their borrowers never look at the statements and wonder where their money went?

While I might be baffled that such a situation is reality, the proof is sitting right there in my inbox.  One of my biggest competitors has a system that is wildly error prone in their calculations.

I wrote Moneylender for fun at the begging.  Then I put it up for sale because I though other people might find it useful.  Then I wrote Moneylender for fun as a system that helped a lot of people.  The feedback, requests, and sales continue to come in and I kept using Moneylender as an opportunity to learn more and more about efficient data storage and retrieval, asynchronous process management, encryption, security and networked collaboration.  Opportunities to integrate with the world’s financial backbone, to implement third part specs across a ton of standards.  To create software with new UI development tools. 

And the cherry on top?  Developing Moneylender is the ultimate video game.  A problem so complex and multi-faceted that a full decade of study was necessary to understand the rules of loan computation, understand the practical application of lender laws, understand how real-world situations play out with lenders of all styles, and with borrowers of all styles.  And then to take all this information and engineer a solution, to pluck it from the ether and scribe it directly into reality for all to enjoy.

We build Moneylender because it’s awesome.  Our loan servicing software is the best because anything that could be improved is polished smooth, reworked, forged again... for fun.  When there’s a better solution, no matter the cost, we take the time we need to build it.  It doesn’t matter than Moneylender 2 is half a million lines of code, we can build it better.  I invested a decade to writing the entire mechanism again from the beginning, perfecting every single aspect that could be made better, even using a different programming language to rebuild all the functionality from the ground up.

Moneylender 3 was ten years of development.  Not because we had to.  Not because we needed to.  Not because Moneylender 2 didn’t work well.  We built it because we could make it better.  Because there existed a more robust, more automatic, more intuitive, more correct way to do it.  No other reason was necessary.

When you choose Moneylender Professional as your loan servicing software, you’re buying a license to a piece of art.  A piece of technology that represents the best imagined mechanism to automate any loan.  Technology so robust, that the calculators and accompanying tools are used for all kinds of unexpected purposes.  Savings accounts, managing rental properties, and leases all fit perfectly into Moneylender's accounting mechanics.  The flexible statement and report systems bend happily to these new purposes.

Are there lots of other programs out there for servicing loans?  Heck yes.  Have we spent much time looking at how they work or what they do?  Nope, only as far as we needed to extract data for customers that transitioned over to Moneylender.  The people using Moneylender, and it appears there are more of them than most of our competitors could claim, provide the insight that has fueled the architecture, construction and expansion of our loan servicing system.  Our to-do list has around 120 items on it, and always gets longer because more and more people are providing more and more great insights and requests.

In a time of great change, you need loan servicing software that thrives in change...

When people lose their income, they lose the ability to repay their debts.  With all the layoffs and everyone earning less money, there really is no recourse for lenders but to allow periods of forbearance, deferral, and modification.  Your loan servicing software needs to be able to allow for rapid review and modification of your loans.

Increasingly greater measures are being enacted to help slow the spread of the virus, and that has an immediate effect on the liquidity of any collateral on a loan.  You can’t foreclose and sell a house if there’s no way for someone to buy it.  Repossessing a car and selling it will be very hard if non-essential services are shut down and people that might have been buyers are also feeling serious financial hardship.  You can’t take the appliances from someone’s home amidst the outbreak without a variety of risk.

At this point, we’re all addressing the fact that the economic situation has changed beyond anyone’s ability to control it.  Our existing loan terms simply don’t mesh with the reality we’re seeing.  The contracts must be amended, the terms of repayment adjusted.  The nature of these adjustments is still entirely fluid.  The full impact of the virus likely still lies ahead.

In times of great transition, you want to know that your loan servicing software is backed by a company that constantly improves and expands capabilities.  You want to know that answers to your questions are just an email of a phone call away.  Moneylender Professional – loan servicing software that is always growing, backed by Whitman Technological – committed to strong customer support and rapid response to the changes in our industry.

Loan Servicing Software

When choosing a good loan servicing software system to manage and calculate your loans, you want to be sure you’ll be able to do manage your loans quickly and without errors.  With your first few loans, it’s no big deal to spend 10 or 20 minutes making sure the numbers are right.  Once you get ten or twenty or a thousand loans, spending twenty minutes per loan is no longer an option.

Moneylender Professional is loan servicing software built with a set of manual and automatic configuration mechanisms to allow you the fine-grain per-loan management tools you need to handle every situation along with a set of tools for bulk operations that might apply to many or all loans under management.  Developed under close guidance from the lenders that use it, every facet of Moneylender is built to make servicing loans faster and easier.

No loan servicing system would be worth much if lenders couldn’t use it to effortlessly produce supremely professional statements, letters, notices, payoff quotes, agreements, and payment coupon booklets.  Moneylender’s template design system allows complete flexibility of the contents, style, and arrangement of any letter or document you might want to generate.

AutoPay is a companion payment service that integrates directly with Moneylender to allow borrowers to make direct payments from a US bank account.  Using the AutoPay system allows borrowers to see their balance, due date and current amount due online at any time.  AutoPay really gives that official feel to any lender using Moneylender Professional to service their loans.

Moneylender Professional is loan servicing software that is well suited to lenders of all sizes.  Its reasonable licensing costs are far below those of comparable systems.  It’s capabilities are also quite robust.  Thanks to its reasonable price tag, Moneylender is used by hundreds of lenders globally with over a hundred lenders moving into the Moneylender system every year.  You’re in good company when you choose Moneylender, and your feedback is what has made the system so powerful.

AutoPay Gets a Higher Daily Volume

Our sponsor bank has granted us a new higher processing limit.  The first and fifteenth of the month are always big days for loan payments, and those two days account for roughly 50% of the total monthly payment volume.  The payments scheduled for March 1^st put is very close to our cap, and I reached out to the bank a few days in advance to let them know a temporary increase might be needed.

The bank raised the processing limit temporarily for the big batch on the 1^st of March, and later approved our application to make the increase permanent.  This gives us space to grow for at least six more months before another limit increase is likely to be necessary.

Since AutoPay first started as an Alpha trial program about eighteen months ago, we’ve processed over a quarter million dollars in over 600 payments.  There are well over a hundred borrowers using AutoPay to get online access to their loans and to make ACH payments directly from their bank accounts.

All kinds of weird shenanigans have happened with payments.  Typos in payment information, bank accounts that were frozen to closed, a solid number of NSF returns.  As each new issue arose, we adjusted the system to accommodate the problem and everything went quite well.

At the same time, we got tons of feedback and questions from borrowers and lenders that helped us to design and improve the system to cover all the various ways that people on both sides would need access and control over payment information.

We’re starting a final development cycle now, and the end result will be AutoPay out of beta and in full production.  This last push will include the addition of record history tracking.  Every payment will be marked with how it was created and who was last to edit the payment.  Was the payment created by the borrower, lender or because of a recurring payment setting on the loan?  When was it created?  Who modified it, and when?  This information will be visible to both borrowers and lenders.  The AutoPay mechanisms in the Whitman Tech store will get a makeover and rearrangement, so lenders will be able to review upcoming payments and other usage details in their online account.  Within Moneylender, the AutoPay windows will get a final workover to make sure they’re highly polished and easy to use.

Internally, our payment batching mechanism is getting a new layer of robustness.  A new mechanism will formalize the process of confirming every batch file .  This mechanism also ties each line of a batch file directly to the matching AutoPay payment record.  A smoother flow to the collection and release of funds will make it easier to review every transaction and catch any potential problems before each batch is processed.

Having gone through an Annual ACH Processor Audit cycle, we have some very cool metrics on our system, and these metrics will be extended to allow lenders to see their volumes and counts from their WTech store account.

We’re very excited to be so close to the finish line for the production launch of the AutoPay service.

If you own or service loans, get Moneylender Professional.  Total control, no compromises, reasonable pricing.  Enroll in the AutoPay companion service to give your borrowers access to their loans online and accept electronic payments from US bank accounts.

2019 IRS Form 1098 - Tips to help you avoid some common mistakes

Lenders across the United States are preparing their IRS Form 1098 Mortgage Interest statements before the January 31^st deadline.  While most of the boxes are pretty obvious, there are a few gotchas on the form that might trip you up.

Using Moneylender Professional loan servicing software, the right data will be compiled and filled into the forms, and usually means that printing your 1098s each year will be quick and painless.  If you’re filling out the forms by hand, here’s some important tips:

Box 1 – Mortgage Interest Received

This number is the sum of the interest from all payments during the 2019 calendar year on the loan and any late fees that were paid by those payments.  Don’t forget to include late fees collected as part of the reported interest on form 1098.

Box 2 – Outstanding mortgage principal

This is the balance at the beginning of 2019, not at the end.  If the loan was originated or purchased in 2019, enter the opening balance of principal balance at the time of purchase in this box.  If servicing your loans with Moneylender Professional, the software will report the principal balance on the latter of January 1^st 2019, the Origination Date on the loan, or the Ownership date on the loan in box 2.

6 – Points paid

Only report the points if the loan originated during 2019.  If the loan was originated before 2019, or the points were paid to a previous owner before you bought the note, do not report points.

Happy filing, you have until January 31 to get the forms out to the borrower.  You can take until the end of February to file the official red copy of the 1098s with the IRS.  You can get official forms from the IRS for free from their website.

If you’re servicing loans, service them with Moneylender Professional.