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Newsletters>
TEACH EMPLOYEES "WHY" AND NOT JUST "HOW"
April 14, 2008
Escrow Administration Training
Teach Employees "why" and not just "how"
15 May 2007
Anyone who has been involved in escrow administration will
agree this is one of the most complex areas of loan
servicing. Hundreds of thousands of tax bills, hazard
insurance premiums, flood insurance premiums, PMI premiums,
and MIP premiums are paid by escrow departments around the
country every day. Millions of dollars are routinely
disbursed from escrow accounts and remitted to tax offices,
insurance companies, private mortgage insurance companies,
and HUD. Millions of escrow accounts are analyzed each
month and mortgage payments are increased or decreased.
Changes to mortgage payments result in customer inquiries
that must be researched and responded to.
It is no easy task to see that all real estate taxes are
paid on time, that properties are adequately insured, and
that PMI and MIP premiums are paid; and at the heart of
escrow administration are escrow analyses. The staff
members involved in conducting escrow analyses must be well
trained and have a good understanding of all aspects of
escrow servicing.
In addition to handling taxes, insurances, and analyses,
the escrow department deals with loss drafts, PMI
cancellations, and in some companies, customer inquiries.
Also, they deal with lender placed insurance. If a property
not previously in a SFHA is later determined to be in a
SFHA, the escrow department notifies the customer that
flood insurance is required. Flood insurance is placed on
the property, if the customer fails to provide a policy.
Many customers do not agree that their property is in a
SFHA and resist purchasing a flood insurance policy. Lender
placed insurance, whether it is flood or F&EC, frequently
results in telephone calls and complaints from customers.
If all of this isn’t enough, these functions must be
performed in compliance with state and federal laws. Indeed
the escrow department has been severely impacted in the
last few years by changes brought on by HUD’s Final Rule
for conducting an escrow analysis, the Homeowners
Protection Act and Fannie Mae and Freddie Mac requirements
for PMI cancellation, HUD’s regulations for cancellation of
FHA premiums, and flood insurance regulations.
Department managers, supervisors, and employees of escrow
departments have a great deal on their plate. However, the
process works and works well in most cases because escrow
departments are made up of talented and dedicated people.
Unfortunately, in spite of their best efforts, errors can
occur that create problems for the customer, and for the
company. There can be severe consequences when an error
occurs, such as the loss of a property due to a tax sale,
or a fire loss on a property with no insurance, and of
course, a very unhappy customer.
The responsibilities and duties of the escrow department
have a direct impact on the customer. It is easy to image
the embarrassment and stress the customer will feel if his
or her name is listed in a local newspaper for unpaid
taxes. Unpaid insurance premiums can lead to cancellation
and the lender may place insurance on the property. An
incorrect tax bill paid from an escrow account, an
incorrect tax amount on the system, or some other problem
may result in an escrow shortage and payment increase. A
substantial payment increase could result in default of the
loan, as the customer may not be able to afford the higher
payment.
Mortgage companies are always concerned with their
reputation in the marketplace and with customer retention.
If the customer experiences problems with the servicing of
their loan, it is not likely that he or she will stay with
the same lender for refinancing or return to them for
another loan. The company’s reputation depends on the kind
of service they provide.
Fortunately, help is available for the escrow department
through tax services, outsourcing companies, flood zone
determination companies, and insurance companies that
provide lender placed insurance. Also, electronic payments
with the PMI companies, HUD, and some property insurance
companies are available to servicers. Electronic payments,
and services provided by vendors are a great help, but
there are always exceptions to be cleared, and follow up on
bills due for payment but not received.
There is one more item that can help the escrow department
immensely and that is employee training. There are always
new employees coming on board that need training and
seasoned employees that need refresher courses to
strengthen what they have already learned. Everyone will
agree that a well-trained employee is more productive and
generally happier with his or her job. An effective
training program creates a much higher quality of work and
usually reduces employee turnover.
Depending on the size of the company, an employee may be
trained only on the particular function assigned to him or
her. In this case, it is difficult for the employee to
understand how it all fits together and how one function
impacts another function. An employee responsible for
escrow disbursements may not realize how a processing error
will affect the customer. Generally, new employees are
trained how to process their work, but unfortunately they
are not always taught why the work they do is important.
They may not understand what the ramifications are to
others if the work is not performed correctly. If they were
provided with all the background information and
understanding of the components of escrow servicing, their
work would no doubt be more accurate. This would result in
the overall success of the escrow department.
Some companies place strong emphasis on training and have
ongoing programs in place.
Other companies rely on a department’s management team to
provide training. Since managers, supervisors, and other
employees know the company’s internal policies and
procedures, they are wonderful resources for providing
training. However, these same people are key players in the
day-to-day management of the department and may find it
difficult to find time to provide training. There are other
sources for training that should be considered.
Vendors
Invite your vendors to visit your office and conduct
training classes or meet informally with employees. After
all, the vendors are the experts in their respective
fields.
The tax services can provide valuable information about tax
office structures, tax due dates, tax sales, etc. They can
explain how the tax service uses the information provided
them, how they obtain tax bills, and what happens if an
incorrect parcel number or tax identification number is
used when paying a bill.
Insurance companies who provide lender placed insurance can
explain how the process works, what coverage is provided,
procedures for placing insurance, and procedures for
canceling the insurance.
Flood Zone Determination vendors can provide a wealth of
information about federal laws concerning flood insurance
requirements. They can explain how the flood zone
determination is made along with a definition of the flood
zones. If your company is considering a portfolio audit or
has portfolio monitoring in place, the FZD companies can
provide valuable information to employees about how it all
works. This information will help the staff understand how
to process the work involved, and of equal importance, help
them answer customer inquiries.
Outsourcing companies can cover the procedures they follow
and provide valuable background information to help your
employees understand the process.
Mortgage Bankers Association
MBA offers a variety of informative print-based and
web-based courses. In addition, the MBA website contains
interesting information relating to all aspects of mortgage
banking.
Publications
Share industry publications with your employees such as MBA
publications and Servicing Management magazine.
Other Department Managers
These managers can explain the duties and functions of
their own departments. This will help escrow employees gain
an understanding of how all the pieces fit together.
Internal Legal Department
The legal department is a good source for answering
questions about state and federal laws that impact the
escrow department. Loan servicers have implemented
procedures for compliance; however, do the newer employees
really understand all the requirements? The legal
department can provide background training and help
employees understand why certain procedures must be
followed.
Cross Training
After an employee masters their assigned job, it may be
time for him or her to learn a new job. For example,
develop a program so employees can trade jobs and train
each other. This broadens their knowledge of the overall
functions of the department and increases their
understanding of all the escrow department
responsibilities.
Written Procedures
Written procedures with detailed instructions for
processing should be available to all employees. The
procedures must be updated as changes occur. If the
department managers do not have time to write procedures,
consider using the services of a consultant or contractor.
Training Material
Consider purchasing professionally prepared training
material. Training products that are ready to use for
training classes are real time savers. Some training
packages are prepared in such a way that the manager can
insert the company’s unique policies and procedures. This
allows a manager to easily tailor training to meet their
company’s specific needs.
Off-site Training
MBA, system service providers, and others conduct training
classes in various locations throughout the country.
Professional Trainers
Consider hiring professional trainers to come to your
office and conduct training classes.
There are many ways to provide employee training, but the
point is that it is important to teach employees “why”
instead of just “how”. There is no substitute for quality
training – the result will be quality escrow servicing.
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