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Best Practices Selecting Loan Servicing Software


Making the right call on software to help your corporate support group run more smoothly is tough, no matter what part of the business you’re beholden to…whether it be Human Resources, Sales or Accounting.

The decision is even more critical when the software relates to your core business like it does for loan servicers. Without overstating the issue, selecting a loan servicing package for your servicing business can be a make-or-break decision.

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Whether yours is a small company currently tracking loan portfolios through Excel spreadsheets or a large, established lender with a loan servicing system that’s not living up to its promise, you probably already know that implementing a quality software system will save time and increase productivity.

Ah, but how does one go about this decision process in a manner that will yield the best possible result for the business?

Making a success-based decision comes down to an Inside-Out approach. It’s important to first know your business needs and to have a realistic view of your finite set of resources. Only after you have a clear understanding of these internal factors should you look outward for a solution.

The following outline is designed to give you a decision-making framework that creates a stronger chance for success.

Internal Factors

Business Requirements

Think strategically: Where are we today and where are we going?

Create a needs-gap analysis that prioritizes the most important features you need today to help you better service your loan portfolios. What works well in your current system? Where does your current system fall short? List your needs and rank them in order of importance.

While some businesses may need a system that handles variable loan and rate types, others may prioritize things like flexible repayment options, backdated payments, partial payments and custom payment schedules. Some may seek out an easily customizable system. Yet others may emphasize sophisticated reporting capabilities.

Decide what is most important to your business today.

Then, look ahead.

It doesn’t matter if you’re servicing 50 or 50,000 loans today; perhaps your business will change in the next couple of years. Is it possible that you could expand into different types of portfolios? If so, it will be important to choose a system with flexibility, one that can grow as you grow.

Defining your business process, goals for the future and the hurdles standing in the way of those goals, is essential in any software implementation, according to Ingvar Petursson, Chief Strategist with Slalom Consulting in Seattle, will meet your goals not just today, but in the long term.

The goal should be to find a strategic partner in your software company so that ultimately, the software will meet your goals not just today, but in the long term – Ingvar Petursson, Chief Strategist with Slalom Consulting

Action Item: Create a list of business requirements based on the aforementioned considerations.

User Requirements

Put Users front-and-center in your process.

As they say in PR and Marketing circles, know your audience. In this case, know your users – and their unique needs.

Gather requirements from everyone involved, from top management to the loan servicers who will be working in the program day-to-day. While your CFO may choose a program for its reporting capabilities, data entry employees or loan and collection officers will have different needs that should be considered.

Additionally, it’s important to analyze where your staff spends most of their time and where you might be able to gain the most efficiencies.

When the time comes for trial demos, ask your users if the prospective system is logical and intuitive. Hunting around for tabs and buttons that aren’t well planned wastes time and money.

Action Item: Create a list of user requirements that can be viewed side-by-side with your business requirements.

Method of Software Delivery

Another internal factor that may greatly impact your company is how you want your loan servicing software delivered. This comes down to choosing between the traditional route of purchasing a software license and placing the program physically within your IT infrastructure, or subscribing to an online application and utilizing the technology assets and expertise of a third-party hosting company.

The first method is fairly straightforward. A software license covering the number of users of the particular application is purchased. Subsequently, the application and the accompanying database are loaded onto corporate computers and servers, permitting clients (users) to log in and begin using the application.

The second method – the online delivery and usage of the application – is a recent trend in business software. It’s sometimes called Software as a Service (SaaS), “on-demand,” “ASP,” or “hosted.” (For consistency purposes here, this article will use the term “SaaS.”)

In the SaaS world, a customer contracts to use an application hosted at a secure, off-site data center not owned by the client organization. The client organization uses the software without having to manage the application or associated hardware, in exchange for a monthly fee. Also eliminated are the many security and data backup issues common with self-hosted applications and databases.

Web-based email services such as those offered by Google (Gmail) or Yahoo (Yahoo Mail) represent simple examples of SaaS services, where the applications and content used by clients reside on distant servers.

Companies interested in eliminating the responsibilities of installing and managing their software and dealing with such day-to-day needs as hardware upgrades and maintenance, data backups and database security, the SaaS solution may be a simpler—and often more affordable—option. For those companies with greater economies of scale, state-of-the-art IT resources and fairly stable staffing needs, the license purchase might be the better way to go.

Action Item: Convene with your head IT and finance people to map out the preferred software delivery method: Licensed or SaaS?

Know your financial limits

What’s your budget for new software? Don’t waste valuable time evaluating products that don’t fit within your budget. Below are some Items to include in your budget.

  • Software costs
  • Hardware costs
  • Implementation and training costs (often involving the time and expertise of a consultant or consulting firm)
  • The cost of converting your current data to the new system.

Be certain you understand all costs associated with the software. Are all of your functional requirements covered in the base price? What costs should you expect for additional modules and upgrades?

In addition to true dollar costs, certain indirect costs should also be considered, such as the overall cost-savings that increased efficiencies of a new software package will bring your business. Considerations include:

  • How many employees are manually performing tasks that a dependable system will do automatically?
  • How many more new loans could be generated if you trusted the ability and integrity of your system?
  • How would adding an originator staff position – instead of a servicing staff position – affect your business?

Action Item: Create a financial feasibility plan that takes all of the aforementioned into account.

If your software prohibits you from moving your business forward, it can take years to fully recover – John Tobin, National General Manager, Slalom Consulting

External Factors

Armed with your business requirements, users’ requirements, preferred delivery method and financial feasibility plan, you can now begin hunting for the solution that maps to these parameters.

Develop a short list of potential solutions

As with most business software decisions today, the shortest line between two points is the Internet. Google and the other search engines offer excellent jumping-off points to get you started on your hunt for the right partner and solution.

Additionally, there are a number of business software portals that provide lists of vendors categorized by their respective areas of specialization. As you browse the Web, you should consider:

  • Your Needs.When researching a software product, make sure it meets the needs you outlined in the above exercises. If you have complex loan portfolios and a wide range of loan types, make sure the software is capable of handling that kind of variety. And if you discover gaps that may require heavy customization, continue your search for alternatives.
  • Vendor’s industry expertise. Certain software products may be very industry-specific, while others may be capable of accommodating a variety of businesses with loan servicing areas.


  • Vendor’s heritage and customer support culture. Your evaluation of software vendors should also include gaining insights into the company’s heritage. In other words, how long have they been producing and supporting loan servicing software?


Also, gain insight into the level of ongoing support that is standard with your purchase. In particular, you may want to ask such questions as:

  • What type of product knowledge does the software company’s core operations team have?
  • How does the software integrate into a range of IT environments?
  • What type of security is provided at the data center? (24/7 on-site technical staff? Monitored security?)
  • What type of security is provided at the data center? (24/7 on-site technical staff? Monitored security?)
  • How long has the company been in business?
  • How often are upgrades released?

In developing your list of candidates, consider asking other servicing companies—organizations that have similar needs but not viewed as direct competitors. Trade shows and industry directories may yield resources in this area.

Action Item: Create a short list of potential solutions matching up your requirements with the publicly available information on the Web.

Develop your list of finalists.

This is where the rubber meets the road.

Whittle down your short list based on what you can ascertain from their Web pages and the competencies articulated in company collateral. Once you have a core group of finalists, say two or three, you now need to become intimately familiar with the respective sales reps and the products they represent.

But before hopping on the phone, create a spreadsheet listing key variables for each product including:

modules, pricing, platform, customization capabilities, security features, “licensed / SaaS” options, and other features important in your evaluation.

Then, start your calling to get that deeper information you need. After your initial conversations with the respective account rep, it’s common practice to request an online demonstration of the software. It’s also fairly common to have your users and any other stakeholders involved in such demos.

During such demos, take good notes and ask questions. Don’t be afraid to ask the presenter to slow down if things are moving too fast. Consider preparing a list of standard questions – based on your Internal Discovery described above so that you’ll be able to compare “apples to apples” after viewing all the demos.

Don’t hesitate to ask for additional demos from your final few choices. Consider inviting all potential users at your company to gather for their input on the program. Better to discover the “gotchas” at this stage, instead of three weeks after implementation.

This is also the stage where customer references come into play. Conduct a mini-survey with current clients of a particular software. Besides asking what they like about the software – in which their responses may be well-rehearsed – ask what they don’t like. Ask which other vendors they considered during their search process.

Action Item: Create a list of finalists and pursue online demos with appropriate expertise at the vendor end.

Make the call!

By now you should have a fairly clear idea which vendor has the core competencies – including technical support skills and culture – and track record to help you reach your goals. You should also have a fairly good idea of the trust and true partnership potential with each of the finalists.

So, make the call.

Develop a carefully considered internal proposal that will allow you to get buy-in from your stakeholders. Articulate all of your business, user and financial requirements and match those to attributes of your chosen vendor. Be sure to get buy-in and then communicate your decision outward.

Action Item: Create an internal proposal / recommendation.

Final Thoughts

Selecting a loan servicing software can be an arduous and significant undertaking for any organization. Discovering, after months of use, that the software you’ve chosen doesn’t meet your needs could mean lost productivity for your business—and lost dollars.

“If your software prohibits you from moving your business forward, it can take years to fully recover,” says John Tobin, National General Manager with Slalom. “An improper solution will negatively impact a business in the short term as well as the longer term, requiring the software to be completely customized or eventually replaced altogether.”

Protect yourself and the important investment you’re considering by taking your time, evaluating all available options and asking the right questions, starting from the inside-out. Having a best practices-based decision-making framework can help you cut through the clutter and give your business the best opportunity to succeed.

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