MBA NewsLink recently posed questions to John Walsh, CEO of LERETA, Covina, Calif., a national provider of property tax and flood hazard data for the real estate industry.
Walsh assumed the role in September 2015 and leads an executive leadership team focused on providing the mortgage and insurance industries accuracy, responsiveness and innovative technology. He has more than 20 years of senior management experience in the financial services industry and more than 10 years leading technology firms. The company's website is http://www.lereta.com/.
MBA NEWSLINK: Why should lenders pay more attention to how property taxes are paid?
JOHN WALSH, LERETA: More than 200 years ago, Benjamin Franklin famously said, "In this world nothing can be said to be certain, except death and taxes." About 50 years ago, Will Rogers added his two cents: "The only difference between death and taxes is that death doesn't get worse every time Congress meets." Both clearly intended to poke fun at our government's insatiable appetite for taxes. Probably neither would find anything amusing about the incredible complexity of the current U.S. property tax environment.
This complexity is why lenders need to clearly understand how property taxes on the loans in their portfolio are being managed and ensure that they are in fact well managed. There are more than 24,000 taxing agencies in the U.S. In some areas, as many as four different entities may tax an individual property. Each of these has different due dates, penalties and borrower notification requirements. Managing these complexities for even a small portfolio is difficult without the right expertise, processes and technology.
To top it off, the risk of not managing taxes correctly has never been higher. Of course there has always been the risk of penalties and lost properties. Today, however, with increasing regulatory scrutiny, there is the added risk that borrower complaints can lead to audits, fines and severe business interruptions.
NEWSLINK: What is the most important aspect of tax services that lenders overlook?
WALSH: As a tax service vendor, we are responsible for protecting our clients against financial risk and perhaps more importantly, protecting their reputation with their clients and borrowers. This means that beginning with setting up the tax line, it is critical that we are both timely and accurate. Failure to do so (i.e. not setting up an escrow account) can directly lead to borrower irritation, tax agency penalties, possible complaints to regulators, RESPA violations, fines to the lender/servicer and borrowers refinancing away from the lender/servicer.
Managing tax services effectively is also highly dependent on a vendor's integration with and understanding of the lender's loan servicing system. With the widest distribution of clients in the tax service business, LERETA has long-standing working relationships and integrations with almost every existing loan servicing system.
We believe the most important aspect of tax service today is ensuring that we don't expose our clients to regulatory risk. For example, we have never had a Consumer Financial Protection Bureau complaint filed against us. Lenders should explore the CFPB complaint board (see Consumer Financial Protection Bureau Consumer Complaint Database at www.consumerfinance.gov to better understand the performance history of their tax vendor.
NEWSLINK: What role has technology played in providing accurate property tax information?
WALSH: In the case of an escrowed loan, it is important to remember that the lender is responsible for managing somebody else's money to pay tax obligations. This duty comes with a high level of responsibility that requires a knowledgeable, highly-organized and documented process to ensure taxes are paid accurately and at the lowest cost for the benefit of the borrower.
Tax payments made based on manual acquisition of data are more likely to be delayed and are subject to error when posting to homeowner accounts, resulting in excessive costs, borrower inquiries and escrow management issues. Payment and reporting based on automated data acquisition improves the timeliness and accuracy of a transaction and eliminates pitfalls that manual tax payments create.
In addition to using technology to support data acquisition, it is critical in managing workflow. Every step of the process starting with accepting an order needs to be scheduled, prioritized, completed on schedule, scheduled again and reported. The technology to support this process is obviously crucial for lenders with large portfolios. The complexity of the process, however, means the level of workflow technology support is critical even to support lenders with smaller portfolios.
NEWSLINK: How would you describe property tax services in the mortgage industry?
WALSH: Up until the last year or two, property tax service in the mortgage industry has been dominated by one vendor. Although there were, and continue to be, a few small regional vendors, the reality is that the large lenders and servicers couldn't realistically look to one of these small vendors to manage their primary book of business., leaving them with only one choice. Not surprisingly, this lack of competition has resulted in minimal innovation.
Due to our strong organic growth and acquisitions, LERETA can support the industry's largest lenders and servicer. Based on the number of clients, LERETA, with about 2,000 tax clients, is now the industries' largest vendor. Adding an average of 10 to 15 new clients each month, it is also the industries' fastest growing.
Our expectation is that increased competition in this market is going to result in stronger overall innovation and better solutions for the entire lending industry.
NEWSLINK: How do you see the role of tax services changing in the near future?
WALSH: First, increased competition for the large lenders will mean improved and enhanced solutions both for lenders and borrowers which is a strong positive. Today the market is driven by vendor-dictated, "off-the-shelf" solutions. The way we approach the market is unique. We bring a wide menu of services to the industry and tailor a solution to meet a variety of needs. This enables our clients to have the flexibility to perform as much, or as little, of the tax service process as they want. One solution may not fit all sizes. It must be adaptable.
Second, although tax service is already a very technology-dependent business, we see the pace of additional automation increasing going forward. We are constantly developing technology that allows us to better serve our customers with faster, more complete and more accurate information. It truly is all about the customers and what best fits their special needs.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at email@example.com.)