Delinquency Management: A Two-Part Guided Approach

Part 1: Fostering Relationship Banking

Written by: Heather Papows, Senior Consultant, Loan Servicing & Secondary Market

A recent MBA news publication summarized data from Black Knight’s “First Look at August 2023 Mortgage Data” indicating that although the US delinquency rate showed an improvement, there appears to be a steady slowing on that rate of improvement. This could indicate that we are approaching “cycle lows”, which for lenders may mean it is time to re-evaluate collection practices and ensure your process is ready.

In this two-part series, we’ll introduce two valuable approaches to strategizing success in preparing for, and managing delinquencies.

The first strategy is to embrace the concept of relationship banking. Fostering a relationship banking approach can be your first line of defense to mitigate the risk of serious delinquencies in your portfolio.  

Defining Relationship Banking
Before you can employ this strategy, it’s important to first understand it. Relationship banking typically involves pairing a banking customer (an individual, a joint customer relationship, or a business entity, for example) with a relationship manager (an employee of the FI) who acts as the main contact for that customer, and is the liaison for introducing them to all of the various products, services, and/or other employees of the FI that could be of benefit to the customer.  

For FI’s with commercial banking customers, this may be handled by a commercial loan officer or lending assistant. In a deposit-centric customer, it may be a retail branch manager taking the lead. But for residential lending customers, you may find they have a missing link. This could cost you valuable insight- from early warnings signs of payment default to the opportunity for an open line of communication for workout resolutions.

Benefits of Utilizing this Approach
This approach is often looked at as a sales method, but it is just as important to be used as a customer retention and risk mitigation tool. Building a strong banking relationship with a customer can translate to mutually beneficial business- where you optimize all of the products and services available to them, and they feel good about entrusting their financial business with you. But more so, it can translate to greater transparency and predictability when it comes to possible looming issues- including delinquency.

If your institution has a Collections manager on staff, start by coaching this individual on embracing and becoming a relationship manager. Their primary responsibility is to work with customers who are in default (or imminent default). But to be ahead of the curve means noticing the warning signs, and starting that relationship early. Initially, it may be direct with the customer, or perhaps indirect as through their current relationship manager. You want to encourage them to build a relationship centered around trust and understanding, while not losing sight of the objective -the FI’s commitment to providing upstanding service, and the customer’s timely repayment of their obligations.

Now it’s important to note that adding this type of strategy to your collections/delinquency management procedures in no way relieves you of any other responsibility when it comes to following Fair Debt Collection acts and laws. You are simply attempting to create open lines of communication, while arming yourself with as much knowledge around the situation as possible. As anyone responsible for this can speak to- there is nothing worse than managing a delinquent account where you are blindly working towards a resolution with little to no information around what’s happening or why. But you must always follow the strict guidance of the laws (and your investors) and adhere to your internal policies.

For help in assessing your current delinquency management and collections procedures, and integrating this and other value added approaches to the process, trust the team here at SCA, your strategic partner since 1991. Our professional staff of coaching and collection experts can uniquely work with you to optimize your operation and prepare you in the best ways possible. Contact Bill Dolan, Director, at WDolan@scapartnering.com or by phone at (617) 694-2617 for more information.

Stay tuned next week for more on this topic, as we discuss empathy in collections: the second value-added approach to strategizing success in preparing for and managing delinquencies.