Whether by collective or shared investment, creating an alignment of interest with the servicer is what detailed contracts or Joint Ventures aim to achieve when considering taking on Non-Performing Loan (NPL) portfolios.
Based on our experience reviewing servicers, frequently this is not the case despite the goodwill of both parties, mainly due to potential conflicts of interest or capacity challenges. Following our communication on a similar topic last year, we have noticed increased requests for our services in post-acquisition services. All parties involved need to be comfortable with the operational capacity and normally will require a level of control over the strategies and actions implemented.
From a servicer perspective, having an external, independent review of processes provides a business consultancy facility that helps them to deliver the maximum added value to their customers.
From an investor’s perspective, it provides a relevant and unbiased assessment of potential servicers to help them to evaluate the best place to place their portfolios. Finally, investment banks supporting the funding want to verify that the servicer has the capacity and the adequate operational framework to deliver the expected Service Level Agreements and resultant Internal Rate of Return whilst minimising counter party performance risk.
We having been carrying out servicer reviews throughout Europe for over 5 years with our 360° Servicer Review facility supported by our bespoke software ‘Auditor’. We can work with servicers to review many different aspects of operational capacity. Recent examples include assessment reporting of asset performance, third party contracts, policy and procedures, GAP analysis, internal and external audit procedures, MI reporting, complaints and service level measurement.
As disposal of assets activity in Europe continues to be significant, it is crucial that ‘after acquisition’ processes and reporting performance are improved for the benefit of all parties involved and we can help ensure value for money with an independent review.