Economic conditions, un- and under-employment, failed financial institutions and regulatory responses to all these issues have conspired to help boost delinquency and charged-off account growth, exasperating compliance and income challenges for today’s financial institutions. Compliance risk has also grown significantly due to recent trends and actions.

Compounding matter, a large percentage of today’s financial institutions’ portfolios are sold, insured and/or guaranteed. Investors, insurers and guarantors also have been hurt by this economy. Their response is to rigidly enforce collection actions required by financial institutions, defined within their relationship agreements. Even worse, they recently added even tighter required collection steps.

For financial institutions lacking powerful collection technology to aid in compliance, the security position they counted on (on these loans) has been removed. The foreclosed home, sold at a loss, is now an exposed true full loss; or the repossessed automobile sold upside down at auction truly presents a direct expense to the financial institution – direct net income reductions.

So, in a tight market of growing delinquencies, which are straining your staff and your traditional collection systems, your financial institution comes under the glare of bright compliance exam “lights.”

How is Income Impacted?

• Higher delinquencies lead to higher charge-offs, hurting income.
• Allowance for Loan and Lease Losses (ALLL) rises, further compounding income erosion.
• Onboarding more staff (full-time, part-time, temporary or outsourced) increases expenses, hurting income.
• Redirecting underutilized staff, like loan officers (the sales team for the financial institution) further hurts new income.
• Redirecting recovery staff (or recovery staff efforts), from recovering on prior charged-offs, harms new revenue, again hurting income.
• Sold, insured and guaranteed loan losses not covered due to collection errors, thus removing their protection, further hurts income.
• Insured losses lead to increased insurance premiums, increased deductibles – hurting income.

Tracking, Managing, Reporting

As a result, a new need has been created: The mandate for real-time, accurate and automated executive management reporting, to keep a close eye on key areas in your financial institution.

Traditional collection systems, typically provided by core vendors with semi-automated tasks, require manually gathering collection, recovery and portfolio performance information. Manually assembled data – with its associated costs, accuracy vulnerability and delivery lethargy – hinders executive management’s real time monitoring of such key areas in their financial institution. Today’s executive management needs immediate and accurate real-time access to information; to net flow/roll rates, charged-offs, board reports and trends.

Additionally, today’s financial institution needs accurate, integrated and comprehensive management, tracking and reporting for foreclosures, bankruptcies and repossessions.

Bankruptcy management issues have become so important, so fast – while internal processes remain so typically labor intensive – that financial institutions are overwhelmed trying to keep up with the unprecedented growth of this problem.

Leveraging powerful modern technology to provide integrated notification of key bankruptcy information as debtors file for or have statuses change related to their bankruptcy is critical. Automatically bringing that information from the bankruptcy court into the institutions’ automated management and tracking system can save hours per bankruptcy, reducing costs and saving income.

Be Proactive

Is there any good news here?

No credible economists are painting a fast, strong, powerful recovery. Next year’s elections will probably usher in a flood of new politicians who will have spent 2012 campaigning on how they will fix the economy. Clearly, what we see today is here to stay for the short and medium term. I believe that, you believe that and the Fed believes that.

So, can today’s financial institutions’ executive management just grimace, hang on, throw more FTE’s at these problems, placing income and compliance in jeopardy?

No, this environment has created the perfect opportunity to leverage powerful, best-of-breed technology to help today’s financial institution.

Leverage flexible technology that:

• Allows tailoring to your institution’s unique and specific needs.
• Consolidates all delinquent accounts, regardless of what servicing systems they reside in.
• Is built on contemporary technology that offers leading-edge capabilities, such as integrated work flow, automated debtor communication (voice messaging and/or letters), dynamic account queuing and automatic delivery of required executive management reporting and tracking.
• Is delivered by an experienced, committed and proven vendor in this field, giving financial institution executives the best chance to protect income, to thrive under bright compliance lights, and to steer their institution through troubled times to tomorrow’s success.

Rob Daley is president and co-founder of Intelligent Banking Solutions Inc., based in New London, N.H.