Managing an SBO (Serviced by Others) portfolio can be challenging, particularly when navigating the complexities of partnering with multiple third parties for loan portfolios. Investors and institutions involved in the servicing and reporting on loans, such as master servicers, internal servicers, REITs, etc., use shadow servicing for a range of functions. Without a shadow servicing platform or validation, teams must independently combine data from multiple servicers—each with their own conventions, accounting policies and loan terms—and translate the data into a consistent operation. This practice of compiling information from various sources without validation or a unified “truth” exposes institutions to a slew of errors from miscalculations of interest income to inaccurate application of principle an interest payments. These manual processes can create control deficiency findings on their financial statements due to overdependence on EUCs and lack of independent validation of material financial statement line items. And the lack of controls can lead to expensive audits to independently validate the information because auditors cannot rely on institutional controls.
Institutions can reduce the risk of error and reduce costs by using a shadow servicing solution to manage the information from various service providers in a single system, creating one source of “truth” for the institution’s data. A shadow servicing solution resolves management and audit pressure by independently validating the values provided by each servicer, ensuring proper calculation of interest using a variety of different conventions and policy elections and ensuring proper payment application logic.
When selecting a solution, choose a scalable solution that allows you to reconcile daily expected results against those provided by each servicer, and supports complex month-end accounting events.
The right solution should provide:
- Daily tracking of balances and P/L.
- Daily matching of Accruals with Remittances for Principal, Interest and Servicing Fees.
- Daily Processing of Expected payments (Principal, Interest and Fees) and Fee Amortization.
- Management of all Interest Types, Interest Bases, Payment Types and Remittance agreements.
- Industry-proven record handling complex month-end accounting events.
- Robust and configurable reporting platform for month-end results.
- Processes high volumes of loans with necessary SOC reports and built-in controls.
- Professional Services configuration and the ability to outsource this process.
SS&C EVOLV’s Shadow Servicing solution is a scalable solution that can be used directly by clients via SaaS (Software as a Service) or by outsourcing through our professional services team. EVOLV has been SOC I and SOC II for almost 15 years and has a proven loan accounting platform that has been battle-tested by all of the major audit firms and regulators. To learn more about how our Shadow Servicing solution can help you validate information across multiple sources and reduce errors and costly audit findings, download our "Shadow Servicing" brochure.
