Ask the Experts: Due Diligence Tips when Acquiring a Debt Collection Agency
Question: I am in the process of buying a consumer collection agency with 30 full-time employees. The agency mainly services debt buyers. I plan to merge in the entity into my operation within 3-6 months. We are close to signing a letter of intent (LOI) and I expect to have 30-45 days to complete my due diligence, execute a purchase agreement, and close/fund the transaction. I would appreciate any due diligence tips you can offer.
Answer: (From Michael Lamm, Associate at Kaulkin Ginsberg)
Congratulations, here are a few tips to make due diligence a smoother process:
1. Make a Due Diligence List – Set expectations with the seller by outlining the data you need to gather during due diligence. Divide up your list to include key financial, operational, and legal information you need from the seller. Prioritize the list from most to least important. Since you are merging the entity into your existing platform, your due diligence should center on the “book of business.” Focus on client performance data and confirm the critical staff members within the organization who are essential to retaining the clients you want.
2. Set a Timeline – Work with the seller to develop a timeline of when you can expect responses to your due diligence list and set dates of when you will need to be on-site. Do this at at the outset of due diligence so everyone is bought into the process and knows the deadlines that need to be met.
3. Meet the Clients – Determine with the seller when it will be appropriate for you to communicate with the key clients. It typically occurs toward the end of due diligence, when you are close to closing/funding the deal.
4. Determine Pending Legal Issues – Ask the seller to put together a list of outstanding legal issues and the corresponding amount of financial exposure that exists. For any litigation matter – employee or collection related – request case documentation so your attorney can review it and share his or her own perspective on your exposure. Be sure your counsel incorporates language into the purchase agreement that protects you from any of the legal issues that were under the sellers watch that may come back to haunt you.
5. Review Facility Leases – Since you will be merging in the entity, determine how you will deal with any lease obligations. Sublease options or a buy-out of the lease may exist and should be addressed and dealt with early in due diligence.
6. Keep Key Employees and Collection Staff – Interview the key employees whom you want to remain post-transaction. Work with the seller to determine whether you need to offer a retention bonus to the key staff or collectors to keep them motivated to perform during the transition.
7. Monitor Collection Licensing - Since you are going to continue to operate the entity for 3-6 months post-closing, you will need to assure your clients that you are appropriately licensed during the transition. Consult with your attorney or a specialist who deals with licensing to make sure that during the transition, your licenses are active in the appropriate states.
Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email. You can also read his blogs, follow him on Twitter, or network with Michael from his social media page on insideARM.com (link to http://www.insidearm.com/go/personalities/lamm).
Ask the Experts: Can SIFs Benefit My Agency?
Question: What are current SIF rates in the ARM industry? And how can SIFs benefit my collection agency?
Answer: (from Paul Legrady, Director at Kaulkin Ginsberg)
Settlement in Full rates for credit card paper can reach 50 percent pre-charge-off, declining over the life of the receivable to 20 percent or less when managed by a tertiary contingency agency. Few credit card issuers with developed recovery systems will refuse to settle accounts at early stages of delinquency, even when an account is four months overdue and has yet to charge off.
Kaulkin Ginsberg has heard of settlement authority granted to pre-chargoff collection companies at as little as 20 percent of face value. This suggests that a $1500 flat screen purchased by a borrower in January 2010 could be paid for in May 2010 for as little as $300.
Over the past two years, forecasts of liquidation rate performance made by credit issuing companies have been waning. Whether actual liquidation curves decline, remain flat, or improve in 2010, upfront settlements with certain debtors will continue.
Competition has also increased among credit issuers for settlement rates. Sophisticated debtors can choose to settle one credit card account, for example, with a lower settlement rate while leaving another card unpaid. As credit issuers competed for the “wallet share” of borrowers on the basis of interest rates, frequent flyer miles, and other perks in 2006, credit issuers now compete with each other on the basis of settlement rates, with payment sometimes going to the issuer willing to resolve its past-due accounts for less.
The owners of many collection agencies and first party service providers have been happy to incorporate lower settlement rates into their talk-offs with debtors. In insideARM's most recent Credit & Debt Collection Industry Confidence Survey, 32.4 percent of collection agencies and 44.8 percent of debt buyers reported deploying lower SIF thresholds recently to improve collections. Providing this incentive for borrowers to repay their accounts also improves the immediate financial performance of receivables management companies in difficult economic conditions.
For all of these reasons, Settlements in Full have become a different collection strategy for a different period of time.
For more on SIFs and their impact on ARM firms, please read Paul's most recent blog entry, "SIFs: How much is too much?"
Paul Legrady provides management consulting services to creditors and receivables management companies. To confidentially discuss your interests, or to learn more about Kaulkin Ginsberg’s Recovery Review program for credit issuers, contact Paul at 240-499-3818, or by email.
Ask the Experts: Collectors Working from Home
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: I own a consumer, third-party collection agency in the Midwest and I have been receiving requests from my tenured collectors, who have been with me for more than 2 years, to work from home a few days a week. I am curious if you have seen any agencies setting up remote capabilities for collectors, how successful has it been, and how clients react.
I look forward to your response.
Chris, Kentucky
Answer: (From Michael Lamm, Associate at Kaulkin Ginsberg)
Chris, thanks for the question. You are not alone; we are definitely seeing this request pop up more and more, especially after a very difficult year. With liquidations down, there have been fewer commissions to collectors, and this has put a strain on their personal finances. Many of your career collectors – staffers who have been with you for longer than one or two years – have become burned out from long commutes. They may be watching the gas expenses eating way at their paychecks and want to be closer to the family. Working at home gives them that opportunity.
Work-at-home programs are not yet common. So far, it is rare to find a consumer agency that has rolled out a formalized work-at-home model, but we have seen a few agencies make exceptions for certain collectors. Normally, these are collectors who drive performance on specific client streams and may work from home a few days a week. Large firms that have ARM divisions, such as West Corporation (www.west.com) and Convergys (www.convergys.com), have work-at-home capabilities, but they are mainly offered to employees on the customer service side of their businesses.
How it works. Generally, the collector is set up with remote capability from a home computer and given designated phone equipment (Voice over IP phone, headset, etc.) to utilize. Everything the collector does can still be monitored as if the individual was sitting in the call center. Before setting up a collector remotely, the agency may get approval from the recovery manager. The recovery manager would have an opportunity to evaluate the person by reviewing a resume, interviewing him, or reviewing individual performance stats before allowing the agency to permit the collector to work any accounts from home. Clients tend to be ok with it, as long as performance does not suffer as a result.
Working from home is not for everyone, which is why your supervisors who interact with collector need to determine, based on the person and his or her home environment, whether this will work or not. If the person is a good candidate to work from home, he or she will be more productive at the end of day, and by allowing him or her to work from home, you are building a long-term, trusting relationship; it is a win-win. Agencies that have tested it out tell me, their work-at-home collectors have become more productive – they take fewer breaks, and without social interaction with the other agents, they can focus on getting the job done.
Issues to address: The main reason many agencies have not rolled out a work-at-home model is that there are potential FDCPA, data security, and performance control issues that exist; however, we have seen successful work-at-home programs in the commercial collections arena. Commercial collection agencies do not operate under FDCPA rules and the claims they are collecting on tend to be high average balances which require a more sophisticated collection effort, making it more conducive to a work-at-home model.
Will work at home get off the ground? With all of the recent legislation at the state and federal level impacting the ARM industry, I am hard pressed to think that we will see many formal work-at-home programs in consumer collections rolled out anytime soon. However, good collectors are not easy to find and then retain. When you find them, you don’t want to lose them, which is why I can see a movement of more consumer agencies allowing selected, pre-qualified collectors to work from home over the next five years.
If anyone has experimented with work-at-home collectors (consumer or commercial), I would welcome your comments.
Got a question or a comment? Contact us at editor@insidearm.com!
Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email. You can also read his blogs, follow him on Twitter, or network with Michael from his social media page on insideARM.com).
Ask the Experts: The Future of Healthcare ARM
Question: More than a year after legislative reform efforts gained legitimate footing, what does the future hold for the healthcare ARM market?
Answer: (from Michael Klozotsky, Analyst, Kaulkin Ginsberg)
Since the debate over healthcare reform took its place at stage right (while the economy, out of necessity, occupied center stage) in the national conversation, much uncertainty has surrounded government intervention’s potential impact on healthcare collections. Some of that trepidation was understandable and warranted, while other aspects were less so. Although it is practically impossible to address every effect of a legislative overhaul of the U.S. healthcare system on medical collections, I would like to speak to what I know thus far.
The sky over healthcare collection agencies is not falling
Two days after the presidential election in 2008, I addressed a group of ARM industry executives at ACA’s Fall Forum. The recurring premise of that lecture was that federal healthcare reform—in whatever form it ultimately came to pass—would not signal the death knell of medical collection agencies. I maintain that assertion today, and will continue to affirm its validity in 2010. Healthcare spending in the U.S. will soon equate to one in every five dollars spent in this country. And since 2000, healthcare premiums have risen 95% while income has grown by less than 18 percent. Whatever remedy federal healthcare reform brings to American citizens, people will still become sick, and the substantial delta between patient portion and third party payers versus healthcare costs will continue to produce uncompensated care that will need to be recovered.
Politics and the business of healthcare collections are not one in the same
Without delving into a lengthy discussion of the political fuss that has surrounded the current healthcare debate, owners and executives of healthcare ARM companies would do well to keep the distinction between socio-political and business concerns squarely in front of them. Much of the delay in passing reform legislation has come as a result of partisan squabbles in Congress, arguments over federal funding for abortion, philosophical disagreements about the appropriate reach of government into the decisions of individuals and corporations, and fanatical rumors about the creation of “Death Panels” as a component of a revamped healthcare system. These factors have undoubtedly encumbered the legislative process, but they bear little to no weight on the collection of past due medical bills.
It’s the economy, stupid
Apprehension about reform efforts among healthcare ARM professionals has been heightened by the very real consequences of the current economic recession on their collections businesses. Amid lower liquidation performance, downward pricing on fees, increased client pressure to perform in spite of the economic crisis, compulsory staffing reductions and tightened credit markets, the possible implications of healthcare reform would seem on the surface of things to rub salt into an open wound. But even if healthcare reform isn’t a panacea for the dysfunctional U.S. healthcare system, neither should it become a scapegoat for the ailing ARM industry. The ongoing challenges in the healthcare market are analogous to those in other segments of the collection industry as a whole, and medical collection agencies, debt buyers, and technology vendors should instead leverage the opportunities created by the economic climate to grow their businesses.
Business as usual is a losing proposition
One high level approach to emerging from the economic instability of the last 18 months for healthcare ARM companies is to adopt the metaphor of legislative reform as a call to action for remodeling their own business practices. This is healthcare reform as a beacon rather than an anchor. While admittedly not without significant obstacles, the following strategies encapsulate what I know thus far for success going forward.
- Sustained high levels of unemployment, though a detriment to liquidation rates, will virtually ensure the need for healthcare providers to outsource their delinquent receivables.
- As the concept of portfolio sales gains greater traction among providers and as access to patient and affordable capital increases (however slowly), the healthcare debt buying market will grow and mature.
- Notwithstanding difficult staffing reduction decisions in 2008 and 2009, the healthcare collections market is well disposed to employing innovative scoring and analytics systems to offset reductions in FTE.
- As providers seek to drive down fee rates, make time in your 2010 business planning to do a reverse assessment of the profitability of your customers and, when appropriate, make the tough decision to shake up your client mix to achieve bottom-line growth.
- As provider organizations look to reduce the administrative costs and time associated with managing their ARM industry partners, actively pursue original and diverse service offerings for your clients. When internal diversification isn’t feasible, consider strategic partnerships with other ARM companies that provide complimentary services—not only to preserve existing client relationships, but to expand market share from new alliances.
- Get ahead of reform. When—not if—reform legislation passes, one of the most valuable assets a healthcare collection agency can possess is a business model that champions professionalism, reinforces education and training, and mandates strict regulatory compliance.
Michael Klozotsky supports various types of M&A engagements and related advisory assignments, including sell-side and buy-side representations, for Kaulkin Ginsberg. Michael also provides expert analysis of the healthcare receivables market. Check out Michael's page, or contact him by email or at 240-499-3836.
Ask The Experts: Using the Correct Data in Skip Tracing
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: Which data is more reliable for finding hard-to-contact debtors: public record data or credit bureau data?
Answer: (from Rob Fite, VP of Receivables Management Solutions – LexisNexis® Risk Solutions)
The simple answer is that organizations should rely on all types of data when trying to find debtors. It is important that skip tracers have access to information from different sources.
At LexisNexis® Risk Solutions, we have shown through research that up to 35 percent of delinquent debtors move each year. So tracking them can be a challenge.
There are two basic broad sources for most skip tracing data: public record data (like property records, motor vehicle registrations, and court records) and credit bureau header data, which is comprised of information that consumers give to organizations when they apply for credit. Both are very important in searching for debtors.
But the dynamics of current economy have impacted the usefulness of some types of data.
A few years ago, at the height of the housing boom, credit bureau data was typically very reliable. There was an unprecedented surge in mortgage applications that led to easy locates using bureau data. Beyond mortgages, credit expansion was progressing at a record pace, especially in the credit card sector. In short, everyone was borrowing. Since the credit economy was capturing more people than ever, bureau data became hard to outrun for those inclined to do so.
After the financial crisis in fall 2008, lenders began tightening credit standards and extending less credit. As unemployment began its determined march upward, consumers were voluntarily pulling back from credit spending as well. The two factors have combined to dramatically reduce credit applications in the U.S. over the past year. This means that credit bureau header data has not been refreshed at the blistering rate it saw just a few years ago.
This is not to say that credit bureau data can be classified as unreliable. Credit is still a very important part of the American economy. And credit bureau header data will be extremely important during the economic recovery. But collection organizations should focus on solutions using data from multiple sources when skipping.
LexisNexis Receivables Management Solutions like Accurint® for Collections and LexisNexis® Link ID™ combine data from multiple sources in one solution. Even as credit bureau header data becomes slightly less reliable due to economic influences, access to countless other data sources keeps results from LexisNexis® skip solutions accurate and efficient.
Rob Fite is the Vice President of Receivables Management Solutions for the LexisNexis® Risk Solutions, and brings with him nearly 20 years of experience in the fields of collections, credit, and risk management. At LexisNexis Risk Solutions, Rob is responsible for leading LexisNexis collections market strategies, product development, business direction and revenue growth. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Accurint is a registered trademark of Seisint, Inc. Link ID is a trademark of LexisNexis Risk & Information Analytics Group Inc. Other products and services may be trademarks or registered trademarks of their respective companies.
Ask the Experts: Strategic Planning for 2010: Driving Sales Results
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: What should my collection agency do to drive sales results for the new year?
Answer: (from Michael Lamm, Associate at Kaulkin Ginsberg)
It is strategic planning time for agencies! This year will definitely be one for the memory books, as agency owners have been challenged by one of the most difficult collection environments in decades. This time of year, some teams may go off-site or they may lock themselves in a conference room to conduct their planning. Regardless of where they meet, they will be assessing what went right and wrong in 2009 and determining their plan of attack in 2010.
Making a sale to a credit grantor in the recessionary environment of 2009 has been more challenging than in years past -- especially with the frequent turnover that we have seen within recovery groups. However, with the increased volume of past-due accounts, credit grantors have been looking to add to their agency networks. This past year, getting that call from the recovery manager was likely a function of whether your agency had all the boxes checked; SAS70, no substantial legal issues (FTC/State AG), the paper skill-set, a strong back-office, and, don’t forget the other important factor, the pre-existing relationship!I challenge you during your planning meetings to dissect your sales strategy and discuss the following:
Review clients you won, lost or terminated
Put together a spreadsheet for you and your sales team to address the following questions:
- What drove that client to place business with you?
- Why were relationships terminated? Was it the credit grantor’s decision or did you end it because it wasn’t profitable?
- What aspects of your sales process worked and what didn’t in obtaining new clients?
Assess sales personnel monthly/quarterly goals
Setting achievable goals throughout the year is critical and needs to be monitored on a regular basis to drive performance. Ask your sales people to list out, if they haven’t already, what they hoped to achieve in 2009 and what they actually accomplished. For example:
- Did they want to sign up X new clients and obtain X new streams of business from existing clients? Were they successful? Why or why not?
- How much in net fees and commissions did they want to generate?
- How many conferences did they want to attend? How many face to face meetings did they want to have?
- How many cold calls did they want to make in a week/month/quarter?
Track profitability of new volume
There is a plethora of volume out on the street for a sales person to go after. Debt buyers are trying to give it away to any contingency agency that wants it. Questions to go through:
- Do you have a process in place to evaluate the profitability of new business? If not, you need to work with your staff and collection software vendor to create a model that you can utilize to assess whether you should take on a project or not.
- Are your sales people taking on the wrong clients just to meet sales goals?
Determine unprofitable clients
Having a top 5 credit card issuer client looks great in your marketing materials, but if you’ve had the client relationship for an extended period of time and you still aren’t making money, figure out a way to make it profitable ASAP. Consider changing staffing levels or moving volume to lower-cost labor facilities, for example. If it cannot be profitable, cut the cord. With the challenging liquidation environment, an agency cannot afford to take on issuer clients that are not profitable.
Leverage your competitive advantage
What differentiates your agency from the pack? What drives a credit grantor to place business with you? Is it your sales person who is visible in the market? Is it your industry specialization? Is it your client service? Once you’ve determined your unique selling proposition, discuss in your meeting whether you are fully communicating this strategic advantage in everything you do, including your marketing literature, your website, your sales pitch, your conference booth, and so on.
Happy planning for 2010!
Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email. You can also read his blogs, follow him on Twitter, or network with Michael from his social media page on insideARM.com.
Ask the Experts: How are bankrupt accounts treated in the ARM industry?
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: What are the options for an ARM firm that has some of the accounts its working go bankrupt, and what are some of the recent trends?
Answer: (From Ed Barton, Linh Tran, and John Tu of B-Line, LLC)
Options for accounts in bankruptcy vary depending on the type of company facing the account. For third party collection agencies, the typical move is pretty straightforward: send the file back to the client.
But for the owners of the account, whether it is the original creditor or a debt buyer, the options become more complicated. Large issuers have robust operations to deal with bankruptcies, and much of the work is done in-house. Many smaller issuers and debt buyers, however, need to decide how to handle these accounts.
There are basically three things an owner of a bankrupt account can do: service the account, sell it, or do nothing.
Most large issuers service their bankruptcy accounts in-house. But many debt buyers need help with identifying the bankruptcy and then pursuing possible money owed to creditors in the bankruptcy process. Many of these firms contract with external bankruptcy specialists to help them navigate the process.
Selling the debt is also a viable option. Just like any other debt purchasing transaction, a sale sees the account leave the owner’s books so they do not have to worry about it anymore. There is a very mature debt sales market for bankrupt accounts, so finding a buyer is typically not a problem.
The last option is doing nothing. Doing nothing means literally doing nothing. Creditors almost never chose this option, but debt buyers sometimes will. They chose not to touch it for fear of running afoul of the law. They chose not to sell it because they don’t have the capability or volume to package it and market it. So they will just let it sit to eventually die.
Lately, we have been seeing a noticeable shift in strategy from sales to service. Right now, as with most debt purchasing markets, prices are deflated for bankrupt accounts. Creditors feel that they are not getting a fair price and debt buyers are finding that the secondary market is not as robust as it once was. So many are opting to service the accounts in-house or use vendors.
There are also regulatory issues that are keeping people away from the sales market. Increasing media demands are making it tougher to complete transactions. We anticipate that this will get worse over the coming months.
B-Line, LLC is one of the leading purchasers and servicers of consumer bankruptcy accounts in the United States. B-Line purchases secured and unsecured consumer debt included in both chapter 7 and chapter 13 cases throughout the nation.
Ed Barton is the CEO, John Tu is Vice President, and Linh Tran is Associate General Counsel at B-Line.
Ask the Experts: Finding Clients for a New Collection Agency
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: How can I find local clients for a new, small collection agency?
Answer: (From Michelle Dunn, founder and president of Never Dunn Publishing, LLC.)
Also, look in the phone book in your area and in the help wanted pages of your newspapers. If a company is looking for a credit manager or A/R clerk they may need a collection agency. You can also advertise in trade publications or publications that you know creditors are reading, also in your local papers for local business. Networking is another way to get your company name out there and asking existing customers for referrals.
Focus on industries that you have experience in, you and your collectors want to be very familiar with whatever industry you are collecting on. This will help you to obtain clients in that industry and you will collect more money for them because you will know the ins and outs of that particular industry.
For example, if you choose heating oil accounts to focus on, maybe you know how deliveries, minimum deliveries, Community assistance and service calls all work in that industry. Oil companies will feel more comfortable placing accounts with you if you are educated about this industry than with an agency that collects on anything and doesn’t have specific knowledge about that industry. This will also help you collect more money because when the debtor gives you an excuse or complaint, you may have an answer right away because you are educated and be able to close the call with a payment rather than saying, I don’t know and calling your client to find out and trying to get back to a debtor which decreases your chances of getting paid as quickly.
Michelle Dunn is the author of Starting a Collection Agency: How To Make Money Collecting Money. She has over 21 years experience in credit and debt collection. She is also a writer, publisher, consultant, published columnist and the author of many books on the topic of credit and debt collection. She is also the founder of Michelle Dunn’s Credit & Collections Association.
ASK THE EXPERTS: Using New Technology to Reach Debtors
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: What are some specific strategies collection agencies can employ to leverage new communications technologies to reach debtors?
Answer: (from Rob Fite, VP of Collections Solutions – LexisNexis® Risk Solutions)
The most basic interaction an accounts receivable management professional can have with a debtor is the traditional collection call. And this basic interaction is the goal of any ARM organization.
But it’s a goal that is increasingly difficult to attain. When answering machines were introduced to consumers, millions learned the simple pleasure of screening calls. And then came Caller ID, a technology that prevented people from suffering the indignity of not knowing who was calling.
As challenging as these hurdles were to overcome, nothing compares to the emerging roadblock of widespread wireless adoption. Mobile communication technologies currently enjoy a protected status from regulators in the United States.
While landlines are still the predominant avenue for collection calls, an ever growing percentage of debtors and the general population are utilizing mobile communication technologies for their primary communication, whether it be voice, text or email. In fact, more than 20 percent of American households today have only wireless phones, according to a recent study. Though many in the industry view mobile communications as a roadblock due to their current protected status from regulators in the United States, most wireless devices actually have a built-in technology that ARM companies can leverage to contact debtors: text messaging.
If one could solve the legal impediments and uncertainty, a straightforward sample strategy for using SMS text messages to contact debtors could be:
- Using an analytics suite, determine which of your contact numbers are wireless.
- Have a collector team dial those numbers for an attempted right-party contact (the regulations surrounding dialers and cell phones are still vague).
- If the collector does not make contact, do not leave a message.
- SMS the number with a brief message for the debtor to take action.
You can have a debtor visit a specific Web site where they would input a personal PIN. After they did this, they would have the option to pay the debt off, make a payment, or get additional information about their account. Many collection attempts fail because people are embarrassed to admit to anyone they have debt hanging over them. If you give the debtor an opportunity to access their account on their own time, certain segments may be more likely to pay. The explosion in the growth of online bill payment would certainly lead us to believe that people would warm to this option.
And these are scenarios that many collection agencies are currently exploring. Imagine where we could be heading: mobile payment technology, effective email strategies, etc. Who knows…maybe some enterprising developer will create an iPhone app for debt collectors.
- Using an analytics suite, determine which of your contact numbers are wireless.
- Have a collector team dial those numbers for an attempted right-party contact (the regulations surrounding dialers and cell phones are still vague).
- If the collector does not make contact, do not leave a message.
- SMS the number with a brief message for the debtor to take action.
You can have a debtor visit a specific Web site where they would input a personal PIN. After they did this, they would have the option to pay the debt off, make a payment, or get additional information about their account. Many collection attempts fail because people are embarrassed to admit to anyone they have debt hanging over them. If you give the debtor an opportunity to access their account on their own time, certain segments may be more likely to pay. The explosion in the growth of online bill payment would certainly lead us to believe that people would warm to this option.
And these are scenarios that many collection agencies are currently exploring. Imagine where we could be heading: mobile payment technology, effective email strategies, etc. Who knows…maybe some enterprising developer will create an iPhone app for debt collectors.
Rob Fite is the Vice President of Collection Solutions for the LexisNexis® Risk & Information Analytics Group, and brings with him nearly 20 years of experience in the fields of collections, credit, and risk management. At LexisNexis, Rob is responsible for leading LexisNexis collections market strategies, product development, business direction and revenue growth.
EDITOR'S NOTE: This article originally appeared in Know Your Debtor, a new FREE quarterly email newsletter published by insideARM and LexisNexis that focuses on understanding trends impacting consumers. To receive the newsletter, please sign up at http://www.insidearm.com/go/subscriptions.
Ask The Experts: Can Mortgage Backed Securities Debt Be Sold?
Ask the Experts is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry -- and a sister company of insideARM.com -- as well as other seasoned industry executives.
Question: Can the debts that “back” mortgage backed securities be sold individually?
Answer: (from David Lavine, Director at Kaulkin Ginsberg)
This question requires some explanation of the actual structure of these financial instruments. A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. Commercial Mortgage-backed securities (CMBS) are secured by commercial and multifamily properties. First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac and private entities.
Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, accomplished thru securitization. These securities are usually sold as bonds, but in recent years creative marketing has created a variety of securities that derive their ultimate value from mortgage pools. The asset-backed security itself is a financial instrument whose value and income payments are sourced from and collateralized (or “backed”) by a specific pool or group of underlying assets. These assets are typically individually small and illiquid and are pooled together to allow them to be sold to general investors.
Usually, a special purpose vehicle (SPV) is created to process the securitization of asset-backed securities. The SPV creates the securities, markets and sells them, applies the proceeds to fund the acquisition of the individual assets and is responsible for the grouping of the underlying individual assets into the pool in question. Once created, the individual assets are unable to be sold individually.
David Lavine is the leading valuation expert in the credit and collection industry. He provides business valuation and expert witness/litigation services to select clients. For more information about Kaulkin Ginsberg’s services for debt buyers, contact us at hq@kaulkin.com.
