Primary Services are what Midwest considers to be basic servicing of loans. These include cash management functions, basic borrower notification functions, collateral insurance monitoring, collateral tax payment monitoring and loan document management.
Initial Loan Intake
When Midwest receives a new portfolio to service for a Client, Midwest takes the following actions:
- Determine which assets if any have existing escrow accounts in order to maintain the integrity of escrowed funds and to apply properly escrowed funds in accordance with relevant loan documents.
- Establish as directed by a Client: collection account(s); lockbox account(s); operating reserve account(s); and escrow account(s). Client is responsible for all third-party costs associated these accounts.
- As appropriate, send written notice to each obligor at its last known address: advising each obligor of the servicing transfer to Midwest; directing all future payments be made to Client’s designated account(s) and advising each obligor to list our Client as mortgagee/loss payee on all policies insuring collateral.
- Promptly call each obligor to confirm obligor’s receipt of the written notice and to introduce Midwest to the obligors.
- As appropriate, prepare and provide billing statements to each obligor by physical or electronic delivery.
- Collect and post all payments due under the terms of each loan document and deposit such payments and all other asset related collections in Client’s designated account. Generally, Midwest’s Clients have all payments sent directly to a lockbox account so Midwest does not handle collected amounts directly.
General Cash Management
Monthly, upon its partner’s written approval, Midwest instructs banks holding its partner’s asset related funds to distribute those funds in accordance with the established priorities. Generally, these priorities are:
- Place all escrow payments in the appropriate escrow account
- Pay any third party bank charges (e.g., custodial fees, etc.)
- Pay Midwest’s agreed servicing fee
- Replenish the operating reserve account to the agreed amount
- Pay any of Midwest’s costs, fees and protective advances to the extent not previously reimbursed
- Pay our partner at its direction all remaining funds
In the event that funds on deposit in the account are insufficient to pay the waterfall priorities listed above, Midwest promptly notifies its partner of such deficit and partner deposits sufficient funds to the account.
Midwest provides monthly reporting to each partner in accordance with the terms and conditions of a mutually agreeable servicing agreement. Generally, the reporting requirements are as follows:
- No later than the third (3rd) business day of each month, deliver to partner a preliminary monthly report of cash collections in respect of the partner’s assets and REO as of the close of the preceding month reflecting activities during such month.
- No later than the fifth (5th) business day of each month, deliver to partner reports in a form mutually agreed upon by Midwest and its partner as of the close of the preceding month reflecting activities during such month
- Provide to partner such other reports as reasonably requested by that partner.
Midwest’s collateral release procedures are contained in its general policies and procedures. Generally, these requirements are:
- To track released collateral and loan documents
- To reconcile periodically the collateral and loan document inventory held by Midwest, if any, and
- To ensure all applicable proceeds from any asset or REO are received (by partner in its lockbox account, by partner’s attorney or designated representative or in escrow by closing agent, in all cases in immediately available funds) prior to the release of any collateral or transfer of REO;
Midwest also may agree to perform the following additional tasks, as agreed in a servicing agreement:
- Organize and participate in meetings or conference calls between the partner, designated management members and other appropriate Midwest representatives at mutually agreed upon times, to discuss the status of the servicing, reporting, management and performance of the assets.
- Complete and submit I.R.S. 1098 and 1099 tax forms as are customarily prepared by a servicer with respect to the assets on behalf of the partner (for the avoidance of doubt, Midwest shall not complete and submit I.R.S. 1099 tax forms for any vendors).
Late Periodic Loan Payments
Midwest monitors daily all payments received in the partner’s collections account. If an obligor fails to make any payment timely, Midwest takes the following actions:
- Promptly after the failure of any obligor to make any required debt service payment on the date such amount is due, Midwest contacts the obligor via written notice, an email and/or a phone call.
- Midwest continues to follow up with obligor every few days until payment is received.
- At the earlier of thirty (30) days following a missed payment or the expiration of the applicable grace period under the terms of the applicable loan documents, Midwest sends obligor a default letter.
- Midwest can consult with its partner prior to defaulting an obligor, if Midwest agrees it is feasible to do so based on the size and performance of a given portfolio.
Near Term Maturity
Midwest is proactive in dealing with obligors as a loan approaches its maturity date. Generally, Midwest contacts obligors when their loan is within 90 days of maturity to determine how and when partner should expect its balloon (or final) payment. Depending on obligor’s response, Midwest will take other appropriate actions such as assisting in refinance closings or contacting its partner to discuss other options.
Non-Monetary Event of Default (Covenants)
Midwest regularly monitors assets for non-monetary (covenant) defaults. If a non-monetary event of default occurs under the terms of any loan documents, Midwest notifies the obligors via letter, email and/or phone call. Midwest informs the obligors of the specific nature of the default and requests immediate corrective action, to the extent such default is curable. Depending on the nature of the covenant and its relative importance to the loan, Midwest will notify its partner and seek guidance. Once an agreed corrective or default strategy is agreed, Midwest implements that strategy.
Escrow Accounts Maintenance (Insurance and Taxes)
Midwest periodically contacts the appropriate tax collector’s office and insurer for each piece of collateral whether or not there is an established escrow account. Midwest gathers the following data, entering it in the ASR: taxpayer name; collateral address; property identification number; assessed value; payment amounts; payment due dates; and acceptable forms of payment. Midwest also provides its address for notice purposes.
Midwest generates a monthly report showing tax and insurance payments due the following month for all assets. Upon receipt of a tax invoice, Midwest pays the invoice from the escrow account. If there is no escrow account or if the escrow account is short funds, Midwest informs its partner and recommends whether to make a protective advance. If approved and funded by its partner, Midwest then pays the tax bill.
Midwest monitors and maintains appropriate insurance on collateral property and REO.
Midwest requires obligors provide evidence any collateral is properly insured, and investor is named mortgagee/secured creditor/loss payee on any applicable insurance policy. Where obligors provide insurance payments in escrow, Midwest insures timely payments are made to insurer for policy renewals.
Where obligors fail to provide timely evidence collateral property is adequately insured, Midwest is able to force place insurance through its aggregate policy underwritten by Lloyd’s at its partners’ expense. Midwest generally force places insurance according to pre-agreed guidelines set by each partner. Midwest notifies its partners of any force placed insurance through its monthly reporting.
Midwest monitors real estate and personal property tax obligations, notifying its partner in the event of noncompliance.
Communication with Obligors
Midwest timely responds to inquiries from obligors, provides payoff quotes and processes all other routine customer service functions.