Ignore The Benefits of Loan Servicing at Your Own Peril

Too many lenders after the quick buck focus on originating new loans, and neglect the long term value of servicing. Without a servicing strategy, lenders expose themselves to a revenue roller coaster, weaker client relationships, and a lack of control over over their business and assets. The reality is - retaining servicing is a critical stabilizer that protects lenders from market cycles and improves profitability.

The Scale of Loan Servicing is Often Overlooked

The US commercial loan servicing market is massive at 4.75 trillion in outstanding commercial and multifamily mortgage debt. Major institutions understand that these loans must be actively managed, not just originated and forgotten. Meanwhile, many lenders offload servicing and give up billions in predictable, high-margin fee income.

It's Reckless to Ignore The Potential Servicing Revenue

Loan origination is cyclical, and many in the industry have simply never experienced a high rate environments. Rates dropped to 0% in 2008 and arguably only began to significantly increase in the past few years which is AFTER many locked in low rate loans. Servicing is the glue that will power a company through the downsides and provide a steady, contractual income stream regardless of market conditions. Servicers typically earn 0.125% to 0.25% annually on outstanding loan balances. This is 2.5 million on 1 billion balance, and this is before you get to additional revenue streams such as fees and interest rate differences.

Even when new lending slows, servicing revenue remains stable, allowing forward thinking lenders to weather downturns. Lenders without servicing, however, are at the mercy of volatile origination markets, putting themselves in a financially precarious position.

The Hidden Costs of Outsourcing or Selling Servicing Rights

Some lenders assume they can avoid the hassle of servicing by outsourcing it or selling off servicing rights. This is shortsighted and costly for several reasons:

• Revenue Loss: Selling servicing means giving up years of steady income in exchange for a one-time payment. Over a loan’s lifespan, servicing fees can generate as much revenue as the initial origination fee. Lenders who sell servicing are effectively leaving money on the table.

• Weakened Client Relationships: When servicing is handed off, the lender loses direct contact with the borrower. This makes it harder to cross-sell additional financial products, offer refinancing options, or maintain a long-term relationship.

• Loss of Asset Control: Servicing involves critical risk management, from tracking payment trends to handling defaults. Lenders who outsource servicing have little say in how delinquencies and workouts are handled. This can potentially damage loan performance and recoveries.

Retaining Servicing Is The Smart Move for Stability and Profit

Lenders who prioritize servicing gain key advantages:

• Stable, Recurring Income: A strong servicing portfolio cushions against origination downturns.

• Stronger Borrower Relationships: By maintaining servicing, lenders stay engaged with clients, creating future lending and cross-selling opportunities.

• Better Asset Performance Control: Lenders that service their own loans can proactively manage risk, restructure troubled loans early, and maximize recoveries.

The Future of Loan Servicing - Adapt or Struggle

With $2 trillion in commercial loans maturing by 2025–2026, servicing will play an even bigger role in managing refinancing risk. Lenders who lack a servicing platform, or who have outsourced all servicing, will be left scrambling when economic conditions shift.

Ignoring servicing isn’t just a missed opportunity - it’s a strategic failure. A lender without servicing is flying blind, forfeiting a reliable income stream, weakening its borrower relationships, and exposing itself to unnecessary financial risk. The most successful lenders don’t just make loans, they manage them. It’s time for the industry to wake up to the reality that servicing is not optional, it’s essential.

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