By Ray Birch
BOCA RATON, Fla.—As more credit unions focus on real-time payments they should also be paying attention to whether their members’ mortgage tax escrow payments are being made instantly, as well, says one expert.
Niko Spyridonos, CEO and founder of Autoagent Data Solutions—which provides escrow processing services to companies—explained that, typically, some credit unions make escrow tax payments directly to the tax offices utiliziing a tax or escrow processor.
“Escrow processors’ numbers have been consolidating over the past several years. So, there's not too many processors to choose from anymore,” Spyridonos said. “What they do is report the amounts due during the tax cycles. Different states, counties and municipalities collect property taxes at different times of the year. That information is handled by the credit union so they can disperse the property tax, the escrow tax, in a timely manner.”
However, there are “issues” with using many escrow processors, Spyridonos contended.
“Number one, it's a timing issue,” he said. “The way the tax servicing companies work is they receive the funds dispersed from the credit unions early in the tax cycle. However, what they do is group all the payments from several hundreds of credit unions or mortgage lenders together into one lump sum that gets dispersed at the very end of the tax cycle—as close as possible to the due date of the property taxes--like the old batch processing. Let’s say you have to make a payment for $100 million that comes in from 400 mortgage lenders--you'll need to consolidate that. You need to collect all those funds together so you can make one or two wires over to the county.”
Worrying Each Day
And sometimes that causes problems that impact not only the credit union but its members, Spyridonos suggested.
Niko Spyridonos
“The monies are not dispersed in real time, which means that homeowners each day worry if the property taxes got paid on time,” he said. “Naturally, they'll go online and look up the payment status for the property and they'll often see that the amount is still due. They call the credit union and say my property tax hasn’t been paid. The credit union will say we paid it. That causes confusion. As far as the credit union is concerned, they have sent the funds over to be paid. In this case it's not the county’s omission directly, it's the processor’s. The processor will consolidate all those funds and will pay it much later in the cycle. That causes quite a concern on the homeowner side and can create mistrust between borrowers and their credit union.”
Spyridonos said the big advantage in processors paying in real-time versus batch is avoiding issues with members who are able to see a payment has been made.
“Credit unions should be looking at real-time platforms,” said Spyridonos. “There's alternatives, and not only are they fully automated and fully modernized working in real time with the tax offices, there’s full integration with the tax office directly. So, when the payment action takes place at the credit union using that platform, the payment goes directly to the tax office.”
The Credit Union Looks Bad
Spyridonos further contended that processors making batch payments to the respective tax office can lead to unbalanced books and even an increase in refunds owed to taxpayers, which ultimately makes the credit union look bad.
“It can result in poor customer service if the processor lacks adequate support or experiences frequent technical issues, ultimately leading to member dissatisfaction,” Spyridonos said. “Security concerns may also arise if the processor doesn't prioritize robust security measures, putting both the credit union and its members at risk of data breaches and fraud, which can damage trust and reputation.”
Data Quality Issues
There's also data quality issues, Spyridonos said, noting that in many cases homeowners file for a homeowners exemption, homestead exemption or senior exemption.
“All of that information is completely ignored during the cycle as there's no methodology for the escrow processor that is not integrated into the credit union’s data system to report those events back to the credit union, that this amount has been reduced by $500, so don't send us those extra $500,” he said. “It's a data latency issue, the data is not up to date, and the entire process, unfortunately, suffers from that element.”