Bank of Montreal's Harris Bankcorp, Chicago, is aiming a new customized cash management service at finance companies and others that service securitized loans.
The service, based on work that the bank does for Olympic Financial Ltd., Minneapolis, is designed to funnel incoming payments to various trustee accounts through a single lockbox site.
Harris executives said that use of a single site (rather than multiple sites), when combined with collateral agency agreements, can save loan servicing and property management companies and others from having to reissue payment coupons for consumer loans when assets are resecuritized.
Peggy Hopkins, a vice president and corporate product manager at Harris, said the bank has recently decided to package and market its service to new organizations. Only Olympic is now using the single-site service.
Olympic Financial is a special-purpose finance company that securitizes and services about $2.1 billion of auto loans.
Formed in 1990, it has grown in the last three years into the nation's third-largest securitizer of auto loans. (Banks and finance companies make about $350 billion of auto loans per year.)
But with growth came a dilemma for Olympic: Every time a loan was resecuritized, the company would have to reissue coupon payment books and establish new lockbox sites.
Having a single lockbox moving the funds could solve the problem, which Olympic says was increasingly becoming an issue for investors and consumers.
"We went around to practically every bank in the country, and none of them would deal with us," said Steven Bednar, a senior vice president and chief information officer at Olympic. That is, until it asked Harris Bank.
Although the technology Harris developed is not "spectacular," he said, most banks would not bother with Olympic, because of the many collateral agreements required among parties and the nominal volumes involved at the time.
"Our problem was, we were a younger company back then and had more stringent requirements placed on us in securitizations," Mr. Bednar said.
But eventually Harris committed itself to building the service, and it now processes 145,000-plus payments monthly - triple the volume Olympic had when it first went shopping.
Each week, Olympic sends electronic data interchange files to Harris and to EDI-capable trustees that update asset changes.
Harris receives those files and uses the information from the lockbox's automated mail sorting equipment to send payments to the appropriate accounts.