Servicing Secrets – How to Add 2–5% Yield to Every Loan

Just a quick reminder: Quin and I will both be at the American Lending Conference in Las Vegas, Nevada, on September 3rd and 4th. We’ll have a booth set up specifically for lenders.

If you’ll be at the conference, definitely stop by. We’d love to talk with you, say hello, and connect. Honestly, we’re really excited.

We plan to make this a more regular thing. Attending more conferences and shows brings a ton of value—not just from the education, but also from connecting with other lenders in the community. That networking alone is worth it. So yes, we’re excited to keep showing up at events like this.

Why Servicing Matters

Today’s episode is focused on servicing, a topic I feel strongly about. Recently, I saw something that concerned me.

While scrolling through a private lending Facebook group, I came across a discussion. The question was: Which third-party servicer should I use? Should I even use one at all? Now, some of the responses were fine. But honestly, they made me uneasy, because I firmly believe that you should service your own loans, keep them on your own books, and manage them entirely in-house.

I firmly believe that you should service your own loans, keep them on your own books

There are a lot of reasons why. But the primary one is simple: servicing is a profit center. There is money to be made here. And when you have the right systems in place, it’s really not that difficult to handle yourself.

So in this conversation, I want to dive into the pros and cons, explain how I personally handle it, and share why I think outsourcing servicing can actually hurt more than it helps. You may disagree—and that’s absolutely fine—but these are my personal opinions based on real experience. Take them for what they’re worth.

Third-Party Servicing: How It Works

If you’re not familiar with loan servicers, let’s talk about what they do. There are some well-known names in the industry. FCI is the biggest one many lenders recognize, but others exist too—SLS, and honestly, dozens more.

These companies operate on a simple model. They charge a monthly recurring fee, typically anywhere from $25 to $35 per loan (sometimes even higher), and in exchange, they handle the servicing process. What does that mean? They take care of payment collection, allow those funds to settle, and then disburse them to you or to your investors.

One admittedly convenient part is this: if a borrower has a question, they don’t call you directly. Instead, they call the servicer. In theory, that frees up your time. This setup is actually standard in the Fannie Mae/Freddie Mac world.

Let me give you a local example. In Idaho, we have a mortgage company called Idaho First Mortgage. What they do is very common in the industry. They originate the loan, close it, and then, using a small revolving line of credit, they continue originating more loans. Afterward, they sell those loans off—often to large institutions like Chase or Wells Fargo. At that point, the borrower doesn’t deal with Idaho First Mortgage anymore. They deal with a third-party servicer.

So what happens if the borrower has questions, needs to make a change, or has a late payment? They’re directed to the servicer. Usually, that means talking to a call center representative, which can be frustrating and time-consuming. For the originating lender, it’s easier. They don’t deal with the day-to-day calls. But for the borrower, it creates another layer of distance.

So what happens if the borrower has questions? They’re directed to the servicer. Usually, that means talking to a call center representative

Now, I get it. If you’re a large-scale lender with hundreds or even thousands of loans, outsourcing servicing may be your only practical option. At that scale, managing loans internally can be overwhelming. But let’s be honest: most of the people listening to this podcast are not massive institutions.

The majority of private lenders we work with or talk to fall into a very different range. They typically manage anywhere from five to 150 loans, with $50 million or less in private capital. That’s the sweet spot for private lending. And if you’re in that range, I believe strongly that you should be servicing your loans yourself.

The Case for Keeping It In-House

Why Some Lenders Outsource
Let’s be fair. There are clear reasons lenders turn to third-party servicers. The biggest is ease. It’s undeniably easier to offload the operational burden to someone else. You don’t have to worry about setting up processes, handling payment collections, or answering borrower calls. You just pay a small fee, and it’s off your plate.

But here’s the problem. The initial onboarding with a third-party servicer is not simple. You have to establish your structures, create onboarding templates, and force all of your loans to “fit” their system. When you inevitably have a loan that falls outside of their box, you end up spending time finagling and adjusting just to make it work.

… here’s the problem. The initial onboarding with a third-party servicer is not simple.

On top of that, borrowers get caught in the middle. You have to tell them: “For this part, talk to me. But for that part, talk to the servicer.” Confusion builds. Borrowers begin to wonder: Who am I actually working with? What role does my lender play in this process? That fractured communication creates unnecessary friction.

Why In-House Is Better for Relationships
In my opinion, this is where in-house servicing really shines. Private lending is personal. It’s one-on-one, lender to borrower. And if you make that experience more complicated by inserting a third party, borrowers notice. They don’t love being handed off to someone else, and they may choose another lender next time.

But if they can call you directly, if you’re responsive to their needs, and if you’re the one answering their questions, that personal touch speaks volumes. It builds trust. It strengthens relationships. And it makes you stand out in an industry full of other private lenders.

if they can call you directly … that personal touch speaks volumes.

Profitability: More Than Just Points
Another huge reason to keep servicing in-house is profitability. Let me explain with an example. Too many private lenders follow a model where they charge two points and set an interest rate of 12%. All of that 12% is given directly to the investor. The lender keeps only the two points.

What does that mean in practice? You only make money when you originate and close new loans. You’re stuck in a volume game, where the only path to revenue is constant deal flow.

This, in my opinion, is a mistake. At Holbrook Capital, we structure things differently. We charge three points and 14% on every loan, no exceptions. We pay our investors between 9% and 10.5%. That means our yield spread is anywhere from 3.5% to 5%.

So, in addition to the three points we earn upfront, we also make ongoing income from the servicing spread. That spread exists because we’re managing the loan and keeping it on our books. It’s fair compensation for the work, risk, and effort required.

And here’s the best part: if a borrower calls us, we can actually help. We originated the loan. We know the details. If they’re late, we can extend leniency. If they’re struggling with a fix-and-flip project, we can walk them through solutions based on our own experience. Try calling a third-party servicer for that kind of support—they won’t do it.

if a borrower calls us, we can actually help.

The “Free Labor” Trap
Here’s another way to think about it. If your note rate is 12% and you’re paying your investors that full 12%, you’re effectively servicing loans for free. You’re doing all the work—collecting payments, managing accounts, solving borrower issues—without getting paid for it. Your investors enjoy all the upside while you carry the operational load.

That’s not sustainable. At a minimum, you should have a 2% servicing spread. Industry average is about paying investors 10% while charging borrowers 12%. That 2% is your compensation for the “headache” of managing the loan.

And honestly, with the right tools, it’s barely a headache at all.

Why In-House Servicing Strengthens Your Business

This is where technology really changes the game. With software like Lendr, servicing becomes straightforward. When a loan is originated, the data transfers seamlessly into servicing. Monthly payments are tracked automatically. Payoff statements update as payments come in. Everything is logged clearly.

Let me give you some examples:

• If a borrower asks to move their payment date from the 1st to the 5th because that’s when their paycheck arrives, we can change it instantly. The system adjusts automatically.
• If a borrower is ready to pay off a loan, we don’t wait two days for a servicer to generate a payoff statement. We click a button, generate it ourselves, and send it straight to the title company. It takes seconds, not days.

That kind of efficiency is powerful. It not only saves time, it also builds credibility and trust. Borrowers appreciate having a one-stop shop. They don’t want to hear, “Go call FCI about your late payment.” They want to talk to you.

Borrowers appreciate having a one-stop shop. They want to talk to you.

This approach also helps your investor relations. When investors ask, “Why is this payment late? What’s going on with this borrower?” you don’t have to say, “I’ll check with the servicer.” You already know the answer. That transparency makes you the true operator in the eyes of your investors.

Now, to be fair, there are valid points in favor of outsourcing. It can eventually make things easier, after the painful onboarding. It does reduce some workload. But at what cost? You’re paying fees, giving up profit, and losing direct relationships with your borrowers and investors.

The margins matter. Even $100 to $150 per loan per month adds up quickly. With 100 loans, that’s thousands of dollars every month—money you could be keeping in your business instead of giving away.

Big picture: servicing is a lever. It adds incremental profit, strengthens borrower trust, and builds investor confidence. If you’re managing fewer than 200–250 loans, you should be doing it yourself. It’s not nearly as difficult as people think.

… servicing is a lever. It adds incremental profit, strengthens borrower trust, and builds investor confidence.

At Holbrook Capital, that’s our approach. My goal isn’t to scale endlessly. I don’t want to manage $100 million in balance sheet capital or run a massive team. I’ve seen those operations—they require people whose only job is handling draw requests all day. That sounds like a nightmare to me.

Instead, my sweet spot is $10–15 million. It’s enough to create a sustainable, profitable lifestyle business. It allows me to maintain strong borrower and investor relationships, generate recurring income month after month, and still have freedom in my life.

So that’s my advice. If you’re in this space, don’t give away your profitability. Don’t hand over your relationships. Keep servicing in-house, build a resilient business, and operate in a way that aligns with your goals.