PETER ROSS, SENIOR VICE PRESIDENT with Mellon Mortgage Company in Houston, said that his company last year "reduced the costs of servicing by 25 percent. Mellon Mortgage is a $30 billion services handling a portfolio of 380,000 mortgages. "For simpler, more cost-effective solutions, we look to our software provider," Ross explains. "Servicing software's mission is to provide the vehicle by which we can continue to automate our servicing function and drive down our cost structure."
"The emphasis on servicing managers to reduce costs is incredible," according to John Saelens, vice president at Data-Link Systems in South Bend, Indiana. For years, service bureaus, including Data-Link, simply performed data processing for servicers or licensed the software they used in that process. But helping to streamline servicing operations is only one aspect of their business today.
Service bureaus today continue to rework their basic programs, knowing that saving servicing employees a few keystrokes on each computer screen can make operations faster for lenders. But they are also adding services, changing their corporate structures--and looking at increased competition.
Three firms dominate the service bureau field: Data-Link Systems; Computer Power, Inc. (CPI) in Jacksonville, Florida; and Residential Information Services (formerly Lomas Information Systems) in Dallas, Texas. And they are competing with servicing software providers such as Servantis Systems, Inc., in Norcross, Georgia.
Options for lenders
Using a service bureau allows a lender to outsource some data processing costs while retaining control over the servicing process to a large extent. Companies willing to make the investment in computer hardware and technology personnel can license a service bureau's software for in-house use. Other firms prefer to develop their own proprietary software systems or buy an off-the-shelf system from a company that doesn't operate a service bureau.
Owning software allows servicers to run as many reports as they want to without having to pay extra, as a service bureau might require, explains Steve Drew, senior vice president at Servantis Systems. Currently, Servantis has more than 120 servicing customers and is "moving to Windows and client server" environments. He notes that servicers "control their own destiny" if they've chosen to purchase software. But he adds, "It's a lot easier to yell at a service bureau, 'I need an answer tomorrow!' than it is to get upset at your own head of data processing."
Also, traditionally nonmortgage firms such as EDS in Plano, Texas, are gearing up for competition in the mortgage technology arena. CPI officials acknowledge that companies with non-mortgage backgrounds are a force to be reckoned with, as the embrace of more sophisticated technology intensifies in the industry. CPI Vice Chairman and CEO Jim Milligan says, "There are probably 15 lenders trying to figure how to charge homes on a VISA card. If we don't change, they'll eat our lunch."
In 1981, CPI serviced just about 2.5 million loans--compared to 14 million today. CPI has expanded to 1,100 employees and is now providing software for originations and secondary marketing, as well as offering consulting and portfolio evaluation for lenders. Additionally, CPI offers satellite communications services for nonmortgage banking customers.
CPI's most dramatic move, however, has been InterChange--a communications channel that allows for wireless transfer of information between lenders and their correspondents or branches, as well as the provision of point-of-sale links between originators, credit reporting agencies, private mortgage insurance companies, investors and others involved in the loan approval process. CPI sees this front-end service as a natural outgrowth of its experience doing electronic data transfers as a service bureau. Last year, CPI performed 90 …