Magazine article Mortgage Banking

The Market Drivers for Consolidated Servicing

Magazine article Mortgage Banking

The Market Drivers for Consolidated Servicing

Article excerpt

We live in a world of consolidation. Shareholders and customers want the benefits of economic synergies; and the drive to reduce or eliminate facilities, human resources and duplicative technology all factors into the consolidation trend. However, in the mortgage industry there are also significant marketplace phenomena that have added considerable momentum to the consolidation push, particularly in the servicing arena. This column focuses on three of them.

Market entry by non-traditional institutions

Non-traditional market entrants such as financial planners are beginning to move from the asset side of portfolio management over to the debt side. Companies such as New York-based Morgan Stanley, St. Louis-based A.G. Edwards & Sons Inc. and San Francisco-based Charles Schwab & Co. Inc. have brought new value to customer relationships by helping their clients manage debt in a more cost-effective, tax-beneficial way.

From the client's perspective, having one knowledgeable, trusted adviser to manage all his or her financial affairs makes sense. Financial consolidation allows the customer to work with one firm, and possibly with one adviser who knows the customer's entire financial picture. However, to actually deliver that service, financial planners must be able to offer integrated products, including real estate-secured loans like mortgages and particularly home-equity line of credit (HELOC) products.

To incorporate these products into their offerings, and manage the complicated servicing requirements that come with them, firms and other non-traditional market entrants can effectively consolidate mortgage and HELOC products on a single servicing platform. To do so lowers regulatory and default risk, effectively manages secondary market transactions and helps keep overall information technology (IT) costs in check. Since consumer loan servicing platforms don't offer the deep functionality required to effectively manage mortgage loans, the logical choice is to select a proven, robust mortgage servicing platform that can manage both mortgage and HELOC products with equal performance reliability.

The demand for flexible securitization

Securitization is the key to the future for nearly every financial institution, and asset liability managers want to manufacture loans that have secure secondary market ties from the ground up. Whether lenders are manufacturing consumer loans or real estate-secured loans, institutions need the ability to quickly and seamlessly move among various investor markets to access the most favorable prices at any point in time.

Today, securities are being sold in traditional and non-traditional pools: pure asset-backed securities (ABS) pools; prime and subprime mortgage-backed securities (MBS) pools; and blended mortgage and HELOC pools. However, to maximize flexibility, the servicing platform must be able to efficiently manage investor requirements and complex government reporting for any secondary market transaction, including those that are associated with blended pools. With one consolidated servicing platform that can seamlessly manage the requirements associated with these diverse portfolios, institutions will benefit from lower risk and operating costs while improving financial performance.

The customer-satisfaction imperative

In the United States, customer loyalty is always tenuous, and competition for banking and mortgage clients is relentless. Those institutions that communicate effectively with their customers through the channels they prefer, with instant and accurate information presented in a manner customers can understand, will make great strides in their quest to keep customers happy and in the fold. …

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