Magazine article Mortgage Banking

So, You Want to Get into Servicing

Magazine article Mortgage Banking

So, You Want to Get into Servicing

Article excerpt

MORE LOAN PRODUCTION SHOPS ARE GETTING INTO SERVICING, says Susan Graham, president and chief operating officer of Dallas-based Financial Industry Computer Systems Inc. (FICS[R]). Recent research backs up her observation. [paragraph] Small mortgage firms "have made substantial market share gains in recent years," affirms a June 2015 white paper released by the Mortgage Bankers

Association (MBA) and PricewaterhouseCoopers LLP (PwC US), titled The Changing Dynamics of the Mortgage Servicing Landscape.

Tighter underwriting standards at large banks "due to caution about loan repurchases and new regulations" is a factor behind the growth of smaller firms, the study maintains. Another major development has been the ongoing adjustment of guarantee fees charged by Fannie Mae and Freddie Mac over the last few years.

In the past, large originators--due to the volume of their loan sales--were charged lower fees by the government-sponsored enterprises (GSEs). With this pricing advantage, large lenders built their servicing portfolios by purchasing mortgages and servicing rights from smaller lenders. But a fee-parity initiative from the Federal Housing Finance Agency (FHFA) has turned the tables on this aggregator model.

FHFA reported in June 2015 that on a risk-adjusted basis, "small-volume lenders paid lower fees in 2014 than did high-volume lenders." More small lenders now are selling directly to the GSEs and retaining that servicing, notes the MBA/PwC study.

Often smaller servicers aren't in that business to drastically boost their earnings. Servicing is viewed as a way to manage the customer experience, Graham says.

Some lenders that tried working with subservicers are pulling that activity in-house, she adds. Although subservicing saves money, a low-cost subservicer can erode a lender's relationship with clients.

New FICS Mortgage Servicer[R] customers come with wide variations in their servicing backgrounds. Some "are servicing loans on spreadsheets," Graham says.

Or financial institutions holding portfolio loans may be using consumer lending software to service mortgages. Lenders may not have a mortgage servicing department established when they approach FICS, according to Graham.

Often portfolio lenders are branching out into originating and servicing loans that can be sold into the secondary market, she adds. Some may be looking for automation to help them service a product they're just starting to originate, such as Ginnie Mae loans.

FICS Mortgage Servicer can handle both portfolio and secondary market loans, says Graham. FICS also provides software to originate residential mortgages and service commercial loans.

Helping new servicers "can be a challenge," Graham observes. FICS offers webinars, in-house training sessions and on-site consulting to help lenders effectively employ their software. While the average servicer using FICS handles 3,000 to 4,000 borrowers, some manage more than 50,000 accounts.

Regulatory concerns

Regulation is proving to be as challenging for servicers as delinquencies ever were. Graham reports some FICS clients had low delinquencies even during the housing crisis, while others specialize in buying delinquent portfolios.

FICS completely rewrote its servicing program in 2014 to add functions such as an improved user interface, says Graham. National servicing standards introduced by the Consumer Financial Protection Bureau (CFPB) a year earlier also created the need for servicing software vendors to revamp their systems.

"There were few changes to servicing until CFPB," recalls Graham. …

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