Over the last 12 to 24 months, originators have seen a strong volume of production and profitability. In parallel, the secondary market has changed significantly with many historically large investors stepping back.
The servicing-released premiums being offered have got to a point that more originators are looking to retain servicing and selling loans directly to the agencies. Given the lower SRP on offer, many originators are quite correctly betting that with the current tight underwriting box and record low interest rates, the loans should stay performing on their books for a long time.
The question that may or may not have been sufficiently thought through is: now that the MSR asset is on their books, how to maximize the value of that investment and what role technology can play in that.
While building the financial model for retaining servicing, one of the key assumptions made is recapture percentage rate on a portfolio. Studies have shown that marketing to existing customers is usually the best and lowest cost source of leads for new business.
Originators should be looking at their servicing portfolio as a marketing database and they need to use analytics to make smart decisions on their portfolio. As an asset with significant potential, originators need to develop a competence in this aspect of servicing and do it using smart technology at a low cost.
Historically, the basic methodology has been to try to recapture the loan when the borrower applies for a payoff. However, given the timing of a payoff request, the retention rate on that recapture initiative is quite low.
Many originators maintain a database of past borrowers and they have typically done relationship management and marketing on their database of borrowers. That aspect of proactive marketing and analytics needs to be turned inward to a servicing portfolio. Originators need to use CRM tools to maintain relationships with their borrowers. Such tools may provide online, direct mail or even call-center-based marketing.
In taking on the next level of sophistication, originators could monitor their portfolio through payoff monitoring types of services that can give them a heads up that a borrower may be shopping for a refinance.
Finally, they can run analytics on current rate on the borrowers’ loan and the current rate that the originators offer. If the spread is sufficient, the originator can run campaigns to proactively solicit the borrowers and explore their interest in refinance. By being proactive, they can reach out to the borrower before anyone else starts a discussion with them on refinance.
Upon retaining servicing, the originators have the MSR asset on their books. By using technology and some process changes, they can make returns over and above the future expected increase in servicing prices and build value in their origination franchise.