Sigmund Freud had it easy—he was asking an apparently simple question when he uttered, “What does a woman want?”Lenders have it a bit tougher, as their businesses’ success can depend on understanding the fine points of servicing their own loans. In the preliminary stages, they may not yet know what they need, much less want.
What do lenders need to service, and why has this become a question after so many decades of routinely selling loans servicing-released and/or using subservicers? The twin factors of ultimate responsibility and profitability are the quickest answers, as the last few years have shown us that servicing-released sales do not release lenders from liability when problems come up later. As new originations ebb and flow, servicing one’s loans is a great way to stabilize and improve income streams. But in order to make the strategy work, it’s important to be very familiar with the realities of servicing expenses and workflow.
It’s a detail business, first and foremost, with much handling of on-time payments and routine communications. When loans pay more slowly, there is far greater borrower interaction, copious recordkeeping and regulatory oversight to worry about. Old-line servicing shops were full of desks with people shuffling papers and making phone calls. The modern servicing department is a lot different, thanks to technology.
New servicers want to make the process as sure and steady as it can be, while using automation to keep costs and headcount under control. Luckily, this objective is relatively easy to achieve in 2013, as new servicing software is available to replace the old school mainframe-based “big iron” approaches of the past.
Lenders that have become accustomed to the user-friendly and customizable workflow of the best modern loan origination software systems appreciate their low per-loan costs and utility. In the last few years, great strides have been made in the loan servicing software space to mirror LOS functionality. The result is a user experience that is far more intuitive and productive, with the clunky interfaces and workarounds of big iron a thing of the past. These improvements have opened the door for lenders of all sizes to become servicers at low adoption costs not previously possible, while at the same time enjoying better utility.
Training, task automation, workflow functionality, user-oriented interfaces and easy integrations with existing systems are readily seen benefits of the newer, fully featured LSS systems. Cloud delivery, faster and better compliance reporting, single point of contact and reduced entry costs are important aspects, also. But there are a number of less obvious benefits that should be examined in the course of performing due diligence on servicing systems. For example, how well does the servicing system interface with the LOS currently in use? Some systems do a better job at reducing data re-entry steps when migrating closed loans onto servicing platforms, and the hidden costs awaiting the unwary there can sap profits.
Lenders should also consider add on services like the printing and mailing of coupons and statements. For lenders that lack the volume needed to have their own departments, or otherwise cannot take advantage of economies of scale, that aspect can be cumbersome and expensive. Some LSS providers have printing and mailing services built in as available throughputs on their technologies, and it bears investigating.
Though all systems designed for non-mega-lenders will offer reporting capabilities, these need to be explored in depth to make certain compliance needs are met. And even though bare bones compliance concerns may be satisfied, individual lenders may desire a greater reporting ability to provide a comfortable cushion. It’s never a bad thing to anticipate the worst-case scenarios when measuring preparedness.
Additionally, lenders new to servicing will want and need technical support. That support starts with a user oriented design, since intuitive software anticipates questions and provides answers before they are asked. Still, when questions arise, it is critical to have confidence in service and response levels coming from providers. Lenders becoming servicers should speak to current users for their unvarnished impressions as an integral part of the exploration process.
There is much for lenders to know about getting into servicing, but earning an additional 50 basis points or so over the life of the loan is pretty persuasive. Today it is no longer necessary to have huge masses of loans to be able to service profitably and safely—an important legacy of technology innovation.
Kelli Himebaugh is corporate vice president, Mortgage Builder Software.