Being a mortgage loan servicer these days isn't always easy. Waves of new laws, intensified regulatory scrutiny and shrinking profits are causing banks to rethink the business. A few have started to retreat from servicing. Others are looking for creative ways to profitably manage their servicing operations.
Satisfying the nine pillars of servicing standards which took effect earlier this year has increased complexity—forcing banks to reassess systems, processes and policies. Basel III's capital and reporting rules—requiring banks to reserve more capital against loans they service—are also having an impact.
Loan servicing costs are on the rise. According to MBA’s Servicing Operations Study, prior to the credit crisis, it typically cost servicers an average of $55 per loan per year. Today, experts estimate the cost to service at $208 or more per loan per year. The cost to service nonperforming loans is also increasing—it is four times higher than just four years ago.
Servicers have taken steps to comply with regulatory and investor change requirements, although the cost has generally been significant.
Implementation has also been challenging. Since servicers traditionally have had fewer regulatory and compliance constraints than originators, they have fewer experienced staff—and less infrastructure—to monitor compliance. And most banks' operating models don't support functional integration between origination and servicing platforms. That makes compliance with the TILA and RESPA amendments—which anticipate front-to-back accountability for loan performance, borrower disclosure and loan status communication—a challenge.
Upgrading technology is a key to addressing these challenges. For example, leading servicers are increasingly automating their internal loan audit programs to identify discrepancies between the data that was loaded into their system of record and the data at the time of the loan closing to ensure Dodd-Frank compliance. Being able to quickly spot exceptions through automated auditing—for both originated loans and loans from the correspondent channel—helps minimize borrower complaints (which regulators are highly sensitive to), improves compliance and frees up personnel for other customer engagement roles.
Implementing technology that allows borrowers to engage in self-service also reduces costs. Borrower-facing portals utilized in the mortgage industry are not as advanced as consumer transaction portals in other industries. So, upgrading these interface technologies provides a window of opportunity. Accenture research has found that self-service is one of several less costly and more convenient ways of banking that will likely see increased adoption by the end of the decade.
In today's highly regulated environment, leading servicers are deploying technology to provide compliance checks at every borrower touch point. Several systems are now available that provide the knowledge base and transaction monitoring required to demonstrate compliance in an audit. These systems incorporate in-line quality control which significantly reduces rework time and the expense associated with corrective actions.
As the owner of the ongoing borrower relationship, servicers should also be looking to increase their share of wallet by marketing additional products and services. Cross-selling can be a bank's golden opportunity, but too many miss out. One-third of traditional retail banking products sold last year were from institutions other than customers' primary banks, according to a recent Accenture survey.
In the current climate, servicers that succeed will be those that are capable of scaling, innovating and leveraging technology to improve efficiency and productivity.
Terry Moore is senior managing director and global head of Accenture Credit Services