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What Will Mortgage Servicing Look Like in Five Years?

OCT 15, 2012 12:33pm ET
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If you had asked me 10 years ago what servicing would look like in 2012, I would not have dreamed that we would be facing the issues we are today.

No one imagined we would have so much government intervention or that losses and foreclosures would hit such unbelievably high levels.

Also, I would have thought that the way we service loans would be fundamentally more sophisticated and that technology would have advanced further than it has.

The industry has been forced into a massive reform that was not completely necessary. In some cases, a simple nudge back to best practices that already existed could have been sufficient.

The number of players (government entities) that servicers must take direction from is unprecedented. It has resulted in specific mandates on how to manage borrower accounts as well as imposed fines for tasks outside of the servicer’s control.

With so many changes, looking forward five years the industry will not resemble what it is even today.

To move forward in a positive manner, we should unite as an industry and put this turbulent time behind us.

In five years, the effects of the final resolution of the government-sponsored enterprises will be long behind us and we will be focused on new participants in the industry. We also will see the effects of BASEL III on our business and the economics of servicing. Hopefully, incentives and servicer compensation will properly align, and we will not go back to conversations about lowest costs and cheapest servicing—in the end, you really do get what you pay for.

What will the servicing operating model look like in five years?

There has been speculation about “big box servicers” and specialty servicers bifurcating the work and creating specialization and scale between traditional bank servicers and specialty servicers.

This could ultimately lead to even larger breakdowns in customer service and unfortunately, less transparency. This configuration could lead us down the same road that would allow every loan to be serviced in the same manner and on a linear basis. While that does not necessarily mean a servicer should outsource or leverage best-in-breed partners, a simple line in the sand may not be the solution.

In five years, we need to have figured out a way to leverage new technology and analytics to achieve an optimum servicing path based on customer and property information gathered at the point of origination, and what we learn while managing the relationship.

Predictive and preemptive technology will enable a servicer to minimize losses and ensure consumers are speaking to the right people about the right things at the right time. The consumer will also need improved transparency and transaction management. Consumers, current and future, will demand more tools and technology access from their loan servicer.

Ultimately, in five years the market clean up, accounting changes, demands on process innovation, and new and improved technology will drive new companies into the servicing space.

There is a tremendous business opportunity for organizations that can deliver on these servicing requirements to both consumers and asset owners. It will, however, require a unique look at today’s operations and how to build a business to support the ultimate owner of the assets.

Of course, the future of the servicing industry cannot be accurately predicted but one thing is certain, in the next five years it is paramount that we maximize use of available technology solutions and all of the resources at our disposal. If we do that successfully, the possibilities can be endless.

Dave Vida is president of LenderLive Network Loan Servicing Division.

Comments (2)
During the 1990's and early 2000's, the servicing function was executed based on low cost / high volume. Unfortunately the freeway that should have been eight lanes was only built with two lanes, but who knew? That said, if you bid a subservicing contract in 2005 that was engineered for 2010, no one would have used you. The same thing could be said for loan origination, if lenders didn't offer certain loan products back then, they would not have gotten any business. Unfortunately the time machine wasn't working very well, so we all operated within the confines of commerce at that time.
I do think dual servicing is one solution to the new servicing paradigm. In all CMBS deals a primary and special servicer exists harmoniously with bright lines relating to roles and responsibilities.
Using a primary and a special servicer on residential deals would allow a "best of both worlds" model. Primary servicers can continue to operate a high volume / low cost model, and special servicers can work with lower volumes at higher costs. The net cost makes the overall model efficient.
Another pickup in efficiency is to start teaching the borrower, at origination, their options "in case of an emergency landing". Show the borrower where the life vests are before the plane goes into the water. There should be a plan and process upfront for the borrower to understand how to execute on in case they start to fall behind. As part of the loan application and loan closing recitals, the standard "Due on the first and late on the second" discussions should be expanded to how a borrower should engage their servicer in case that borrower falls on hard times. Discussing how to interact with your servicer is much more relevant than advising your borrower not to eat the lead paint.
Posted by | Tuesday, October 16 2012 at 6:23PM ET
Common sense. I agree wholeheartedly with Rudy's post. I believe his proposal would also be considered lean.
Posted by | Wednesday, October 17 2012 at 1:01AM ET
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