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Thinking Outside the Servicing Box

NOV 21, 2012 3:21pm ET

As mortgage companies strive to gain better control of their processes, increase efficiencies and control costs in an ever-changing environment, engaging a component servicer continues to grow in popularity across the industry.  For many years component servicing has proven to be highly valuable across most default situations, whether a financial institution is dealing with REO, non-performing loans and/or short sales. The flexibility of a component servicer provides a wide range of options, from performing complete end-to-end services, to being engaged for very specific, individual components of the process.

Regulatory requirements and continued uncertainty within the mortgage industry translate into more stringent standards and the need for more controlled, customized processes, which in turn require additional resources at many levels across an organization.  As we all know, each of these requirements has a price tag, which depending upon the size and structure of a company, can uncomfortably increase risk and significantly compress margins. 

The structure and inherent agility of a component servicer allows a mortgage servicer to immediately increase scale, and gain immediate access to intellectual capital and highly specialized skill sets. The custom solutions provided by component servicers remain valuable in the more traditional areas of mortgage servicing such as asset management, property valuations, evictions and closing services. Notwithstanding, areas of increased value-add related to components servicers include enhanced borrower outreach for no-contact delinquent loans, short sale and deed-in-lieu fulfillment, and devising servicing strategies utilizing specific credit risk management and market surveillance practices.

Outside the scope of the traditional mortgage servicing industry, the demand for component servicing is rapidly growing in other sectors as institutional buyers, lenders and private equity funds enter the REO-to-Rental markets.  These firms have raised the necessary capital, but may not have adequate resources or infrastructure in place to efficiently underwrite, manage and close the transactions.  

Component servicers provide the ideal solution for these firms, as they have the expertise, staffing and relationships in place to perform the administrative processes, including initial property valuation and due diligence, collateral underwriting, title review and curative activities, transaction and escrow administration and construction management.  Additionally, these firms gain immediate access to the component servicer’s national vendor networks, legal resources, and IT systems.

Engaging a component servicer provides value for companies of any size. Smaller firms can immediately benefit from tremendous economies of scale, and larger firms can reduce their internal risk profile and avoid having to staff to peak. As regulations continue to change and REO-to-rental markets grow, mortgage companies should increasingly leverage the skills, expertise and resources provided by a component servicer partner for either comprehensive services or any portion of the process.