In-House Mortgage Servicing, Specialty Servicing Emerge As Hot Markets
Mortgage servicing may be changing and self-adjusting into a new still-not completely undefined model, but the fact that it appears to be a work in progress is not discouraging bankers from eyeing what it has to offer.
Without much fanfare the crisis has irreversibly turned in-house mortgage servicing and specialty servicing into hot markets.
At least according to one insider not only is that the case now but the trend is here to stay for the longer term.
Brian Dharte, director of sales at GCC Servicing Systems, Southfield, Mich., told this publication interest in learning about recent changes and developing trends in the mortgage servicing marketplace nowadays is coming from lenders and loan originators who are considering their options to enter into servicing.
At the MBA servicing conference in Dallas the mortgage industry veteran is looking forward to learning more about the future of the GSEs, possible changes to servicing compensation, risk retention requirements for qualified residential mortgages “and other hot industry issues including the future of HAMP.”
Right now the mortgage servicing space needs “clarity and resolution on those topics in order to move to the next stage.”
The challenge for the firms that eye servicing, or plan to retain servicing, is that “there’s so much unknown in the market right now” that they cannot know whether it is going to be a profitable business for them in the future.
Experts may be conflicted on whether or not the housing market will improve in 2011, he adds, yet most agree that the industry “needs clearance.”
For many banks the dilemma is choosing between using third-party service providers or update and improve their in-house servicing departments.
This debate started early in 2010 year and was tackled during last year’s MBA annual. Dharte is looking forward to seeing if the topic of whether servicers should bring servicing back in-house will come up at the MBA servicing conference in Dallas.
Servicers want to bring servicing back in-house “so they can control that customer relationship,” he says. “The subservicng model is not working out for them.”
Because ultimately subservicing is driven by defaults, the two main factors that affect a servicer’s ability to control the customer-servicer relationship are efficient delinquent portfolio management a proactive rather than a reactive approach to contacting distressed customers.
He recalled how various clients stress the need to be able to have total control over that relationship in order to be able to offer a refinancing option or secure a workout.
“Building a brand is important to them. We’ve seen that trend in the last six months and I’m anticipating we’re going to see that at the servicing conference in Dallas as well.”
It is an industry in transition from a structure and from a quality of customer service perspective.
“It seems there are more unknowns that in any other time.”
And that is even truer for those who do not have servicing experience and are sitting on the sidelines “waiting to see how this thing flashes out.”
Those who already have the seller-servicer certificate and have the servicing retained through a subservicing model are now contemplating the option to bring in and develop that servicing in-house.
According to Dharte, the trend started to pick up by yearend 2010 and will become even more pronounced going forward.
Why is subservicing deemed inefficient?
Several GCC Servicing Systems’ clients and prospects have approached the firm looking for solutions because the subservicing model “is not working out for them” either due to the fee structure or the quality of customer service rendered to the actual end borrower.
And while service quality and fees differ, complaints about subservicing inefficiencies are feeding into the new trend.
More specifically, in the past couple of months, clients and prospects have shown interest in improving and updating their servicing platforms.
Not surprisingly most of the interest comes from mortgage originators interested in developing a “much more robust intern servicing platforms” since in many cases their existing platforms cannot suit today’s servicing needs.
Dharte is looking forward to getting more feedback on the aforementioned market observations to get an even better sense of how the servicing technology solutions demand will shape up.
If these eventual changes in servicing strategy are the cause, their immediate effect is a jump in demand for the best technology.
On the technology side, Dharte says the tools that may prevail are the ones that have “intelligent workflow built into their systems” designed to help servicers improve their quality control and comply with changing regulations.
In 2010 GCC Servicing Systems focused on upgrading its technology “to include more or less” intelligent workflow into the system, because that is “what is being asked for in the marketplace: have that workflow built into your system, particularly in the default management area,” he says.
But if subservicing may soon turn into a thing of the past—along with in-house servicing—demand for specialty or component servicing is on the rise.
Dharte agrees with other market insiders who see specialty servicing as “a niche in the marketplace that has become more prevalent during this crisis and is here to stay.”
The reason? It has proven to be a very good servicing model for loans that become over 30 days delinquent. Specialty servicing as a third-party service provider will not only prevail, but thrive.
And technology will help.
For example, while the future prevalence of HAMP may be disputable, industry efforts to develop systems and specialized technology geared towards better mortgage servicing practices is a positive market development.
The e agrees that the technology that was created to comply with HAMP can be recycled to benefit the servicing market even if HAMP is eliminated.
“The technology that was used to develop HAMP has been good for use for private investor modifications so it lends itself well to that end,” he said.
Dharte is optimistic that going forward there is a light at the end of the tunnel of foreclosures, even though “it will take a number of years until it will work itself through the system.” And the existing technology, HAMP or non-HAMP, will continue to upgrade and serve the market “for years to come.”