Building a Better System: Technology for Tomorrow's Servicing Segment
Charles Darwin once said, "It is not the strongest species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change." Interestingly, nature isn't the only arena where these concepts apply. These principles are widely prevalent in the business world, where companies that adapt move forward and those that don't are prone to extinction. Within the mortgage servicing arena, we're seeing powerful, viable and otherwise capable organizations that are now struggling to keep pace with new onslaught of new tasks that have been placed in their unsuspecting hands. It only begs the question: If a servicer isn't adaptable, how good are its chances of survival?
Let's look at servicing technology, the foundation of servicers' business operations. For years, servicers have been using mainframe-based technology platforms. Certainly, these platforms were powerful enough to handle the hundreds of thousands of mortgage loans that were being serviced each month. And as far as being "smart" systems, they were built to address the prevailing servicing needs of the time, and continue to perform that job intelligently. They complete tasks that would cost significantly more in labor costs, were companies to use manual processes, and they also reduce exposure to human error. But the inescapable fact is that times have dramatically changed. Today's servicers have to do a lot more than handle traditional tasks like sending out notices, collecting payments and allocating funds. These days, where servicer tasks are concerned, what was formerly the exception has now become the rule. Servicers are being faced with an influx of tasks that, up until a couple of years ago, were a only minor segment of their responsibilities - like working with borrowers to modify loans, handling REO properties, and ensuring that bond payments get made to the holders of mortgage backed securities, even if that loan goes into default. With the new heavier emphasis on these activities, servicers are finding themselves caught off guard, not to mention surprisingly ill equipped for the tasks at hand. The strong, intelligent platforms that servicers have relied on for years lack the flexibility to adapt to the current needs of the industry. Strong? Yes. Intelligent? Absolutely. Adaptable? No way. And therein lies the problem.
Within the servicing arena, the business climate has changed so rapidly that technology can't keep up. Interestingly, it's not merely the new focus of activity that's causing the issue. It's the scale of those new tasks that's keeping servicers buried beneath masses of delinquent and defaulting loans. The sheer volume of cases needing niche action is overwhelming. On the surface, it may seem like a relatively easy problem to fix. In fact, many may be wondering why servicers can't simply add on technologies that fulfill the additional tasks. They have, and they are. In fact, right now most servicers are using four, five and six disparate systems to fulfill their basic business processes. Yet still they haven't found a way to get caught up on backlogged files. They may be working as fast as they can, but as fast as they go, they still can't keep up with the flood of new cases that come in each day. Today's environment is marked by delinquency levels that are far greater than ever in history. The delinquency rate for one-to-four unit residential mortgages is at a seasonally adjusted rate of 9.24% of all loans outstanding, as of the end of second quarter 2009. That's up 12 basis points from first quarter 2009, and up 283 basis points from one year ago. According to the Mortgage Bankers Association's National Delinquency Survey, the delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. So, whereas servicers could have made do with a workaround solution in the past when delinquency rates averaged around 5.8% in early 2008, today's volumes now dictate that certain functions need to be seamlessly integrated into the system in order for servicers to operate at optimal levels.
It's an issue of speed, efficiency and accuracy. An effective solution requires flawless integration and a technology that is scalable, customizable, and easily implemented, not to mention specifically designed to manage the whole new set of tasks associated with the industry's glut of delinquent and defaulting loans.
Let's take a look at the components. Existing servicing technologies are currently set up to send invoices, collect payments, disburse payments to investors and handle a little customer contact. First, servicers will need a technology that is far more robust on the customer service side. These days, borrowers aren't merely calling for instructions on where to send their loan payments. They're calling with more comprehensive questions, like what to do if they can't make their mortgage payments. Obviously, servicers need a system that can access borrower information quickly and connect callers to the appropriate individual. But there's more to efficiency than simply making sure that the servicer's technology can accommodate the company's retention efforts. Servicers need customer-relationship-management-like technologies that empower borrowers with more valuable, useful information. The credit card industry has been using these technologies successfully for years. By going beyond basic information - like interest rates and monthly payment amounts - and providing deeper level insight, such as compare-and-contrast payment schedules, the amount of principal and interest paid year to date, and possible savings resulting from various payment options, servicers can help prevent delinquencies while promoting other products and empowering borrowers to make better financial decisions. Additionally, it's important to keep in mind that not all of today's borrowers speak English. A truly adaptable solution will not only provide billing statements and online access with high-value financial information, but also have the capability accommodate non-English speaking borrowers as well.