A Historical Perspective of Mortgage Servicing

Mortgage servicing professionals can get caught up in day-to-day challenges and momentarily lose sight of the broader social, economic, legislative and technological forces that continue to shape and reshape the industry, according to Joe Bada, CEO of Five Brothers, a Michigan-based company that provides default management and technology solutions to the mortgage servicing industry.

"Recent economic uncertainties and marketplace turbulence give truth to the old cliché 'the only certainty is change.' Recognizing change-and understanding how and why it occurs-spurs the kind of responsive innovation that creates positive business momentum," he says.

While dramatic changes in mortgage servicing have taken place over the last four decades, he describes how the roots of the industry go back even further. "When Franklin D. Roosevelt helped create the Federal Housing Administration in 1934, and Congress chartered the Federal National Mortgage Association (known today as Fannie Mae) in 1938, the seeds of the industry were sown."

With federally backed mortgage insurance in place, lenders were willing and able to offer a more diverse and appealing range of mortgage products, making homeownership more accessible to the average American family. "By midcentury, the impact of these groundbreaking legislative initiatives was obvious, 30-year fixed-rate mortgages with 20% downpayments had become the norm," says Bada.

In the 1960s, FHA programs and other initiatives helped lower-income American families realize the dream of homeownership, kick-starting a steady climb in the rate of homeownership from 62% in 1960 to nearly 70% in recent years.

"But it would be the advent of mortgage securitization in the 1970s that prompted explosive industry growth. As investors acquired newly originated loans, the market for highly specialized and efficient administrative and financial services, default services and mortgage field services took off."

According to Bada, those who have been a part of the business since the beginning might look back with nostalgia at the early days of property preservation when the role of field service companies was to do home inspections and keep lawns cut. "Now, with the market dominated by a few big names, many of the smaller independents have become vendors to the marketplace giants. Meanwhile, some of the best midsized firms have carved out an important niche in this highly competitive marketplace by providing nimble, organized, efficient services combined with highly creative technology solutions."

Development and application of increasingly sophisticated technology by mortgage service firms has become a defining characteristic of mortgage servicing in recent years and will continue to play a major role in its evolution. Stacks of forms and seemingly endless paperwork have been replaced by secure servers and instant data transmission, he describes. "Batches of information are digitized and stored securely with the click of a button. Web-based user interfaces provide instant access to comprehensive loan histories."

From property preservation and loss mitigation to REO management, "groundbreaking new technologies" have brought efficiencies not possible a few short years ago.