Black Knight Woos B of A to Get Back on Vendor's Servicing System

CONFIDENT: Black Knight's public overture to Bank of America was a bold gesture on the scale of John Cusack's iconic scene in the movie "Say Anything." Image: iStock

Black Knight Financial Services may have enough servicers using its Mortgage Servicing Package to give it a 55% market share, but the company still wants to win back the megaservicer that got away: Bank of America.

At an investor conference last month Brent Bickett, president of Black Knight's parent company Fidelity National Financial, mentioned Bank of America by name as a target client for MSP. He quite confidently predicted the Charlotte, N.C. lender would migrate its loans – a roughly $782 billion portfolio – to Black Knight's servicing system of record.

"We certainly know who doesn't use our platform and we actively market to that [group], the largest of which is Bank of America," Bickett said. "We have had good conversations…So we think it is a matter of time for them to convert, because it makes all the economic sense in the world."

Large banks typically shun public acknowledgement of their vendor relationships, so Bickett's overt B of A name-drop was a bold gesture. Bold on the scale of the scene in the movie "Say Anything," where John Cusack stands outside his beloved's window holding a boom box and blaring a treacly Peter Gabriel song.

B of A, which declined an interview request citing its policy of not commenting on its discussions with vendors, used to service its mortgages with MSP. But after acquiring Countrywide in 2008, the bank moved its roughly 4 million loans to Countrywide's proprietary technology. Called the Loan Servicing, or LS, system, the platform was already managing a portfolio of about 10 million loans for what was at the time, the country's largest mortgage servicer. At the end of the first quarter of 2014, Bank of America's residential mortgage servicing portfolio had dwindled to about 6 million loans, ranked third behind Wells Fargo and JPMorgan Chase, according to MortgageStats.com.

Back then, the move off MSP made sense because Countrywide's technology infrastructure was considered to be among the strongest assets B of A got in the $4.1 billion, all-stock deal to acquire the troubled lender.

"The feeling among myself and other people at my level was Bank of America bought Countrywide for the loan portfolio, but they also bought it for the servicing platform because it was very inexpensive to run and it was very efficient," said Mike Rippy, a former Countrywide and Bank of America senior vice president who managed operations for the LS system and was part of the project team that migrated the B of A mortgages to the Countrywide system.

The move also reflected a prevalent industry viewpoint at the time that core servicing systems could be a point of competition among servicers. But times have changed.

"Prior to the current climate and heightened regulatory scrutiny that all servicers have faced, there was clearly a focus on leveraging the servicing platform for differentiation and customization," Joe Nackashi, Black Knight's chief information officer and president of its servicing and default technologies group, tells National Mortgage News. "In today's environment, servicers are looking for consistency in their servicing platform. In terms of core servicing, they're really not looking for differentiation."

Black Knight's predecessor, Lender Processing Services, disclosed B of A's move off MSP, along with the bank's decision to move its property valuations business onto Countrywide's appraisal network, during the vendor's third quarter 2008 earnings conference call. The call was LPS's first as a standalone company following its spinoff from Fidelity National Information Services, also a former FNF business.

The transition from MSP to Countrywide's system was completed in January 2010. Together, B of A's servicing system and appraisal business accounted for about $50 million of LPS's $1.86 billion in annual revenue in 2008.

Still, the combined B of A and Countrywide operation used other LPS services, and growth in that activity helped offset the lost MSP and appraisal revenue. It also helped that JPMorgan Chase moved its portfolio of prime mortgages onto MSP shortly after B of A converted off the platform.

The MSP platform's primary competition is homegrown systems of record. For example, the Countrywide LS system was originally built on IBM's Application System/400 midrange computer system. While AS/400 systems are a step down in computing power from mainframe-based systems like the architecture behind MSP, they're less expensive to operate. To keep the LS system running at peak performance, routine hardware upgrades were the norm at Countrywide.

"As the system grew and got to its capacity, we would upgrade constantly, especially during the 90s when the mortgage industry was going gangbusters," said Rippy. "We were upgrading every 18 months and IBM was keeping up with new models that were more powerful and had bigger capacity, so it was fairly easy to do because the application ported over to the new models seamlessly."

Vendors like FICS, Mortgage Builder and Harland Financial Solutions (recently acquired by DH Corp.) offer servicing systems, but those platforms are used predominately by smaller institutions. Fiserv also offers a servicing system capable of competing with Black Knight, but it lacks MSP's market penetration. Even when large institutions use a vendor-developed system, it's typically a highly customized configuration, such as Nationstar's implementation of ISGN's LSAMS platform and Citigroup's self-managed system that traces its roots to technology originally developed by Fiserv.

"[W]ith MSP, there is nobody that could face off with Bank of America. There is nobody that can do it, we're the only ones," said Bickett. "Either they do it themselves … or they go to us."

Onboarding a new servicer to MSP can take anywhere from 90 days to 14 months, depending on the number of customizations a servicer requires during the initial implementation. Moving Bank of America back to MSP would in essence undo the massive Countrywide migration project.

"Every successful company periodically reevaluates technology…and that's a smart thing to do because things change," said Rippy.

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