Half a Century of Growth and Change in the Mortgage Industry: A Historical Perspective of Mortgage Servicing
It’s easy for mortgage servicing professionals to 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 re-shape the 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.
Perhaps no part of the industry has changed more profoundly in the last 40 years than mortgage servicing and default management. Looking back at the origins of the industry, and seeing just how dramatically it has evolved over the last several decades, fosters a new appreciation for how and why the mortgage servicing industry emerged, and facilitates a deeper understanding of where it stands today. Perhaps more important it provides valuable clues to what the industry might look like tomorrow. While dramatic changes in mortgage servicing have taken place over the last four decades, 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 now 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.
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.
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. 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 unimaginable just a few short years ago.
Of course there is a wealth of available technology aimed at more efficient data archiving, retrieval and task management. However, the most effective of these solutions are built to meet the highly specific needs of mortgage servicers. These strengths have been magnified as market disruptions and shifting regulatory requirements have kept the mortgage industry in a heightened state of flux. Broad-based technology solutions may not always be equal to these specialized challenges.
Today’s innovative mortgage service firms are utilizing integrated online systems, powerful and flexible technology platforms and in-depth technical support to help their clients and professional partners meet the demands of a changing business landscape. These new tools are helping mortgage servicers reduce errors, automate workflows, maximize property assets, facilitate timely and efficient loan modifications, and speed claims processing.
One example: Targeted technology solutions are helping mortgage servicers meet the requirements of new government-sponsored programs that have severely stretched lender and investor internal resources. The Home Affordable Foreclosure Alternatives, officially launched on April 5, helps borrowers who are unable to keep their homes through the existing Home Affordable Modification Program. Through the HAFA program, struggling homeowners are provided with incentives to take advantage of either a short sale or a deed-in-lieu of foreclosure, where they can voluntarily transfer the property deed to the loan servicer.
Another challenge being met by specialized mortgage servicing technology: secure electronic storage of business-critical documents. Mortgage servicers typically need functionality that includes high-speed scanning, intelligent document classification (indexing), enterprisewide file access through a secure Web-based interface, and integrated workflow management. An additional industry-specific requirement: loan-level indexing, which allows efficient retrieval and organization of files based on specific mortgage servicing tasks.
These and other specialized systems are easing workloads and boosting accuracy, while allowing mortgage servicers to process more loans in less time.
Visionary service providers are harnessing technology to provide custom default management solutions strategically aligned with each client's business needs, setting new standards for efficiency and cost effectiveness in the process. At a time when economic pressures and record foreclosures are testing industry resources and resolve, this kind of bold thinking and practical problem solving is more important than ever. The best of these efforts are destined to fuel a new era of mortgage industry progress and growth. Joe Bada is CEO of Five Brothers, a Michigan-based company that provides default management and technology solutions to the mortgage servicing industry. Bada can be reached at 586-994-0345 or firstname.lastname@example.org.