5 mortgage servicing questions for BSI Financial CEO Gagan Sharma
Recent market shifts highlighted the need for servicers and subservicers to have diversified strategies in place that work in different interest rate cycles. BSI Financial exemplifies that.
Earlier this year, the company got back into the business of buying mortgage servicing rights to build its MSR portfolio as well as subservice for those who retain them — both are preferences that can fluctuate as rates do.
"We are looking at this as another way we can help our lender clients even when the market changes," Gagan Sharma, BSI's CEO, said in an interview.
The company is also consolidating its title, default and escrow services in a single unit, exploring new options for its technology and looking to subservice more specialized mortgages. These include owner-occupied home loans made outside the parameters of the qualified mortgage definition, a market gaining more attention in light of debate over the Qualified Mortgage patch's planned expiration in 2021.
Below is a discussion with Sharma about these business strategies and how they fit in with his view of where the market may be headed. The responses are excerpted and edited for length.
I know you recently launched Entra Solution as a one-stop shop for title, default, asset management and escrow services. What other opportunities do you see in the market right now?
We are working as a servicer on owner-occupied non-QM loans and business-purpose investor loans like single-family rental or fix-and-flip financing. A lot of our clients are lending in those markets and it's an area with significant growth. It more than doubled for us last year and we are working with a couple of dozen-plus clients. Another area where we are complementing our subservicing offering is we have tied up with some investors, and together with them we are starting to essentially buy servicing from our originator clients. Years before I bought BSI, the previous owners used to do that. In the past year, people were betting on rates going higher. Now the view of the market has changed; either way, whatever servicing lenders want to retain, we can subservice, and whatever servicing they want to sell, we can buy it from them. It helps offset the volatility for our clients.
Which digital servicing initiatives are you involved in and which do you think show the most promise?
We do have our own mobile app but for us, it's not just about being on mobile, it's about internal controls. Our analytics and compliance rules engine is something we developed and invested in over a period of time and it's matured into what we call a data integrity program. We use the data we have on the loans that we service to identify exceptions and mistakes. That may be compliance issues, quality issues or delay issues. If we can identify and address those issues, we can have cleaner, more consistent data. We've built a rules engine that's constantly learning. Some people are saying, "Can you license the rules engine to us?" We are thinking about it actively. Our sense is that the industry can benefit from the use of such a rules engine.
Do newer payment systems like Venmo have much impact on mortgage servicing today or could they in the future?
We are looking at some things like debit cards, and as far as Venmo or PayPal, we hear that people are asking about that but not people who are homeowners. I had a kid do some work in my backyard and I paid him using Venmo. Maybe when that kid is buying a home in 15 years we'll have to do something like Venmo but how much more work am I asking you to do if I ask you to sign up for automatic ACH instead. Customer preferences for something like Venmo are not something I hear from my team but this is a big country. You can always find somebody who wants to do something. There may be people who want to pay their mortgage in bitcoin but right now those are probably one-off cases. What we do hear more people saying is they want to know what's going on by text, to be notified their payment posted, for example. Banks already do that and use texts for security purposes. I think the core point of all this is that consumers are asking for more convenient ways of working with their mortgage companies, but we just think the convenience is not about things like Venmo.
How do you approach servicing in areas hit by natural disasters?
Things like disasters accentuate underlying trends. If the economy is doing badly and then disaster strikes it hurts the area much more. I'm a big believer in looking at what the local economy is doing first. The fact that there's been a disaster comes after the fact—that's how I think about it. I will give you an example. Houston had a big storm last year and we did the Fannie Mae-required disaster relief programs but almost all those borrowers have jobs and Houston's economy is doing great so people want to stay there and rebuild. Imagine a scenario where the local economy is very badly hit and then the disaster strikes. There will be some percentage of the borrowers who might say, "Do I want to rebuild my life over here or do I want to go elsewhere?" Some may leave and some may stay.
What is your current outlook for the economy and loan performance?
My personal view is as long as there is good income growth and unemployment is low I think the risks are relatively lower. It's when either people spend more than what their income can sustain, unemployment starts to go up or income growth starts to slow down that's when we have to start worrying a little more. But as long as the economy stays good, performance stays good.