Servicing costs per loan climb as policy shifts bite

Total direct operational costs in servicing, a subcomponent of total expenses, increased by a few dollars per loan compared to last year as mortgage companies contended with policy change.

Systems and customer service at $36 and $33 per loan, respectively, accounted for the two largest categories of direct expense, followed by executive management and specialized functions at $21. 

Loss mitigation added $17 to costs. The following categories each added $11 to expenses: bankruptcy, real estate owned and other default costs, cashiering and investor accounting, collections and escrow or loss draft processing.

Claims and foreclosures, and costs involved in handling setups, transfers or payoffs each added $9 to direct operational expenses in servicing last year. Quality assurance and record-keeping each added another $6 to costs, while specialized loans added $3.

What drove costs higher

Respondents to the benchmarking study attributed the increase in total costs over 2024 to factors that include:

• operationalizing agency guidelines,
• managing regulatory oversight,
• higher seriously delinquent loan balances, and
• automating with the aim of improving the customer experience and/or implementing new procedures.
  

The majority or 75% of the costs came from expenses outside of functions connected with default, according to the MBA, which included customer service, executive management, escrow and loss draft processing, and set-ups payoffs and transfers in that category.
Default related functions like collections, loss mit, bankruptcy and foreclosure accounted for the remaining costs.

Costs have played a role in recent servicing consolidation driven in part by the need for economies of scale to compete in the business. The MBA said the respondents to this report likely represent 60% of the total market.