With outsourcing and industry needs in general more focused on the servicing side of the business today, it begs the question of how third-party providers are positioning themselves to make the eventual, cyclical shift to a more origination-focused market. It appears the answer is that most are counting on modifications as the likely linchpin for the change.
“The needs of the servicer from a loss mitigation standpoint really do dovetail with the competency (originators have),” said Rick Seehausen, CEO of LenderLive Network Inc., Glendale, Colo.
“Modifying is very similar to refinancing the loan,” he said.
Even with all the obstacles to origination these days there still are low rates and government programs to somewhat counterbalance them, said Seehausen.
Government programs' impact on origination activity ultimately can be mixed.
While they can create possible new loan opportunities, the relatively frequent addition of new programs or updates to old ones sometimes cause consumers to delay acting. Consumers may decide not to participate in a program if they think another one down the line could be better.
In this environment, “for our business, we believe that it's harder for lenders to lend today than ever before,” he said. However, Seehausen added, “We also believe that it's harder for servicers to service than ever before.”
Third-party vendors stepping in to help with these challenges, like LenderLive, are finding that with heavy use of modifications still relatively new on a historic basis there is a lot of room for improvement in this key area where origination and servicing skills converge.
“Many servicers are still underwriting their modifications on spreadsheets,” Seehausen said.
He said he believes the industry will “continue to see more advanced systems.
“They need better tools. There had never been a market for those tools until the crisis occurred. It takes time,” he said.
“For example, loan origination systems evolved over decades.” Mass modifications have been a technology challenge for servicers, in comparison, for only a couple of years, Seehausen noted.
While the current use of modifications as well as the trend toward divergence between mainline and distressed asset servicing is unprecedented and largely a product of the recent inordinate downturn, he said he believes both these trends have staying power.
Component servicing, he said, is here to stay. Also when it comes to modifications, Seehausen said he believes broadly that re-underwriting of loans for a variety of different purposes is something that he does not think “ever goes away.”
“And I don't think it should,” he added.
Outsourced back-office tasks/document services on the servicing side likely to transition well to the origination side some day include fulfillment and document intake, Seehausen said. He said document preparation, legal and compliance tasks currently used in conjunction with mods or short sales also are likely to easily transition well in a shift to an origination-focused market.
Seehausen said his company has handled over one million images a day on the intake side.
“We've created a very countercyclical business. There's a great demand today on the servicing side,” but when origination needs someday outpace these as the market cycle turns he believes it will “require a lot of the same type of resources” to the point where the company will not need to restaff, but rather will “reallocate.”
Also there are currently outsourced origination services outsourcers would find even more demand for if that market were seeing more activity. These involve contract underwriting, new originations and fulfillment services for originators for tasks ranging from disclosures to loan closing, Seehausen said.
What is more scarce in the outsourcing market today that there could be more demand for in the future if there were a cyclical change is due diligence work related to new whole loan assets, said the LenderLive etc.
“There is not a lot of that activity as [virtually] no private securitization conduits have re-emerged. That, too, may change.”
But there is a lot that has to happen in the United States before it does, he said, specifically, “We need to stop creating programs and try to focus on creating jobs.”
While sometimes outsourcers are perceived as more likely to remove jobs than add them, Seehausen notes that his company has added “several hundred resources” for all its divisions over the last two years.
“It's really been rare that a LenderLive decision to outsource created a displacement of resources internally,” he said. “They generally reallocate to other resources. I can't think of a client that laid off staff in outsourcing.”
