To put it bluntly, it's hard to make a buck in servicing. In 2015, costs per nonperforming loan rose to $2,386 from $1,965 a year earlier, according to data from the Mortgage Bankers Association. With interest rates remaining low and reducing income, profit margins are being squeezed tight thanks to a combination of unfavorable changes to the fair value of mortgage servicing rights and higher costs due to regulation.
But by decreasing costs through technology, outsourcing and scale, they not only can give their margins a much-needed boost but also set themselves up to reap the rewards in the future.
"We will be moving to a purchase market inevitably," said Scott Fecteau, a managing director at Accenture Credit Services. "The people who are making investments now are positioning themselves for the next wave of purchase originations."
Technologies that can drive servicing cost-savings take two forms: customer self-service technology and robotic process automation. Both of these technologies work to drive improved efficiency and drive higher satisfaction for consumers and employees alike.
More importantly, these technologies allow companies to devote employee resources to value-added services rather than tasks like fielding calls or data entry, said Kelly Adkisson, managing director for Accenture's credit consulting practice in North America. The same mentality applies to the choice servicers face in whether or not to outsource certain parts of their business offshore.
"In servicing, the largest expense base is typically coming from your personnel," Adkisson said, noting that robotic process automation alone can enable a 30% cost reduction or more for some companies.
But as important as those investments is another, perhaps counterintuitive one: scale.
"You need scale," said Lee Smith, chief operating officer of Flagstar Bank, particularly with regards to companies in the performing servicing space. He estimates that a servicer needs between 180,000 and 200,000 loans to break even in the current working environment.
Flagstar has roughly 360,000 loans that it either services or subservices, which is why the company's servicing division has remained profitable, Smith said.
"Once you get over 200,000, it's all done at the margin and it's all profit because you've already covered your fixed cost base," Smith said.