While large and mid-size servicers dominate the largest portion of loans nationwide, small servicers make up the greatest share of loans serviced in non-urban and rural areas, according to a new report from the Consumer Financial Protection Bureau (CFPB).
Servicers of all sizes saw delinquency rates increase since 2008, however, at their peak, delinquency rates were much lower for loans at small servicers than for loans at large and mid-sized servicers. From 2012 to 2018, delinquency rates of loans at large and small servicers generally converged as delinquency rates on loans fell to pre-crisis levels.
According to the report, nationwide, 11% of mortgages are in non-metro or completely rural counties, but more than 23% of mortgages serviced by small servicers are in these counties. In many rural counties, small servicers (with 5,000 or fewer loans) service the majority of loans, particularly in certain Midwestern states.
Additionally, smaller servicers make up the smallest proportion of loans serviced for Fannie Mae and Freddie Mac. According to the CFPB’s report, at small servicers, less than one-third of conventional loans are serviced for Fannie Mae or Freddie Mac. In contrast, at large servicers, over three-quarters of conventional loans are serviced for Fannie Mae or Freddie Mac.
Small servicers are also less likely to be government-backed or non-conventional, as just 5% of loans at small servicers are insured by the U.S. Federal Housing Administration or guaranteed by the Department of Veterans Affairs, the Farm Service Agency, or the Rural Housing Service. At large and mid-size servicers, non-conventional mortgages make up over a quarter of loans.
Part of the appeal of small lenders/servicers is the convenience, 74% of borrowers with mortgages at small servicers are more likely to state that “having an established banking relationship” and “having a local office or branch nearby” were important factors. Meanwhile, only 44% of borrowers with mortgages at large servicers said having an office or branch nearby was important to them.
For large and mid-size lenders and servicers, the most important factors for borrowers was builder/real estate agent recommendation, however, as the CFPB notes, borrowers do not generally choose their servicer, and the servicer is often not the original lender.