Mortgage servicing and subservicing are critical components of the mortgage lifecycle, perhaps even more so as the housing market decelerates. Like many other aspects of the mortgage finance industry, technology has created new opportunities to enhance the servicing industry and improve the borrower experience, while adding value to investors and mortgage servicing rights holders.
Launched in 2017 and acquired by First American in 2021, mortgage subservicer ServiceMac has grown on the foundation of its technology, risk management and compliance tools, and experienced team members. The company, which now services nearly $300 billion in loans, supports mortgage servicing rights (MSR) holders, master servicers, borrowers, and subservicing needs with more effective and efficient servicing workflows.
ServiceMac President and CEO Bob Caruso shared his perspectives on the impact of technology on the servicing industry, how technology can help address some of the industry’s most pressing challenges, and the outlook for the industry in 2023.
Caruso began his career in the mortgage finance space in 1990 with JPMorgan Chase Mortgage Company, rising to the role of SVP of Servicing. In 1996, he joined Wells Fargo Home Mortgage, where he spent approximately eight years, rising to the role of EVP of Servicing, Post Closing and Retention. In April 0f 2004, Caruso joined Bank of America in the role of SVP of Mortgage and Home Equity Servicing and Post Closing, where he spent four years before joining ServiceLink in June of 2008.
Upon announcing his retirement in October of 2018, Caruso announced the launch of a new servicing venture—ServiceMac. In October of 2021, First American Financial Corporation, a global provider of title insurance, settlement services and risk solutions for real estate transactions, completed the acquisition of ServiceMac. Caruso, as President and CEO of ServiceMac, leads the company, which operates as a wholly-owned subsidiary of First American.
How has technology influenced the mortgage servicing industry?
Caruso: Technology has had a profound impact on our industry. There are now strong tech solutions designed specifically to address areas like loss mitigation and compliance. In fact, in today’s era of heightened attention to compliance concerns, compliance technology represents a significant opportunity for the mortgage finance industry to demonstrate its evolution over the past decade. That said, while servicing technology has evolved over the past several years, broadly speaking the industry has under-invested in technology. Just look at how much capability you have in your smartphone. We need more technology that helps our staff do their jobs more efficiently, like our proprietary platform Sentry360, while supporting lenders and borrowers with even greater levels of accuracy.
What role has technology played in ServiceMac’s rapid growth?
Caruso: By closely assessing the shifting demands from clients and borrowers, and with deep knowledge of the operational issues inherent in servicing and subservicing today, we developed our business model and technology from the ground up to address many of the industry opportunities we identified. From day one, we built our company with an eye to the future and rapid growth in mind. We invested in building out our platform leveraging cloud-based technology. We didn’t have any legacy technology or issues, and we thoroughly assessed the servicing technology marketplace. Where technology already existed, we bought it. Where technology didn’t exist, we built it. Our bias was toward “buy before build,” but, if we build it, we were committed to building unique solutions that were better than anything that was currently available. Since we expected to grow quickly, we also made sure the technology was scalable. We knew we could not be the best at everything right out of the gate, so in areas that required substantial headcount or needed unique expertise, we leveraged best-in-class vendors. We didn’t want to have any hindrances to our growth, and we looked for opportunities to strengthen our team and company.
How has ServiceMac balanced technology with high-touch customer service?
Caruso: From a customer experience perspective, it’s important to provide borrowers with an efficient and intuitive technology experience, yet provide them with access to team members for support when needed. We built state-of-the-art proprietary technology to offer more ways for customers to self-service, while also providing options for customers to quickly bypass interactive voice responses and speak to highly trained staff for support. We also allow our servicer clients the option to manage their own customer service, while we provide their personnel with our technology and training, along with our oversight. This way, a client (MSR owner) has the option to deliver outstanding service themselves, while also offering their borrowers refinance and cross-sell opportunities.
From a customer experience perspective, it’s important to provide borrowers with an efficient and intuitive technology experience, yet provide them with access to the right team member for support when needed. We built state-of-the-art proprietary technology to offer more ways for customers to self-service, while also providing options for customers to quickly bypass interactive voice responses and speak to highly trained team members for support.
How is ServiceMac leveraging data to drive additional value for clients?
Caruso: Data is a critical component in modern business and we’re at the forefront of leveraging data within the servicing industry. We have built our own data warehouse to store the data we collect. For each loan, we could have more than 15,000 data elements, which includes all the comments entered in the system, copies of letters, statements, recorded phone calls, etc. We offer our clients access to as much of their loan data as they want, providing opportunities to better understand their borrowers’ needs. Many of our clients do a great job in identifying opportunities to offer their borrowers additional valuable services that can drive more revenue. Clients can access their data, both at the macro and loan level, via daily feeds or on-demand via their tablet, PC, or smartphone. More importantly, we don’t charge any additional fees for access to the data.
How can technology help address mortgage servicing compliance?
Caruso: It’s no secret that compliance is the biggest challenge in servicing today. With delinquency increasing due to economic factors, the urgency to execute and perform in accordance with all the various rules and regulations is intensifying. The quantity and ever-changing nature of the rules make it very difficult to execute at a high level without strong technology and people. We designed our intuitive proprietary technology platform, Sentry360, to help us manage compliance at scale efficiently and execute at the highest level. For example, Sentry360 checks every loan against more than 1,600 rules every day and enables us to detect and correct errors. In addition, we conduct mock audits where we mimic the audits of the CFPB, Fannie Mae, Freddie Mac, FHA, VA, USDA, and the Multistate Mortgage Committee. We continually enhance our loan level and mock audit rules to identify and proactively manage potential portfolio risk.
What is your outlook for mortgage subservicing in 2023?
Caruso: In 2023, I think subservicing is poised for continued growth. During the pandemic, some banks and mortgage lenders held servicing portfolios due to lower mortgage servicing rights (MSR) values and liquidity issues. But now, higher mortgage rates are significantly reducing the pre-payment speeds of mortgages. More than eight in 10 mortgaged homeowners have a note rate below 5%. Slower pre-payment speeds have increased the values of existing MSRs and made them more attractive for banks to sell and generate capital. I think we will see these lenders reduce or exit loan servicing over the next 12-18 months. This market repositioning will be an opportunity for hedge funds, private equity or other MSR buyers to grow their servicing portfolio. Many of the entities poised to be MSR buyers typically don’t service the loans themselves. They hire subservicers like ServiceMac to handle the customer and operational activities, so they can focus on providing strong returns to their investors. We are fortunate to have many of these entities as clients of ours and look forward to growing with them.