This piece originally appeared in the October 2022 edition of DS News magazine, online now.
In the last two years, the housing market has shifted dramatically.
The refi boom has been replaced by a purchase market. A fixed-rate mortgage that was once at bargain-basement low interest rates is above 6%. On top of that, the regulatory environment remains ever-changing.
It is a challenging time for many financial institutions that are now focusing on a purchase money market and putting new efforts toward ramping up their Adjustable-Rate Mortgage (ARM) products, buydowns, home equity loans, and Home Equity Lines of Credit (HELOC) loans. Now is the time to consider outsourcing your mortgage portfolio, and here’s why.
1. Regulatory Knowhow
The scrutiny of this regulatory environment has resulted in more work for financial institutions that are either originating loans, servicing loans, or doing both. These companies need to think about how to offer new products in order to retain their place in the market.
The quality of a servicer’s regulatory change management process and compliance is important as financial institutions begin to promote products like HELOCs, for example, to customers as interest rates continue to rise. So while a company is focusing on how to market a HELOC to its customer base, using a partner that has the expertise to manage the regulatory and compliance requirements is undeniably the most critical factor to consider when selecting a servicer.
For example, each time new laws, regulations, or programs are put in place, we must first determine their impact and then design how to implement them. This includes creating procedures, testing, QC, and controls, while at the same time communicating those changes to our business partners, homeowners, and our impacted operational areas. This process allow us to be prepared and better able to take action.
We have a formal process that entails working with our legal regulatory attorneys to understand the requirements and provide interpretation of the change to our compliance team. Our compliance team then works with operations and business control managers to understand the impact to business processes and procedures, training, communications, vendors, and systems.
2. Providing the Best Homeowner Experience
While many people associate mortgage servicing as just the administrative function of a mortgage, it’s so much more than that for the homeowner. The homeowner has an expectation that the servicer will deliver an experience to meet their individual needs. For servicers, that means engaging with customers over time to establish relationships and learn their preference for communicating.
We believe the homeowner experience is not a single moment in time—it lasts over the lifetime of the loan. Whether that’s the regular cycle of onboarding, escrow, monthly payments, and year-end or extraordinary challenges facing homeowners, like the pandemic and natural disasters, we are responsive, anticipatory, and always caring.
How a mortgage servicer uses data and analytics to determine how homeowners are engaged should be further used to drive what tools and automation are needed to obtain the best communication experience for each homeowner.
3. Ongoing Mortgage Assistance for Homeowners
During the pandemic, nearly 7.2 million American households took advantage of forbearance options. From the very beginning, all mortgage servicers had to quickly adapt and ramp up their efforts. Servicers stayed committed to working with each homeowner to help them navigate through their options.
Our goal is the same as the goal of our clients, investors, and the regulators—we want to help every homeowner we can, so that families can stay in their homes and avoid foreclosure. That is the best outcome for us, for homeowners, for clients, for real estate values, for communities, and for our society as a whole.
While many homeowners were able to resume their mortgage, some are still in need of financial assistance. In response, the federal government has set aside almost $10 billion in a Homeowner Assistance Fund (HAF) for states, territories, and other recognized U.S. entities to assist with everything from mortgage payments to utility bills.
We have implemented numerous state HAF programs and are assisting in providing relief for homeowners. Administering this program is far more than just flipping a switch. Servicers are actively working with all jurisdictions and streamlining the review process quickly to aid eligible homeowners.
4. Maintaining the Value of Your MSR and Protecting Your Investments
During the last two years, both lenders and servicers retained the servicing they originated, increasing their portfolios thus increasing their MSR value. These MSR values are now providing an income stream that helps to offset costs to maintain the technology and administrative infrastructure created to manage the refinance boom that occurred during the last two years. Now, those MSRs need to be cared for. MSR values are set based on the expected future cash flows from the underlying mortgage asset. Any risks to that cash flow—whether it’s the homeowner paying off the mortgage ahead of time or not paying at all, decreases the value.
Also, many lenders now are selling MSRs and the movement of portfolios can be a resource strain, as well as making it more costly to ensure proper regulatory requirements.
A servicer can take on the heavy lifting of helping you protect your investment—by managing defaults and providing you with the flexibility to grow or decrease your portfolio size without impacting your day-to-day staffing needs.
5. Costs and Staffing
Servicing can be expensive and becomes more expensive every day. Why not partner with someone who can help you grow your market share by moving into new states, introducing new products by letting a subservicer take on the challenges of the administrative duties?
Finding the expertise that you need is hard today too. With the new hybrid environment deployed by so many entities, people are moving easily from one job to another. Managing a staff that understands the market, your portfolio, and being one step ahead from a technology perspective is daunting and costly for any financial institution.