BLOG VIEW: To help provide needed liquidity, many lenders sell mortgage loans to government sponsored enterprises (GSEs) or other investors to boost capital and balance portfolio risk. This strategy offers liquidity and frees up funds for additional lending, enabling them to originate more loans.
However, the origination market is still dealing with the impacts of the interest rate increases that began at the end of 2021, when average 30-year rates rose from 2.77% in September 2021 to 7.03% at the end of May 2024. The MBA May Economic Forecast reported that existing home sales were down 1.9 percent in April at a seasonally adjusted annualized rate of 4.14 million units, and the industry is still recovering from 2023, which had the lowest level since at least 1997.
Lenders can retain the servicing of loans sold on the secondary market to enhance revenue. Keeping servicing in-house offers numerous benefits, including enhanced borrower experience, servicing fees and other income generation. This approach strengthens lenders’ financial health and fosters more robust relationships with borrowers.
The Limits of Servicing in a Financial Institution’s Core System
Efficiently handling loans sold on the secondary market necessitates robust mortgage servicing software that can automate investor reporting and swiftly adapt to evolving requirements. Some servicers choose to utilize the limited tools in their core processing systems to cut costs, treating mortgage loans similarly to auto and personal loans. However, this approach often proves problematic due to the unique regulatory demands and complexities that are inherent in mortgage servicing, which core systems struggle to address.
While core systems of financial institutions are versatile, they often lack the specialized functionalities that are crucial for effective investor reporting and compliance in mortgage servicing. These limitations can force servicing staff to perform investor reporting and escrow tasks manually, a process that is not only time-consuming, but also undermines the intended benefits of automation. Management might consider manual processing feasible due to the typically lower volume of mortgage loans compared to consumer loans, but this strategy can lead to inefficiencies, increased error risks, and non-compliance, posing significant threats to the lenders’ operations.
Investing in dedicated mortgage servicing software is crucial to streamlining operations, enhancing accuracy, and meeting regulatory standards, thereby ensuring seamless loan handling in the secondary market.
Five Essential Features for Effective Mortgage Servicing Software
Mortgage servicers face the daunting task of balancing the needs of borrowers, investors, and regulators. The right tools can streamline operations and enhance profitability. Modern mortgage servicing software is crucial in achieving these goals by integrating seamlessly with core systems to improve customer service and ensure compliance. Here are five features every lender should have in their servicing software.
Automated Investor Reporting
Mortgage companies must adhere to specific investor reporting rules, particularly for GSEs like Fannie Mae and Freddie Mac. Automated investor reporting in robust mortgage servicing software simplifies this process, adapting swiftly to changing compliance requirements and reducing costs and risks.
Comprehensive Escrow Management
Effective escrow management is a critical challenge when using core systems for mortgage servicing. Modern software automates escrow administration, ensuring accurate and timely payments and reporting. Key functionalities include:
- Initial, annual, and final escrow analysis statements
- Interest on escrow processing
- Escrow tracking reports
- Automated escrow premium updates and disbursements
- Tax service interface
Borrower Web Applications
Self-service web apps allow borrowers to access loan information, view statements, and make payments online. This reduces the need for phone support and enhances customer satisfaction. Automated notifications and personalized messages further improve borrower communication and trust.
Application Programming Interfaces (API)
APIs enable seamless communication between applications, automating processes, improving accuracy, and reducing costs. By leveraging APIs, mortgage servicers can automate reporting, save time, and minimize errors, enhancing overall efficiency.
Real-Time Access (RTA)
Mortgage servicing software should provide tellers, call center staff, and borrowers with real-time access to current mortgage information. RTA enables instant viewing of loan details, payment processing, and receipt printing, making staff more efficient and improving the borrower experience.
Choosing mortgage servicing software with these five capabilities helps lenders quickly meet investor reporting requirements, keep servicing in-house, and automate operations for better efficiency and accuracy. By focusing on advanced software solutions, servicers can handle more loans per employee, offer superior service to borrowers, and achieve breakthrough success in the secondary market.
Susan Graham is president and chief operating officer of FICS (Financial Industry Computer Systems, Inc.), a mortgage software company specializing in in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software.
