BLOG VIEW: When evaluating whether to retain or outsource servicing, some mortgage lenders may assume they lack the resources to effectively manage the process in-house. They may not realize that by investing in the right mortgage servicing software, they can efficiently service their loans in-house, not only to their own benefit but also to the benefit of their borrowers.
So, what tools do mortgage lenders need for in-house servicing?
Adopting a comprehensive set of technologies is essential for servicers to work efficiently and comply with industry regulations. Servicers need robust mortgage servicing software that is integrated with other in-house software – most importantly the core system and loan origination system (LOS) – to provide seamless data flow for every facet of mortgage servicing.
Web portals that enable borrowers to make online payments and access real-time loan information and statements have become crucial. Implementing mortgage single sign-on capabilities from within an institution’s own banking system provides greater transparency between systems, enhancing convenience and instant access.
Mortgage servicers need to be well-trained in their servicing software, so they can take full advantage of today’s automation capabilities.
Maintaining servicing in-house provides several benefits including increased profits, new cross-selling opportunities and a more positive customer experience.
In-house servicing can act as a valuable profit center for servicers selling loans into the secondary market (i.e., Fannie Mae, Freddie Mac and Ginnie Mae). Well-trained staff using the right mortgage servicing software can service 1,000 or more loans per employee per month.
If one takes the current average mortgage loan balance of $202,284 (as of the first quarter) and multiplies it by the standard service fee of 25 basis points, that’s on average an additional $505,710 per employee per year generated by service fee income alone.
Ancillary income, such as late fees, increases this potential income. When costs are controlled with the right servicing software, servicing can be lucrative.
When profits from loan originations are down, as they were in the third quarter of 2018, servicing income can pick up the slack, so a mortgage institution remains profitable.
According to Marina Walsh, vice president of industry analysis for the Mortgage Bankers Association (MBA), “Mortgage servicing remains a bright spot for bankers, with relatively low delinquencies and high loan balances driving up per-loan servicing revenues.”
Including all business lines – both production and servicing – 71 percent of the firms in the Mortgage Bankers Association’s Quarterly Mortgage Bankers Report posted a pre-tax net financial profit in the third quarter.
“Without servicing, that percentage would have dropped to 52 percent,” Walsh says.
In-house servicing can also lead to more sales opportunities via more personal customer relationships. Depository institutions, such as banks or credit unions, may have multiple touch points with borrowers who have multiple accounts (e.g., car or personal loans, checking or savings accounts or credit cards).
A mortgage loan is a long-term “sticky” product, meaning that the borrower will have frequent interaction with their mortgage servicing company by way of monthly payments. This long-term relationship presents a key opportunity to cross-sell other products. Lenders can become a trusted advisor to the borrower to help protect the asset and offer home improvement loans as well as options for home maintenance to generate additional revenue and provide a positive customer experience.
On the other hand, if an institution sells the loan and transfers servicing to a different institution, the originating institution may lose that borrower for future business. When it comes time to refinance, the borrower is likely to stay with the lender currently servicing the mortgage. If the servicing is outsourced and the borrower experiences problems, the loan originator is out of the picture and the borrower may go elsewhere for future financing needs.
Improving the Customer Experience
In addition to increasing the bottom line through service fee income and cross-selling opportunities, in-house servicing also enhances the borrower experience in several ways. For one, it provides an additional service offering to customers who already have investments or other types of loans with the institution.
Furthermore, in-house servicing leads to longer-term relationships that often result in more engaged customers. Most borrowers make monthly mortgage payments for many years, so there’s a natural engagement point each month. When borrowers interact with servicing staff, or even just log on to the Web portal to make their monthly payments, they’re reminded of the value the institution is providing through its services.
According to the MBA, only about 17% of borrowers plan to return to their same servicer for another loan. Servicers need to improve customer service to promote borrower loyalty.
During a panel session at the MBA’s mortgage servicing conference earlier this year, Roberto Hernandez, partner at financial services company PwC, said “more than 50 percent of the servicers in this country continue to think about the customer as the investor, not as the borrower.”
“We really need to start thinking more outside the box and thinking about how as servicers we can do more,” Hernandez said.
Servicers can utilize Web applications and other touch points – websites and live customer outreach – to assist and educate customers and even cross-sell products, which will hopefully help increase retention.
When servicing is done in-house, the mortgage lender, bank or credit union staff can provide the exceptional customer service that borrowers expect – whether face-to-face, by phone or digitally.
When servicing is outsourced, the lender has no control over the quality of the customer service provided by the third party and, in most cases, has eliminated the option of a face-to-face interaction because there are no brick and mortar locations nearby.
Other servicing companies may treat the borrower as just one of many “accounts” instead of providing personalized service.
Ultimately, the financial institution must decide whether to retain or outsource mortgage servicing. By utilizing the proper mortgage servicing software, in-house servicing can increase revenue while allowing servicing staff to provide better customer service that promotes borrower retention.
Susan Graham is president and chief operating officer of Financial Industry Computer Systems, Inc. (FICS), a mortgage-software company specializing in mortgage origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, banks and credit unions.